Consumption seen boosting economic vigor
FMCG, entertainment, catering, tourism, aviation and more may shine in 2023
In 2023, China will continue to expand domestic consumption, and sectors such as tourism, catering, entertainment and aviation are expected to benefit from the relaxation of COVID-19 prevention and control measures, government officials and industry experts said.
Consumers shop at a duty-free mall in Haikou, capital of Hainan province, on Jan 1.
According to the latest projection by financial services provider Goldman Sachs, consumption will become a main driver of economic vitality, and the annual growth of consumption is expected to be 7 percent this year, while China's GDP growth is expected to reach 4.5 percent. The unemployment rate is expected to decline and average incomes are likely to improve in 2023.
UBS predicts China's GDP growth will reach 5 percent this year, if investment in infrastructure is strong, and manufacturing and consumption sectors show resilience.
The views are echoed by Zhu Guangyao, former vice-minister of finance, who expects China's economy will achieve better growth and sustain healthy development this year, with a GDP growth rate of 5-6 percent.
Despite the pandemic exerting pressure on consumer spending, some sectors such as fast-moving consumer goods and those related to public social benefits have been given a boost by the growth of new trends and support of favorable policies.
Looking back on 2022, China's FMCG sector showed resilience with 3.6 percent year-on-year growth in the first three quarters. For the first time since 2020, it exceeded the country's GDP growth in the second and third quarters, according to joint research released in December by Bain & Company and Kantar Worldpanel Greater China.
In particular, packaged foods and household-related product sales saw growth during the first three quarters due to COVID-19-led stockpiling and heightened health and hygiene concerns. Overall, China's FMCG market demonstrated some buoyancy in rough waters, signaling that there is hope for the months and years ahead, Bain & Company said.
"The year 2023 is likely to remain volatile, resuming some of the trends we have witnessed in 2022 while seeing improvement in other areas. However, we do see a gradual optimization of COVID-19 measures taking place in China, bringing back some consumer confidence," said Derek Deng, a partner at Bain& Company.
"There are other fundamental reasons to be optimistic as well. China's FMCG sector has demonstrated remarkable resilience in the first three quarters, as both brands and consumers have honed their adaptability to changing circumstances. If companies can keep their fingers on the pulse of consumer needs and remain nimble, they can chart a path toward healthy performance," Deng said.
In 2023, China will focus on expanding domestic demand and give priority to restoring and expanding consumption, and continue to strengthen household consumption abilities, improve consumption conditions and make innovations in more consumption scenarios, according to the plan outlined at the Central Economic Work Conference in December — the yearly meeting that sets plans for China's economic performance this year.
Culture and tourism, elder care and childcare, medical care, education, sports, leisure and other service-based consumption sectors have become new hot spots and growth points of urban and rural consumption patterns, and the growth rate of service consumption has continued to be higher than that of commodity consumption, said Wang Wei, head of the market economy research institute at the Development Research Center of the State Council, China's Cabinet.
"There is ample room for the growth of domestic demand led by consumption expansion. Consumption has become the biggest driver and potential source to help boost domestic demand," Wang said.
By 2025, final consumption is expected to account for 60 percent of the annual GDP, and the final consumption scale is likely to reach about 90 trillion yuan ($13.3 trillion), Wang predicted.
Final consumption is defined as the total amount of goods and services bought and used in an economy.
In addition, the outline made clear that the government will help increase urban and rural household incomes through multiple channels and support the improvement of housing conditions. The country will also continue to support purchases of new energy vehicles.
The meeting said government investment and policy incentives should be applied to effectively drive investment in all of society. It also called for speeding up the implementation of major projects during the 14th Five-Year Plan (2021-25) period, and strengthening infrastructure connectivity between different regions.
"There is sufficient room for boosting consumption growth on the demand side. The government could consider issuing temporary measures to subsidize employees and further reduce burdens facing enterprises. It could also help boost household consumption demand by issuing consumption vouchers on a larger scale and in more diversified forms," said Lian Ping, chief economist at Zhixin Investment and head of the Zhixin Investment Research Institute.
The government has provided subsidies for sales of NEVs and smart home appliances in rural areas. From January to October, sales of electric and plug-in hybrid passenger vehicles totaled 4.43 million units, up 107.5 percent year-on-year, and NEV market share had exceeded 25 percent, said the China Passenger Car Association.
"The increase in the spending of consumer goods such as household appliances and automobiles is key to helping expand consumption," said Yang Chang, an analyst at Zhongtai Securities.
In another development, duty-free consumption in Hainan province has gradually recovered from the impacts of COVID-19. Fueled by the free trade port under construction, Hainan has been continuing to play an important role in China's consumption.
Major duty-free operators have increased their investment in the tropical island. In late October, China Duty Free Group opened a new shopping complex in Haikou, the provincial capital.
Major domestic retailer Wangfujing Group plans to launch a new duty-free mall in Wanning, Hainan, this month. After its launch, the number of offshore duty-free malls in the province is expected to reach 12, which will give full play to the role of consumption in driving economic growth in Hainan.
In the first half of 2022, due to sporadic resurgences of local COVID-19 cases, the offshore duty-free shopping market in Hainan was negatively affected. Since late June, sales began to resume a year-on-year growth trend, according to China Tourism Group, parent of China Duty Free Group, the world's largest travel retailer in terms of sales revenue.
"China's consumer market is one of the largest and most promising markets globally. The fundamental role of consumption in boosting economic growth in China will not change," said Wang Haimin, president of China Tourism Group.
"With further construction of Hainan FTP, its potential is immeasurable. We are fully confident in the growth potential of the offshore duty-free shopping market in Hainan and will continue to increase investment there," Wang said.