2023: the year of consumer spending in China
The re-opening of the Chinese economy boosts consumer
Chinese consumers had a difficult year in 2022 for different reasons than in other geographies. Neither inflation nor interest rates were to blame. The main threat to economic growth was the zero-COVID policy that kept many areas of the country idle for almost three years.
Moreover, after acting as the growth engine in recent years, real estatehas shed that role following regulatory changes that sought to strengthen the balance sheets of companies in the sector.
The tone is different as 2023 begins, and this is expected to enable China to regain growth levels above 5%2
Strict lockdowns (zero-COVID policy) were lifted in December 2022, and domestic demand is expected to rebound strongly. As for real estate, the government has relaxed the requirements regarding companies' indebtedness somewhat and is trying to boost demand for housing. Regulatory pressures on internet platforms have also eased in recent months.
Urban households in the upper-middle and high income brackets by 2025
Source: 2023 McKinsey China Consumer Report
Of GDP by 2023, compared with 3% in 2022
USD 2.5 billion
Savings accumulated in the las 12 months. Additional funds available for consumption
Commercial fligts in mainland China
Commercial flights also evidence the recovery in activity. The chart shows a recent upturn in mainland China, which has registered a 2.5-fold increase. Domestic tourism will recover faster due to persisting travel restrictions in third countries, according to Julius Baer3. That same report estimates that domestic travel should recover to 70-80% of pre-pandemic levels in the first half of this year.
Re-opening boosts confidence and mobility
Business confidence indicators, a barometer of economic activity, have been quick to react: in January 2023, the Purchasing Managers' Index (PMI) for services rose by more than 12 points (to 54). This indicator reflects the expectations of sectors such as hospitality, tourism and out-of-home leisure activities, among others, and is a clear sign that the policy change is having an immediate effect on economic sentiment.
The re-opening of the Chinese economy boosts consumer spending
China's burgeoning middle class will drive growth
Of the total 1.4 billionpopulation (2019 WorldBank figure), the Brookings Institution estimates that 400–500 million enjoy a middle-class lifestyle with private property, personal automobiles, better healthcare, accumulation of financial assets, and the ability to afford foreign travel and education abroad for their children. Savings accumulated in the last 12 months (through November 2022) amount to 17 trillion renminbi, equivalent to USD 2.5 trillion.
Citigroup estimates suggest that consumer spending will account for 74% of growth by the Chinese economy in 2023. Local brands have been able to detect the population's needs and have positioned themselves in the market based on quality and innovation, rather than low prices.
Source: Citigroup. National Bureau of Statistics.
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