Chinese savers stashed away $2.6 trillion last year but property crash will cool ‘revenge spending’

Hong Kong

Even for a famously frugal nation, Chinese people saved a lot last year. Trapped at home due to covid restrictions, they raked in a record $2.6 trillion.

Now that life is returning to normal, hopes are high that consumers will spend with a vengeance, giving the world’s second-largest economy a much-needed boost, the effects of which will be felt around the world.

Household savings in banks increased. According to the People’s Bank of China, a record high of 17.84 trillion yuan ($2.6 trillion) in 2022, up 80 percent from 2021. This is more than one-third of the total household income. Before the pandemic, people saved about a fifth of their income.

With the pandemic under control, Chinese shoppers seem to be enjoying their spending freedom. Hotel bookings, movie tickets and restaurant sales increased during the recent holiday season.

Swetha Ramachandran and Jian Shi Cortesi, investment directors at Zurich-based global asset management firm GAM Investments, said the reawakening of Chinese consumers will be an “interesting story” for global investors in 2023.

“Chinese consumers are now going to reopen with stronger domestic balance sheets,” he said, adding that Chinese companies facing discretionary spending and global luxury brands are benefiting significantly from the trend.

More than 300 million travelers spent a total of $56 billion on the seven-day Lunar New Year holiday through Jan. 27, up 30 percent from a year ago, according to the Ministry of Culture and Tourism. Sales to consumer-facing businesses were 12 percent higher than pre-pandemic levels in 2019, according to the State Tax Administration.

According to online travel agency Tongcheng Travel, hotel bookings have increased more than 10-fold in some of the most popular tourist destinations, such as the cities of Xi’an and Luoyang. The Terracotta Army Museum in Xi’an was so crowded that visitors took to social media to complain. He could only see other people’s heads instead of statues.

According to a national survey published by the China Cousins ​​Association last week, restaurants reported higher sales than before the pandemic and were unprepared for increased demand. More than a third of respondents said they were “extremely” understaffed during the holiday.

China’s box office receipts topped $1.5 billion last month, the best January on record, according to the China Film Administration. That’s largely thanks to an extraordinary holiday week, when moviegoers made 129 million trips to theaters.

Passengers prepare to check-in at Daxing International Airport in Beijing on January 19, 2023.

A recovery in consumption has already lifted the Chinese economy.

Last week, the Caixin/S&P Global Services Purchasing Managers’ Index (PMI), which tracks activity in the services sector, expanded in January for the first time in five months. This is mainly because travel and consumer spending have rebounded.

The index, which mainly covers small, private businesses, reflects the results of a previous official PMI survey. Analysts said the data added to evidence of a sharp recovery in economic activity.

The boom has fueled business confidence. Xiabuxiabu, one of China’s largest hotpot chains, opened 34 new stores in the country last month, after seeing record sales in many stores, the company said.

Global luxury giants also hope that Chinese buyers will return. LVMH said in January that it was “confident” and “optimistic” that China’s luxury market would bounce back this year. LVMH CEO Bernard Arnault said his stores in France are ready to welcome Chinese shoppers as travel restrictions are eased further.

Burberry ( BBRYF ) said last month that it was seeing “very promising” signs in China, according to Reuters.

However, there is a significant reduction in consumption.

Property sales by China’s 100 biggest developers fell 32 percent in January, according to data compiled by China Real Estate Information, a The property research firm was the only real estate sales in the country’s 30 largest cities. 60% of 2022 levels.

Chinese households have been reluctant to buy a home for more than a year, as the Covid-19 lockdown, falling home prices and rising unemployment have discouraged potential buyers. Mortgage protests in dozens of cities last year further dented buyer confidence.

Despite a flurry of stimulus measures, the deficit has shown no sign of improvement. As of December, new home prices had fallen for 16 months in a row, according to the latest government figures.

Because real estate accounts for 70% of household wealth in China, “retaliation spending” will be limited, analysts said.

“The property industry continues to be the biggest drag on China’s economy,” said Raymond Yong, chief economist for Greater China at ANZ Research, adding that high youth unemployment and falling asset prices in China will prevent the recovery of consumption.

BNP Paribas says there will be “retaliatory costs” in China, although these will be smaller than in Western economies such as the US.

“The lifting of Covid restrictions should dampen demand, and we expect consumption to be the main driver of the recovery in 2023,” its analysts said.

They expect domestic consumption growth to pick up to 9.5 percent in 2023 from about 3 percent in 2022, pushing annual GDP growth above 5 percent.

Analysts at Morgan Stanley expect to see some “retaliatory spending” from mostly fixed-income households.

These households include workers in the export sector, a rare bright spot in the Chinese economy during the pandemic years, business owners with steady incomes or those missing out on payments from assets.

“We see a mini-rebound as early as the first quarter of 2023,” he said, adding that the recovery in consumption could pick up in the second half of this year, but still from pre-Covid levels. will be less.

They are expecting domestic consumption growth to reach 8.5 percent in 2023, bringing full-year economic growth to 5.7 percent.

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