A woman waits on her bicycle to cross an intersection outside a new shopping mall in Beijing, China, on September 13, 2023.
Kevin Frayer | Getty Images News | Getty Images
Post-pandemic recovery in 2023 is uneven and after a disappointing year, Chinese consumer sentiment may finally start to improve this year.
Last year, the world hoped that China’s massive reopening would help lift the global economy out of the pandemic-induced slump, but the world’s second-largest economy struggled to meet its own target of 5% growth in 2023. However, those expectations were proven to be wrong.
With an economy heavily dependent on manufacturing capabilities, market players are now focusing on the services and consumption sectors that will drive China’s growth in 2024.
While some slowdown is inevitable given China’s uneven economic recovery, Goldman Sachs expects consumption of services to be more resilient than consumption of goods.
Goldman predicted that China’s gross domestic product could grow 4.8% in 2024. This will be primarily driven by a recovery in services activity, which we expect to grow at 9.2%, much faster than manufacturing, which is expected to grow by 6%.
Goldman Sachs said the recovery in consumer activity will be led by leisure-related activities such as hotel chain operators, online travel agencies and Macau casinos.
Stocks expected to benefit the most over the next 12 months include casino operators such as: H world and galaxylike an online travel agency Trip.com and Dojo Cityand airline-like spring airlinesThe US investment bank said. Online gaming companies such as FTG NetEasea major food delivery company Meituan and the tech giant tencentis also expected to receive a boost.
Producer prices in China are softening due to sluggish consumer demand, which is a negative factor in consumer prices.
China’s consumer prices fell at the fastest pace in three years in November, falling 0.5% from the same month last year and October, according to recent data.
The country is plagued by soaring local government debt, a struggling real estate sector and declining domestic and international demand.
All of this contributed to the downgrade by Moody’s.
In December, the same credit rating agency downgraded the Chinese government’s credit rating outlook from “stable” to “negative,” indicating that the possibility of Chinese government support and bailouts for local governments and state-owned enterprises in distress is likely to affect China’s finances and economy. It was expected that the power of the system would be weakened.
consumer confidence
But experts believe there could be a shift in China’s spending patterns, with more consumers choosing to spend on high-quality goods rather than bulk items.
“Chinese consumers are increasingly prioritizing high-quality goods over mass-produced, cheaper alternatives,” said Jiang Xi Cortesi, investment director at China and Asia Equities GAM Investments. “The environment surrounding consumers is undergoing remarkable changes.”
He said this shift in spending symbolizes the maturation of Chinese consumers and also highlights rising levels of disposable income. “This trend could offer promising prospects for companies offering premium products and services, capitalizing on the growing demand for quality.”
Cortesi said the “Made in China” initiative – a government-led program launched in 2015 aimed at moving the country toward more cutting-edge, high-value products and services – has boosted China’s economy. He pointed out that this enabled Japan to establish itself as a competitive country. Global player.
“Although Chinese authorities no longer tout the ‘Made in China’ initiative as much as they once did, the initiative is progressing in line with long-term plans,” she said, adding that further progress on the initiative would be a “big deal.” It will have meaning,” he said. This will drive sustainable GDP growth and the associated income growth will drive domestic consumption next year. ”
China is also stepping up technology development and manufacturing, which Cortesi said “should create good-paying jobs and ultimately boost consumption in China.”
More financial support needed
The big question plaguing China’s market recovery is: Will the government do more to support the economy?
“We expect there will be more policy space for fiscal support next year,” said Serena Zhou, senior China economist at Mizuho Securities.
Zhou said the main uncertainty regarding China’s 2024 outlook stems from government policies to support the real estate sector.
So far, Chinese leaders have sought to resolve the country’s spiraling real estate crisis, as authorities seek to diversify risks associated with the ailing real estate sector, local debt and small and medium-sized financial institutions. It has suggested strategies for building affordable housing.
“Perhaps encouraging private developers to refinance from the land bond market, allowing local governments to buy unfinished projects from private developers and converting them into public housing projects, and encouraging private developers to refinance projects in urban villages.” “We will see more moderate support measures, such as involving them in renovation projects, through public-private partnerships,” Zhou said.
Market sentiment is showing signs of improvement as China rolls out measures to stem the real estate crisis, which many believe could be the key to improving domestic demand.
“Government support for the economy, including for the real estate sector, is supporting sentiment and prompting upward revisions to gross domestic product (GDP) estimates,” Jefferies analysts wrote in a December note to clients.