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

Hong Kong
CNN
—

Even for a well-known frugal nation, the Chinese saved a lot last year. Stuck at home due to Covid restrictions, they have earned a record $2.6 trillion.

Now that life is back on track, there are high hopes that consumers spend with a vengeancewhich will provide a much-needed boost to the world’s second largest economy, the impact of which will be felt around the world.

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

With the pandemic out of control, Chinese shoppers seem to be enjoying their freedom to spend. Hotel bookings, movie tickets and restaurant sales have skyrocketed during the recent holiday season.

The awakening of the Chinese consumer will be an “exciting story” for global investors in 2023, said Sveta Ramachandran and Jian Shi Kortesi, investment directors at GAM Investments, a global asset management firm based in Zurich.

“Chinese consumers are now set to reopen with a strong household balance,” they said, adding that Chinese companies exposed to discretionary spending and global luxury brands could benefit significantly from the trend.

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

According to online travel agency Tongcheng Travel, hotel bookings in some of the most popular tourist attractions such as the cities of Xi’an and Luoyang have increased more than 10-fold. The Xi’an Terracotta Army Museum was so crowded that visitors complained in social networks they could only see other people’s heads, not statues.

Restaurants were reporting higher sales than before the pandemic and were unprepared for increased demand, according to a national survey released by the China Cuisine Association last week. More than a third of respondents said they were “extremely” short of staff during the holiday.

China’s box office gross exceeded $1.5 billion last month, the best ever, according to the China Film Administration. This was largely due to an extraordinary holiday week, when moviegoers visited theaters 129 million times.

The recovery in consumption has already lifted the Chinese economy.

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

The index, which mainly covers small private enterprises, reflects the results of an earlier government PMI survey. Data added to evidence rapid recovery in economic activityanalysts said.

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

The global luxury giants are also hoping that Chinese buyers will return. In January, LVMH stated that “confident” and “optimistic” that the Chinese luxury goods market will recover this year. LVMH CEO Bernard Arnault said his stores in France are ready to welcome Chinese shoppers as travel restrictions ease.

Burberry

(BBRYF) said last month he saw “very promising” signs in China, according to Reuters.

However, there is one notable laggard in consumption.

China’s top 100 real estate sales fall 32% in January Information about real estate in ChinaA real estate research firm. In the 30 largest cities of the country, real estate sales amounted to only 60% of the 2022 level.

Chinese households have been reluctant to buy homes for more than a year as Covid restrictions, falling house prices and rising unemployment have scared away potential buyers. Mortgages protest against this broke out in dozens of cities last year further undermined the confidence of buyers.

Despite the flurry incentive measures, the recession showed no signs of improvement. By December, new home prices had fallen for 16 consecutive months, according to the latest government statistics.

With real estate accounting for 70% of China’s household wealth, analysts say “revenge spending” will be limited.

“Real estate remains the biggest drag on China’s economy,” said Raymond Jung, chief economist for Greater China at ANZ Research, adding that high youth unemployment and deflation in asset prices will hold back a recovery in Chinese consumption.

BNP Paribas says there will be “revenge spending” in China, albeit on a smaller scale than in Western economies such as the US.

“The lifting of Covid restrictions should free up pent-up demand, and we expect consumption to be the biggest driver of recovery in 2023,” analysts say.

They expect household consumption growth to recover to 9.5% in 2023 from around 3% in 2022, which will contribute to more than 5% annual GDP growth.

Analysts at Morgan Stanley expect to see some “revenge spending” mainly from households with stable incomes.

These households include workers in the export sector, rare bright spot in the Chinese economy during the pandemic years, business owners with a stable income or those who live off payments from asset ownership.

“We are seeing a mini-recovery as early as the first quarter of 2023,” they said, adding that the recovery in consumption could pick up again in the second half of this year but would still be below pre-pandemic levels.

They expect household consumption growth to recover to 8.5% in 2023, contributing to annual economic growth of 5.7%.