China’s Shrinking Spending Power Will Inevitably Drag Down Global Economy: Experts

Global smartphone shipments set to hit lowest level in a decade

A man uses his smartphone during the Global Mobile Internet Conference (GMIC) at the National Convention Center in Beijing on April 28, 2016. Nicolas Asfouri/AFP/Getty Images

A financial analyst and an investment expert told The Epoch Times that the deterioration of China’s economy—one of the world’s largest consumer markets—will inevitably drag down the global economy.

Moreover, global smartphone shipments are headed for their worst year in over a decade, as continued economic uncertainty in China has weakened consumer spending.

Worst Year in a Decade for Smartphones

Counterpoint Research, a global market research and consulting firm, said in a report on Aug. 17 that global mobile phone shipments are expected to drop 6 percent year-on-year to 1.15 billion units in 2023, the lowest level in a decade, mainly due to the deteriorating economy in China and sluggish demand in the United States.

“Asia is one of the major hurdles to positive growth, as headwinds halt the economic turnaround anticipated for China at the start of the year, and the broader region experiences intensifying declines across emerging markets,” the report said.

Karn Chauhan, senior analyst at Counterpoint Research, told CNBC that the decline in global smartphone sales can be attributed primarily to China’s reduced smartphone purchases, which have dropped from a peak of 450 million devices per year on average to 270 million per year.

China’s Shrinking Spending Power

In an interview with The Epoch Times on Aug. 19, Lu Yuanxing, a U.S.-based political and economic analyst who once worked as a marketing executive at a Chinese company, said the drastic decline in China’s mobile phone shipments is mainly due to its shrinking market.

There are two factors behind it: one is consumer purchasing power, and the other is market capacity, or in other words, population decline, he said.

Mr. Lu explained that since the COVID-19 pandemic, China’s economy has suffered a sharp downturn and contraction. Except for a handful of the most influential and wealthy families with ties to the Chinese Communist Party, most Chinese have felt the chill of the economic downturn, and their purchasing power is declining, he said.

According to China’s National Bureau of Statistics (NBS), the consumer price index fell by 0.3 percent in July after remaining flat the previous month, indicating that China’s economy has slipped into deflation.

Moreover, the unemployment rate for young people ages 16 to 24 hit a record high of 21.3 percent in June. The authorities announced that NBS would stop releasing data on youth unemployment starting in July.

“In the past, when the economy was good, people were willing to upgrade their phones frequently and pursue new functions and changes in style. However, when the economy becomes bad, people begin to be cautious about spending,” he said. “As the overall economic situation in China is sluggish, the decline in purchasing power is becoming increasingly obvious, leading to further shrinkage of the market size.”

Mr. Lu further said that another aspect is the population issue.

“The pandemic has caused hundreds of millions of deaths in China, which had a severe impact on the market size,” he said. “Therefore, driven by a combination of purchasing power and market capacity, China’s mobile phone shipments have fallen sharply.”

Due to Chinese authorities’ record of underreporting COVID-19 infections and covering up information, it is difficult to assess the true scale of the pandemic.

According to census data, three counties in China’s southeast Sichuan Province—Tongjiang, Nanjiang, and Pingchang—saw their population drop by 22-23 percent during the first year of the pandemic.

According to Mr. Lu, China is one of the largest consumer markets in the world in terms of population and gross domestic product (GDP); thus, any contraction in this market will inevitably have a global impact.

China’s ‘Economic Outlook Is Grim’

Mike Sun, a senior investment adviser and China investment strategist in the United States, also agrees that the deterioration of China’s economy will further drag down the global economy.

“China’s stock market is not doing well, and the economic outlook is grim. This will inevitably lead to a decline in demand, which includes both external and domestic demand,” Mr. Sun told The Epoch Times on Aug. 18.

He cited Europe, China’s second-largest trading partner, as an example.

“China has been importing European products, including luxury goods, for a long time. A few years ago, Chinese people who traveled to Europe spent a lot of money on watches, jewelry, clothing, etc. Such a buying spree continued for a decade; the annual spending should be hundreds of billions of U.S. dollars. Now that the economy is bad, this demand is definitely shrinking—and shrinking very badly,” Mr. Sun said.

But that’s just one industry, he added. He warned that almost all industries—from the aircraft to the electrical and mechanical products sector—will be affected by the deterioration of China’s economy.

“From this point of view, in the overall global environment, countries are highly connected and correlated with each other. That’s especially true in the capital markets.”

Mr. Sun stressed that many countries depend on the Chinese market, as China is the second-largest economy in the world.

“If there’s a downturn in a market of that size, leading to weakened demand, it will be hard for other countries to find alternative markets in a short period of time. Therefore, all those countries with a certain dependence on the Chinese market will definitely be affected,” he said.