Why is consumer spending falling in China?

**Sarah Rogers** (0:01)
China's economy shows signs of weakness as shoppers cut back its World Business Express. From the BBC World Service, I'm Sarah Rogers.
And Japan raises interest rates to their highest level in over 30 years, and is SpaceX about to become bigger than Amazon.
We start today in China because big parts of its economy have slipped back to COVID era levels. Shoppers in the world's second largest economy seem to be tightening their belts. Retail sales fell by 0.6% in May, data from the National Bureau of Statistics showed. Now that's the first monthly drop since December 2022 Car and home appliance sales were down whilst China's troubled property sector continued to contract and investments across the economy also fell. Some analysts warn that China is becoming too reliant on its strong export numbers. Han Lin is the China country director for the consultancy company, the Asia Group and gave us his view from Shanghai.

**Han Lin** (1:06)
When I walk around in Shanghai, for example, I spend a lot of time watching how people are spending money. And what I do see is maybe they may not be buying as many goods, but I do see them spending a lot more on food, going to restaurants, looking for experiences. One thing that China has always tried to emphasize is that its economy is in a transition, not in a crisis. It's really trying to frame any slowdown in any of its indicators as really a deliberate choice to focus on quality of growth, not quantity.
So that said, the fact that the retail sales have fallen, and really for the first time in more than three years, that is significant because consumer spending is still one of the clearest indicators of confidence in the economy. One of the key challenges is related to the property sector and that's really still been struggling for a while. So this ongoing property downturn is still weighing heavily on the broader economy.

**Sarah Rogers** (2:03)
Well, let's talk about the property sectors. Are these latest figures a sign that things are getting worse?

**Han Lin** (2:09)
For many Chinese families, their home is their biggest store of wealth. So, when the home prices are rising, people feel more comfortable spending. When prices fall, they often pull back. And that's really why the housing market has such an outside impact.

**Sarah Rogers** (2:24)
And also fewer developments as well. It's not just about people buying homes, is it? It's the wider Chinese economy and those developments too.

**Han Lin** (2:34)
One of the challenges is that even businesses are becoming more cautious. But there's also one interesting challenge, which is pricing right now. If China continues to face or flirt with deflation and prices don't go up, then that means a lot more businesses may have to go abroad. And in fact, that is the major trend we're starting to see right now. If there isn't that much consumption within China, maybe China can export more abroad and go to other markets. And so that seems to be the ongoing trend we're going to see in the next several years.

**Sarah Rogers** (3:05)
What do you expect Beijing to do? Do you think they'll introduce more measures to try and boost that growth?

**Han Lin** (3:12)
My guess is, you'll see some modest stimulus here and there.
What the government has recognized is that the consumption growth isn't yet stable, not yet strong enough to be on its own for future growth. So I do expect some subtle modest measures to come in the future.

**Sarah Rogers** (3:28)
That was Hanlin from the Asia Group. Now from China to some of the rest of the world's wealthiest nations now who are in France for the G7 Summit where they're discussing some of the world's biggest global issues.
So what you're hearing there is those leaders, including Canada, Germany and the UK greeting one another before the start of many sessions over the next couple of days. Now US President Donald Trump is there and he has been speaking about that peace deal to stop the war in Iran. Let's take a listen.

**Donald Trump** (3:59)
We have our deal done with Iran and should be successful. It goes to a second stage, which I think will be actually easier. I didn't want to attack them last week, but we had no choice and we did it twice, actually. We were doing it a third time and we were able to not have to do that.
But we have a deal that's a fair deal, that's a good deal.

**Sarah Rogers** (4:22)
Well that from Donald Trump, but more details of when and how that vital shipping route the Strait of Hormuz is expected to open is due in the coming days. Meanwhile, Iran State TV is reporting that ships are already moving.