 |
| Consumers shop at a market in Guangxi, China. (Source: Xinhua) |
Last year, the world looked to China’s reopening as a catalyst to pull the global economy out of the Covid-19 recession. But contrary to expectations, analysts warn that the world’s second-largest economy may miss its 5% growth target in 2023.
For an economy heavily reliant on manufacturing, experts say the services and consumption sectors could drive China's growth into 2024.
Consumption of "scoring" services
Specifically, multinational investment bank Goldman Sachs said that a slowdown is inevitable due to uneven economic recovery, but service consumption is likely to "score".
The bank predicts that the world’s second-largest economy’s gross domestic product (GDP) could expand 4.8% in 2024, driven largely by a recovery in services activity, which is seen growing at a faster pace than manufacturing.
According to Goldman Sachs, the recovery in consumer activity will be led by leisure-related activities.
Meanwhile, producer prices in the country of one billion people have fallen due to weak consumer demand, which has contributed to negative consumer prices.
China's consumer prices fell 0.5% in November from a year earlier, the fastest decline in three years, recent data showed, as the economy struggles with rising local government debt and a struggling property sector.
Not only that, China’s population is aging much faster than other developing countries. The country now has the world’s largest elderly population, with more than 280 million people over the age of 60. China’s birth rate has fallen sharply, reducing its total population to 1.412 billion last year.
All of that contributed to Moody's downgrading China's rating outlook from stable to negative.
Moody's said in December 2023 that the change reflects growing evidence that the Chinese government will provide financial support to cash-strapped local governments and state-owned enterprises, posing significant risks to its financial, economic and institutional strength.
Consumption situation will "change direction"
Consumer confidence in China has been depressed since the Covid-19 pandemic broke out in early 2020. Although pandemic control measures were lifted in late 2022, weak global demand for goods and a shaky real estate market have weighed on consumer spending.
However, this year, the situation may change as experts believe that more and more people are choosing to spend on quality goods instead of quantity.
“The consumer landscape in China is undergoing a remarkable transformation. Consumers are increasingly prioritizing high-quality goods over mass-produced products,” said Jian Shi Cortesi, chief investment officer for China and Asia at GAM Investments.
This shift in spending is a testament to the changing trends of Chinese consumers and their rising income levels, which could bode well for businesses offering premium products and services, she added.
"The 'Made in China' initiative - a government plan launched in 2015 to move the country toward more advanced, higher-value products and services - has boosted the economy. The initiative is progressing in line with the long-term plan. The momentum for sustained GDP growth, coupled with accompanying income growth, will boost domestic consumption next year," said GAM Investments' chief investment officer for Greater China and Asia.
In addition, the world's second-largest economy has also moved to increase technological and manufacturing development, which Ms. Cortesi said, "creates higher-paying jobs and to promote stronger consumption."
 |
| The consumer landscape in the country of a billion people is undergoing a remarkable transformation. (Source: Reuters) |
Need more financial support
The big question haunting China's market recovery is: Will the government do more to support the economy?
China's leaders have pledged to boost domestic demand, prioritise the development of strategic sectors and tackle the country's property crisis, following a key meeting of the country's leaders in December 2023.
In parallel, in a televised speech on the occasion of the 2024 New Year on December 31, 2023, President Xi Jinping said that China will strengthen reforms to strengthen confidence in the economy.
President Xi Jinping affirmed: "China will consolidate and strengthen the positive trend of economic recovery in 2024, and maintain long-term economic development with deeper reforms."
“We expect more policy room for fiscal support next year,” said Serena Chu, senior China economist at Mizuho Securities. “We may see more moderate support measures, such as encouraging private developers to refinance from the domestic bond market, allowing local governments to buy unfinished projects from private developers…”
Market sentiment has also shown signs of improvement as Beijing rolls out measures to stem the property crisis - which many say could be key to improving domestic demand.
“Government support for the economy, including the real estate sector, is supporting sentiment and driving GDP growth,” analysts at Jefferies wrote in a note to clients in December.
It can be affirmed that "clouds" will still follow China this year, but when the "wind changes direction" in consumption, combined with government support, the world's second largest economy will gradually recover and reach the 5% growth target this year - as estimated by economists.
Source
Comment (0)