The China spending trouble

There's so many different bombs( metaphorical, yet) going off in China it's hard to keep track of what's happening and where. Today I want to deal with the twin troubles in consumer spending.

The fundamental problem with consumer spending in China is this-people are literally not spending. There's 2 primary causes of this-first the crash of the real estate economy has made people realize the goose with the golden eggs is dead and they need to clear their debt ASAP. The second reason is that they don't generally feel good about the economy and would rather save for the rainy day( as they saw with CovID crazy times) than consume now.

The two problems with consumer spending are the lack of consumer confidence, and the lack of liquidity to deploy for consumption. I have alluded to the former earlier and will deal with it later, for now I want to address the latter.

A lack of liquidity might sound like an oxymoron considering the interest rates are hovering around 2.5%. The central government has set that rate, however retail and commercial banks don't have the capital to lend at those rates. Why? Because the government has forced the banks to load up on unprofitable low-interest local- government loans that they would otherwise never take. So the liquidity that would be taken to generate consumer spending is now being wasted bailing out local governments 'unprofitable infrastructure spending. Such low interest rates are not sustainable, yet they must be maintained to save government financing.

Back to lack of consumer confidence, the Chinese consumer has lost faith in her economy, in the government's ability& interest to watch out for her fiscal wellbeing. She is afraid of the future and would rather save. Lack government social security scares her. It's possible she doesn't trust made-in-China even. This could lead into a vicious deflationary cycle.