The myth of the collapsing China market

In the past years there was a lot of negativity about China in the mainstream media and the public opinion. As usual, a lot of the sentiments about China are put out of context or based on a lack of knowledge about the country. One of those myths is that Chinese consumption is facing a crisis. Yes, it’s true, consumer sentiment remains rather low, and the anticipated post-pandemic recovery has not fully materialized yet, but the overall picture is far from bleak. Let’s take a closer look.

First, it cannot be ignored that China continues to post GDP growth figures of around 5%. This is lower than the growth figures of the past, but given the sheer scale of the Chinese economy, this macro growth rate represents a significant number in absolute terms. Don’t forget, in 2023 China still contributed one-third of global GDP growth and continues to show resilience in 2024. Some product categories, such as services and tourism, but also cosmetics, healthcare, home appliances and some other product categories are experiencing double-digit growth, indicating that the economy is not in uniform decline but shows varied performance across different sectors and regions.

It’s also helpful to place China in a global context. According to McKinsey’s ConsumerWise survey of consumers, Chinese consumers are among the most confident in the world. In the latest August 2024 round of survey results, 59% of Chinese consumers said the economy would rebound within the next 2-3 months, compared with just 41% of American consumers, 30% of UK consumers, and 13% of Japanese consumers.

Another report by McKinsey observed positive momentum in China’s vast consumer market, raising hope among industry executives for a pickup in consumption:

• The Chinese government announced major stimulus measures, which are expected to further enhance GDP growth, although it is still too early to say whether the magnitude of these measures will be sufficient.
• The highly anticipated annual Double 11 Shopping Festival, which ended on November 11, well exceeded industry expectations.
• The stock market showed recovery from September to November 2024, with the CSI 300 Index rising by around 20%.
• Property transactions in October and the first half of November 2024 rose a modest 2%, the first time this key indicator has shown positive growth in 2024.
• Retail sales grew by 5% in October 2024, compared to just 3% in prior months of the year.

China is transitioning from an investment-driven model to a model focused on domestic consumption and innovation. But this takes time. It can be expected that it could take another 12-18 months to see a real turnaround.

Understanding these nuances is crucial for anyone looking to navigate or invest in the Chinese market. As the global economic landscape continues to evolve, maintaining a balanced perspective will be key to recognizing the opportunities that still exist within China’s vast and dynamic economy.

Please contact us in case you want to discuss the above or you need assistance with your activities or plans in China.