老厉害

China’s retail sales — a nominal figure — grew just 0.2% in April, marking the weakest reading on record outside the Covid era. Investor pessimism about consumption has become deeply entrenched: the underperformance of consumer-oriented sectors relative to the broader market has now widened to the largest gap in history. “Nobody wants to touch anything tied to consumption.” That is, broadly speaking, the prevailing sentiment among onshore investors.

TRUMP EYES WARSH FOR FED CHAIR The Trump administration is preparing to nominate Kevin Warsh as the next Federal Reserve chair, according to people familiar with the matter. President Trump said he will announce his pick Friday morning, though the decision is not final. The White House and Warsh have not commented.

China’s “consumption problem” is often misunderstood, and the property sector is the missing link. It’s true, in accounting terms, that household consumption is low as a share of China’s GDP. But a common mistake is to equate “high household savings” with idle money sitting in a bank account. That’s not how China’s national accounts work. Looking at China’s Flow of Funds data, it’s clear that household savings are not just financial savings. For much of the past two decades, savings were overwhelmingly allocated to “gross capital formation,” primarily purchases of new housing and related investment. From 2012–21, household capital formation (property) accounted for about 64% of household savings on average. Those “savings” were generating domestic demand through construction activity, upstream industrial demand, employment, and local government revenues. High savings do not necessarily mean weak demand. That changed after China’s property downturn. As new home purchases collapsed, households shifted savings away from housing investment toward net financial assets (first bank deposits and, more recently, equities). That portfolio shift may be rational for households, but it does not directly create real economic activity in the way housing investment once did. This helps explain why China’s domestic demand challenge is harder than it sounds. It’s not just about getting households to consume more or save less. It’s about how to replace a massive housing-investment demand engine. Households can only buy so many new goods, absent the need to stock new homes. One consequence is that household consumption growth is tilting toward services. I estimate that services accounted for roughly 60% of nominal consumption growth in 2023–25. That supports incomes and employment, but it generates relatively less demand for manufactured goods. Thus, one key tension with the upcoming 15th Five-Year Plan is its top goal of “building a modern industrial system.” From a demand perspective, the old engine is gone, and the new one looks very different. Bottom line: when thinking about China’s “consumption problem,” think about the property sector and how to fill that giant hole in domestic demand. It’s not obvious how Beijing does that quickly.

I wrote a book about Chinese influence in the United States, and found that Chinese propaganda in America has two goals: to convince Americans China's rise will be peaceful, and that China's rise is inevitable. Both are misleading at best. Be very careful making these assumptions.

China is prioritizing service consumption this year, with a target to raise its share to 50% by 2030—a 5ppt increase. We believe China can achieve this SHARE increase - like Japan in the 90s, a shift from goods to service consumption is inevitable in a maturing and aging economy.

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