Is China’s consumption story over? Here’s what experts are saying

After
a
year
of
uneven
and
disappointing
post-pandemic
recovery
in
2023,
China’s
consumer
sentiment
may
finally
start
to
improve
this
year.

Last
year,
the
world
looked
to
China’s
grand
reopening
as
the
catalyst
that
could
pull
the
global
economy
out
of
its
pandemic
slump,
but
those
hopes
were
proven
wrong
as
the
world’s
second
largest
economy
struggled
to
meet
its
own
target
of
5%
growth
for
2023.

For
an
economy
that’s
so
heavily
reliant
on
its
manufacturing
capabilities,
market
players
are
now
looking
toward
the
services
and
consumption
sectors
to
propel
China’s
growth
in
2024.

While
a
slowdown
is
somewhat
inevitable
given
China’s
uneven
economic
recovery,
Goldman
Sachs
expects
services
consumption
to
show
more
resilience
than
goods.

Goldman
predicted
that
China’s
gross
domestic
product
could
grow
4.8%
in
2024,
led
mostly
by
a
rebound
in
service
activity,
which
it
sees
growing
at
a
much
faster
pace
of
9.2%
than
manufacturing
goods,
which
is
expected
to
grow
6%.

The
bounce
in
consumer
activity,
according
to
Goldman
Sachs,
will
be
led
by
leisure-related
activities
that
include
chain
hotel
operators,
online
travel
agents
and
Macao
casinos.

Stocks
expected
to
benefit
the
most
in
the
next
12
months
include
casino
operators
like


H
World
and


Galaxy,
online
travel
firm
like


Trip.com
and


Tongcheng,
and
airlines
like


Spring
Airlines,
the
U.S.
investment
bank
said.
Online
gaming
companies
including
FTG
and


NetEase,
food
delivery
giant


Meituan
and
tech
giant


Tencent,
are
also
expected
to
get
a
boost.

Producer
prices
in
China
have
been
softening
due
to
weakening
consumer
demand,
which
have
contributed
to
negative
consumer
price
readings.

Recent
data
showed
China’s
consumer
prices
fell
the
fastest
in
three
years
in
November,
down
0.5%
from
a
year
earlier
and
compared
with
October.

The
country
has
been
grappling
with
surging
local
government
debt,
a
beleaguered
property
sector
and
waning
domestic
and
international
demand.

All
that
contributed
to
a
ratings
downgrade
from
Moody’s.

In
December,
the
ratings
agency
slashed
its
outlook
on
China’s
government
credit
ratings
to
negative
from
stable,
expecting
Beijing’s
support
and
possible
bailouts
for
distressed
local
governments
and
state-owned
enterprises
to
diminish
China’s
fiscal,
economic
and
institutional
strength.

Consumer
confidence
in
China
has
been
muted
since
the
onset
of
the
Covid-19
pandemic
in
early
2020.
Even
though
Covid
controls
were
lifted
at
the
end
of
2022,
falling
demand
globally
for
Chinese
goods
and
a
slump
in
the
real
estate
market
have
weighed
on
consumer
spending.

But
experts
believe
there
could
be
a
shift
in
China’s
spending
patterns,
where
more
consumers
are
choosing
to
spend
on
quality
goods
rather
than
higher
quantities.

“The
consumer
landscape
in
China
is
undergoing
a
remarkable
transformation
as
Chinese
buyers
increasingly
prioritize
high-quality
goods
over
mass-produced,
cheaper
alternatives,”
Jian
Shi
Cortesi,
investment
director
of
China
and
Asia
equity
GAM
Investments.

She
said
this
shift
in
spending
is
emblematic
of
the
maturing
Chinese
consumer,
also
highlighting
their
growing
disposable
income
levels.
“This
trend
could
herald
promising
prospects
for
businesses
offering
premium
products
and
services,
as
they
tap
into
this
growing
demand
for
quality.” 

Cortesi
noted
that
the

“Made
in
China”
initiative
—
a
government-led
plan
launched
in
2015
that
aims
to
move
the
country
toward
more
cutting
edge,
higher-value
products
and
services
—
has
boosted
China’s
economy
and
allowed
it
to
establish
itself
as
a
competitive
global
player.

“Although
China’s
authorities
no
longer
trumpet
the
‘Made
in
China’
initiative
the
way
they
once
did,
the
initiative
is
progressing
in
line
with
the
long-term
plan,”
she
said,
highlighting
that
more
progress
made
in
the
initiative
“will
be
a
major
driver
of
sustainable
GDP
growth,
with
the
associated
income
growth
bolstering
domestic
consumption
in
the
next
year.”

China
has
also
moved
to
enhance
its
tech
development
and
manufacturing,
which
Cortesi
says
“creates
higher-paying
jobs
that
should
eventually
filter
through
to
boost
consumption
in
China.”

The
big
question
haunting
China’s
market
recovery
is:
Will
the
government
do
more
to
support
its
economy?

China’s

leaders
have
vowed
to
boost
domestic
demand,
prioritize
the
development
of
strategic
sectors
and
tackle
the
country’s
real
estate
crisis,
following
a
key
meeting
in
December
that
laid
out
economic
priorities
for
the
new
year.

“We
foresee
more
policy
room
for
fiscal
support
next
year,”
Serena
Zhou,
senior
China
economist
at
Mizuho
Securities
said.

Zhou
said
the
main
uncertainty
for
China’s
2024
outlook
comes
from
government
policy
to
aid
the
property
sector.

So
far,
China’s
leaders
have
signaled
a
strategy
to
build
affordable
housing
in
an
attempt
to
resolve
the
nation’s
spiraling
real
estate
crisis,
as
authorities
seek
to
diffuse
risks
linked
to the
ailing
property
sector, local
debt
and
small
and
medium
financial
institutions.

“We
will
probably
see
more
moderate
supportive
measures,
such
as
encouraging
private
developers
to
refinance
from
the
onshore
bond
market,
allowing
local
governments
to
purchase
unfinished
projects
from
private
developers
and
convert
them
into
public
housing
projects,
and
involving
private
developers
in
urban
village
renovation
projects
through
public-private
partnerships,”
Zhou
said.

Market
sentiment
has
shown
signs
of
improvement
as
China
rolls
out
measures
to
stem
the
property
crisis,
which
many
say
could
be
key
in
improving
demand
domestically.

“Government
support
for
the
economy,
including
the
property
sector,
is
helping
sentiment,
and
is
driving
upgrades
to
GDP
estimates,”
analysts
at
Jefferies
wrote
in
a
client
note
in
December.