Let’s have a deeper look at the economic developments in 2022 and 2023, which are informing the consumption pattern of Chinese consumers – especially the upper end of the social strata rich enough to travel abroad.
In the almost 45 years since Deng Xiaoping introduced the “Reform and Opening” policy in December 1978, China’s economic growth may have seen some cyclical slowdowns. However, they were always followed by a return to renewed, rapid expansion. For 2022, China officially reached a GDP growth of 3%, which is probably too high a figure. In reality the economy is likely to have grown by less than 2%, and possibly not grown at all.
The GDP also includes all the fruitless investment in the Zero case policy fight against Omicron, the cost of which has been calculated as a trillion USD. In any case, the growth level was way below the 5.5% announced for 2022.
After the abrupt end of China’s fight against COVID in December, some experts started to predict a robust recovery for the economy, with a GDP growth above 4.5% – driven by pent-up household demand and unprecedented levels of savings during the pandemic. Household savings at banks actually surged to a record high of 17.84 trillion yuan – 2.6 trillion USD – up 80% from 2021, according to the People’s Bank of China. That figure is more than one third of households’ total income. Before the pandemic, people saved about a fifth of their income.
Interestingly 2.6 trillion USD is almost the annual GDP of the UK or India.
With the pandemic controls lifted, Chinese shoppers appear to be enjoying their freedom to spend. For example, hotel bookings, movie tickets and restaurant sales have all boomed during the most recent holiday season.
Yet other sources forecast GDP growth to be as low as 0.5%, which could only be higher if the Chinese government would start long-deferred structural reforms.
The official annual growth of 3% is, first of all, fuelled by household and government consumption (+1.2%), followed by net exports (+1%) and only by +0.8% by business investment.
The main reasons for 2022’s lacklustre performance were, of course, the lockdowns and, from November, the rampant spread of COVID-19.In the last months of 2022, new property started to fall by almost 50%, also bringing down the important – and heavily polluting – cement production and other related materials for construction. This will mean that, even though for the whole year 20% less floor space was completed, the oversupply and the ongoing fall of real estate prices in almost all Chinese cities will continue in 2023.
Again, in GDP accounting, total consumption demand is made up of two sub-components: household and government spending. Households were heavily constrained in 2022 due to lockdowns and the travel restrictions, which not only made international tourism impossible, but also hampered domestic trips across provincial borders.
However, the expected surge in Chinese consumer demand in 2023 will have limits. As stated above, during the pandemic Chinese private households had been saving at record levels to prepare for an uncertain future and also because the most important investment vehicle – real estate – lost its attraction. With falling prices, it has become harder to free wealth which is tied up in property.
Younger people are especially subject to high unemployment rates, as are migrant workers – no longer needed at the same level as before in construction and export-oriented factories.
The complete informal business sector has been more or less wiped out during the pandemic. The government has tried, in conjunction with WeChat, to provide consumers with consumption coupons, but with limited success. Tax breaks on cars in the cities and on TV’s, fridges etc. in the countryside are already in place. The huge levels of debt, which financed growth during the ten years under Chairman Xi, are making their weight felt, reducing the ability of governments at all levels to grant further incentives and tax breaks.
As previously discussed in COTRI weekly, the start of the fall in the number of consumers, after reaching China’s demographic peak in 2021, is also reducing the number of high-spending customers. At the same time in China, the economic costs of the climate catastrophe are mounting.
Looking at all these factors, the support of tourism becomes more important than ever to help increase household spending. For the Laobaixing, the common people, that will mean domestic trips. But for the top 10% of society, it will again be outbound tourism. On all levels, conspicuous consumption will decrease and value for money will play a bigger role than before. But, as you learn from COTRI’s publications, trainings and workshops, with the right product adaptation Chinese outbound travellers will be more willing than before to spend time and money on personal experiences rather than on overpriced bags and shawls.
As Gary Bowerman and I wrote in the Chinese Outbound Tourism Handbook 2023: “The next 25 years might be the last era of tourism before the climate catastrophe ends most international travel, but it will be dominated to an increasing degree by Chinese customers”.
Note: A more detailed discussion of this can be found in the 88 topics analysed in COTRI’s excellent new publication: The Chinese Outbound Tourism Handbook 2023.
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