How will China get its consumers spending in 2023?

After one of the worst economic performances on record in 2022 with 3% GDP growth, it’s now all hands on deck in a bid to revive the world’s second-largest economy. Qing Na from Dao Insights explores what kind of economic policies the Chinese government is putting in place post-pandemic

This ambition was reiterated by Guo Tingting, Vice Minister of Commerce, at the first press conference of the new year hosted by China’s Ministry of Commerce on 2 February. While the strategies presented are yet to be put into action, they quickly created a more optimistic mood, with rating agency Fitch announcing on 8 February that it had revised its China growth forecast to 5% for 2023. This was raised from 4.1% previously, reflecting “the evidence that consumption and activity are recovering faster than initially anticipated” following the country’s sudden reopening in late 2022.

Naming 2023 “The Year of the Consumption Reboot”, Chinese local authorities pinpointed industries that would be at the forefront of driving the domestic economic recovery, including the automotive, home furnishings, household appliances and catering sectors.

Emphasising the priority of new sales of cars of all kinds, Xu Xingfeng, head of the Department of Market Operation and Consumption Promotion at the Ministry of Commerce, also signalled support for incentivising purchases of vehicles powered by renewable energy, as well as improving relevant services such as licence privileges and charging infrastructure for electric vehicles (EVs)

This, to some extent, is expected to offset the pessimism that has emerged in the automobile industry in recent years, especially amongst electric car makers at home, as the government pulled the plug on a more than decade-long subsidy for EV car buyers, which took effect on the first day of 2023.

Xu also hinted at the government’s intention to push the circulation of the second-hand car market while paving the way for a transformation of the industry’s business model. The market focus would be shifted to the usage rights of vehicles instead of ownership as it is now, suggesting vehicle rental services is a market on the horizon.

While the automotive industry is a sector mature enough to be a part of the backbone of China’s economic revival, the government also seeks to unleash the potential held within the country’s emerging home furnishings and household appliances market, with smart home automation believed to be at the core.

China’s smart home sector recorded a market value of RMB 515.5 billion (£62.91 billion) in 2020 according to China’s National Industry Information Research, with an estimated annual growth rate between 15% and 25% in the coming five years. The tech-savvy post-90s generations have unsurprisingly become the main consumers of smart home products, although some older adults also appreciate the convenience this sort of product affords. This is in line with China’s growing so-called “Lazy Economy”, as well as the pursuit of a higher standard of living among the younger generations.

As the smart home industry gains traction, the Chinese government has introduced measures to stimulate purchases of green smart home appliances, sweetening the deal to encourage sustainable consumption, which is also a step prompted by a more environmentally conscious consumer cohort.

While beefing up efforts to reboot manufacturing sectors, the government also sees opportunities flourishing in the catering industry, as well as the wider retail and hospitality landscape. This confidence is based on the overall 6.8% year-on-year increase in revenue reported by relevant businesses following the Spring Festival (Lunar New Year) holiday season, which concluded in early February. This is the first Lunar New Year in three years where travellers did not have to follow any Covid-19 prevention protocols. China’s reopening, therefore, will be of most immediate benefit to those market players who rely heavily on physical consumer engagement.

Meanwhile, the government is also determined to leverage digital technologies to pull off its economic goals. E-commerce and live streaming have become flagship sectors of the Chinese economy, an ongoing phenomenon that has only been accelerated by Covid-19. Indexes including accumulated numbers of live stream sessions, active live streamers, total viewer numbers and products sold through live streams all increased exponentially in 2021 and 2022.

As China gears up to reboot its economy, there are growth opportunities for both traditional and emerging industries. While the exit from the zero Covid policy marks the resumption of offline businesses, the country’s consumption models have been reshaped by prolonged lockdowns, resulting in the rise of e-commerce and other online experiences. Market players, therefore, are expected to offer a more diverse approach to engaging their target audience in China and ultimately, gaining a slice of China’s economic revival.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.