China was the first to enter a lockdown due to Covid-19 and the last to come out of it, which inevitably hit consumer confidence. The higher focus on China consumption comes at a time when Beijing is relying heavily on the consumer to drive growth in the economy. But what makes China’s consumer growth story interesting? Here is what investment experts have to say.
Beijing’s focus on China consumption growth
After reopening from the zero-Covid restrictions, Beijing has set a GDP growth target of 5% in 2023.
Franklin Templeton says that the expectation of China meeting or exceeding the 5% mark is justified. The asset management firm believes the key driver will be consumption due to the excess household savings and government support for businesses.
“China’s domestic consumption will be the biggest upside opportunity for overall growth performance in the next six to 12 months,” as per Christy Tan, Invest Strategist at Franklin Templeton.
Goldman Sachs Asset Management has a similar take and says that the reopening from Covid-19 restrictions happened along with strong policy support which is helping consumption recovery and consumer confidence.
“We believe China’s reopening has the potential to trigger a consumption revival in 2023 led by a release of pent-up demand, improvement in the labour market and incomes, and a broader recovery in consumer confidence,” writes GSAM.
Another reason for the focus on China consumer growth is the rising wealth and disposable income of the Chinese.
“This rising affluence is driving growth in areas like travel, food and beverages, and consumer electronics. And nowhere more so than in the often-overlooked lower-tier cities – fast-growing markets with a rapidly expanding consumer class,” says Alex Smith, Equity Investment Specialist at Abrdn.
Coming back to the contribution to China’s economic growth, T. Rowe Price says, “Consumption will have to be the main driver of China’s growth to get to 5% plus in 2023…Consumption is around 55% of GDP on average in recent years. By our calculations, it will need to grow by 9% or more in total (including public consumption) for growth overall to get to 5% plus. Overall, domestic demand will likely need to increase from 2% growth in 2022 to 6% plus in 2023.”
China consumption rebound?
China’s first-quarter GDP growth was 4.5% largely due to the recovery in consumer spending.
Andy Rothman, Investment Strategist at Matthews Asia, says that the recent data shows China’s economy is on a consumer-led recovery aided by policy support.
“Consumer spending and confidence is also supported by the 56% rise in family bank balances from the start of 2020, as Chinese households were in savings mode during zero-COVID. The net increase in household bank accounts is equal to US$6.7 trillion, which is greater than the GDP of Japan in 2022, and equal to 113% of China’s 2019 retail sales. This is significant fuel for a continuing consumer spending rebound, as well as a recovery in mainland equities, where domestic investors hold about 95% of the market,” writes Andy Rothman.
The investment expert adds that China’s economic recovery is likely to be sustainable considering the strength shown by the consumer sector.
Read more
City of London Investment Management
The case for Closed-End Funds in Emerging Markets
Closed-end funds have long been a niche investment vehicle, but what makes them particularly compelling in today’s emerging markets environment?
J.P. Morgan
The “golden era for gold”
Gold rallies on peaking yields, firm demand, and a weaker dollar outlook.
Apollo Multi Asset Management
Why absolute return matters more than ever
A disciplined absolute return strategy can deliver stability and low correlation in volatile markets.
HSBC Asset Management
Europe & EMs poised to eclipse U.S. equity dominance
Small caps in Europe and EM outperform, reversing years of large-cap dominance.
