As 2023 approached, many economic forecasters predicted that China was poised for a tsunami of revenge spending from consumers locked down for 3 years under the world’s strictest lockdown regime.
After all, China contributed more than 20% of global luxury spending in 2021. And China’s thrifty savers stored $2. 6 trillion in 2022, or about a third of their household income. Global fund managers hoped that the need to splurge would lead to an expansion of China’s GDP. , so customer shares increased accordingly.
But as U. S. consumers head to malls for Black Friday, Chinese consumers have been largely absent from the action.
Alibaba shares fell when it reported earnings a few days later and announced it would abandon plans to spin off its cloud and artificial intelligence unit and postpone the planned IPO of its Freshippo supermarket chain due to “market conditions. “
Rival JD. com posted an anemic 1. 7% profit expansion in the third quarter, boosted profitability by cutting overhead and research and development.
Getting consumers to open their wallets is China’s long-term goal of rebalancing its economy. Given the strained balance sheets of local governments and property developers, China can no longer rely on investments in infrastructure and real estate to drive sustainable growth.
In 2021, intake accounted for just 54% of China’s GDP, compared to more than 80% in the United States. Increasing customer spending would go a long way toward achieving China’s expansion goals. However, the percentage of customers in the economy has been declining since 2019. .
Given that China’s economy is expected to grow by 5% this year and domestic inflation is non-existent, why are the Chinese so reluctant to engage in retail therapy?
Getting an accurate reading of customer confidence has been tricky since China’s National Bureau of Statistics stopped publishing its index in March 2023 after a series of dismal readings.
Although many Chinese families have significant savings, they may feel less wealthy due to the steady fall in asset costs since July 2021. Real estate has been the main source of wealth for China’s average urban chic for decades, with many families owning apartments. . . However, as youth unemployment tops 20% and China’s overall population begins to shrink, it’s unclear who will end up occupying all those beloved apartments.
The news for Chinese leaders is that a change in tone can go a long way toward reversing customer confidence.
President Xi Jinping’s summit in San Francisco is a critical first step. While lacking economic substance, it portrays Xi as a confident foreign leader who seeks to reduce conflicts with the United States and restore normalcy in industry and diplomatic relations. China now has an opportunity to remove barriers with its neighbors and major trading partners in Asia, which would go a long way toward restoring business confidence.
The APEC summit was followed this week by China’s announcement of a “white list” of 50 real estate developers cleared for support by state-owned banks. While it will take several years to work through the excesses of speculative development, the government appears committed to containing the damage to homeowners who pre-purchased unbuilt apartments.
Perhaps the hardest to convince is China’s private sector, which holds the key to putting the next generation to work and reigniting dreams of a more disgustingly rich future. A century ago, an American president said, “The chief business of the rest of the Americans is business. They are deeply involved in producing, buying, selling, investing, and prospering in the world.
Apart from the United States, there is no country with greater advertising ingenuity, greater dynamism and greater resources than China. The most important step in restoring customer trust is to wholeheartedly acknowledge the role of private companies in understanding the Chinese dream.