What happened
: The World Bank has cut its 2024 forecast for developing economies in East Asia and the Pacific. It now anticipates 4.5% GDP growth for the Asia-Pacific region, 30 basis points below the bank’s previous forecast, it said in its latest report.
The Washington-based organization also revised down its 2024 forecast for China’s GDP growth to 4.4% from 4.8%, according to its latest report, which cited “persistent domestic difficulties” such as “the fading of the bounce back from the re-opening of the economy,” weakness in the property sector, elevated debt and structural demographic factors such as an aging population.
However, the bank’s 2023 5.1% GDP growth forecast for China was unchanged, in turn propelling growth in emerging markets and developing economies like Thailand, Vietnam, Indonesia, Argentina and Mexico, where expansion is “expected to pick up” in 2H 2023 “almost entirely due to China’s economic reopening,” according to a June report by the bank.
The Jing Take
: In recent months, lackluster economic data from China has raised concerns of disinflation taking hold. This downturn is enough for analysts at Bloomberg Economics to forecast that China’s GDP will not overtake that of the US’ until the mid-2040s, later than previously anticipated — and subsequently fall back behind, according to reports.
Despite hopes that the end of China’s Covid-19 restrictions would boost demand, China's GDP only grew by 0.8% in Q2 2023. Additionally, factory-gate prices declined 5.4% in June, the steepest drop since 2015, attributed in part to falling raw material prices. This suggests weak demand for goods and services and indicates lower-than-expected growth in the short term.
Meanwhile, youth unemployment is at an all-time high. Unemployment among those aged 16 to 24 years old stood at 21.3% in June this year, though China has stopped publishing data on this trend.
In August this year, China's second-largest property developer, Evergrande Group, filed for bankruptcy in the US, triggering a string of local property developers to default on their offshore debt obligations and denting consumer confidence.
Evergrande had accumulated net debt of 300 billion, ultimately sending shockwaves through China's economy. The company’s unraveling, beginning in 2020, was influenced by tightened borrowing rules and the "three red lines" policy set by regulators to curb financial risk-taking in the real estate sector.
The Evergrande Group domino effect and the nation’s economic slowdown have yet to filter through to the wider economy, however. China’s e-commerce giants JD.com and Alibaba (Taobao and Tmall Group) reported revenue expansion of 7.6% and 14% for 2Q 2023.
Jacob Cooke, co-founder and CEO of WPIC Marketing and Technologies says the aforementioned conflicting market signals are an indication that Chinese consumers are resilient. "There is still enormous appetite among consumers to spend, especially on products and services that improve their lifestyles and facilitate self-expression," says Cooke, who is based in Beijing.
"Young people are seeking new experiences and exploring new hobbies. Sales of athletic wear, sports equipment, supplements, and pet care are all booming, reflecting new lifestyle trends. Restaurants, entertainment, and the travel sector have all roared back in 2023," he adds.
The macro challenges have dulled some of the momentum of the post-Covid recovery, explains Cooke, but they’re not stifling consumption across the board. "For example, issues with the property sector throughout 2023 have made consumers more conservative when it comes to purchases of large durable goods, such as appliances, furniture, and automobiles" he says. "However, even for big-ticket items, it’s not all gloomy—there was a bump in automobile sales in August, Apple’s iPhone 15 launch was met with enthusiasm, and luxury brands are generally recording positive growth this year."
Meanwhile, luxury brands are bracing as China’s middle class tightens its purse strings. But for the country’s population of HNWI and UHNWI consumers, the impact may be muted. Only time will reveal how shifting mass consumer preferences for discounted items and reduced spending will impact fashion retail and luxury.
"Overall, I think the average consumer is still spending, they’re just more price conscious or cutting back on certain categories, especially large durables," says WPIC Marketing and Technologies Cooke. "High net worth individuals seem less affected and are still spending."
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.