China’s Consumer-Led Growth Looks More Like a Bounce, Not a Recovery

This past week, China posted first-quarter gross-domestic-product growth of 4.5%, up from the prior quarter’s 2.9%, as retail sales surged at the fastest pace in two years and home sales in major cities rose. Analysts expect the recovery to continue through the second quarter, supporting Chinese stocks. The

iShares MSCI China

exchange-traded fund is up 5% year to date.

But some doubt a longer-term consumer-fueled recovery. While the wealthy can spend on luxuries, most consumers aren’t buying big-ticket items like travel or cars, says Shehzad Qazi, managing director at China Beige Book. Qazi says consumer spending has never sustainably driven growth in China, and it’s unlikely to this year. Weaker inflation highlights companies’ lack of pricing power, and youth unemployment at 19.5% is near pandemic levels.