At the explanatory press conference the following day, government officials highlighted various measures to boost consumption. These included detailed policies on childbirth subsidies to be announced soon, salary-related policies, unemployment subsidies by the central government totalling RMB66.7 billion ($12.3 billion) this year, the allocation of funding by the central government to boost domestic travel and related consumption in China and various measures to boost services consumption.
In an update, CGS International (CGSI) says: “We think the government will also find ways to stabilise the property and stock markets in a bid to increase consumption confidence. We expect these policies to benefit services-related consumption, such as catering, travel and outdoor activities, and trigger a re-rating of sector-leading companies, including Haidilao, Yum China, Trip.com and Anta.”
On March 5, Premier Li Qiang announced a 5% GDP growth target for the year with a record fiscal deficit of 4% of GDP or RMB5.7 trillion to help achieve it.
In the first two months of the year, China’s retail sales rose by 4.6% y-o-y. However, there is still a long way to go. As of 2023, consumption accounted for about 55.7% of GDP. This is relatively low compared to the US, where consumption makes up about 70% of GDP. So far, China has not set a specific target for consumption as a percentage of GDP, but it has made boosting domestic consumption a central focus of its economic strategy. The Chinese government is also taking steps to put safety nets in place, including for its ageing society and the unemployed. This is vital to unleash the consumption potential of its 1.4 billion population with a GDP per capita equivalent to US$13,000 ($17,304).
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In addition to childbirth subsidies, China has announced plans to establish a childcare subsidy system; provide help for the gig economy, including for rural migrant workers; enhance medical insurance for employees and provide basic medical insurance for rural- and non-working urban residents; increase subsidies for basic old-age benefits; and raise pension benefits for retirees. In addition, the country will ensure workers’ rights are protected.
According to Xinhua, China will also take steps to stabilise the property sector, boost the stock market and develop the bond market by introducing products suitable for individual investors.
Will the Chinese consumer start spending? In reaction to the government’s announcements, Julius Baer’s Richard Tang, China strategist and head of research in Hong Kong, and Eric Mak, equity research analyst Asia, say: “We are mindful that consumption is not easily stimulated by government policies. For consumers to spend more money, they either need to have a higher income (from wage increases) or a stronger sense of holding more wealth or income (from the government’s various subsidiaries and social benefits).”
Explicit steps
When asked how the Chinese government plans to boost consumption, Cecilia Tan, CEO of Sasseur REIT’s manager, says: “The Chinese government has created a trade-in programme with a voucher system, encouraging people to buy new mobile phones and laptops. This time, the authorities are looking at very explicit methods, including the trade-in programme and encouraging the purchase of electric vehicle (EV). EV is a big domestic industry; the Chinese would want to have sustained domestic demand for EV.”
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“Trade-in programmes and equipment renewal subsidies will be partially funded by RMB300 billion of planned ultra-long sovereign bond issuance,” DBS Group Research confirms in a March 17 update.
The government plans to issue additional special treasury bonds and expand local government special-purpose bonds to fund infrastructure projects, boost consumption for big-ticket items, stimulate domestic demand across the board and reduce financial burdens on the population, Xinhua adds.
Beneficiaries would include companies such as Xiaomi and Lenovo. BYD, China’s leading EV company, is listed on the Hong Kong Stock Exchange (HKEX) and Shenzhen Stock Exchange; NIO and XPeng Motors are listed on NYSE and HKEX; Li Auto is listed on Nasdaq and HKEX; Geely, which owns Zeekr and Polestar, is listed on HKEX; and SAIC Motor is listed on the Shanghai Stock Exchange.
Policies will also promote winter tourism and the “silver economy”, addressing the needs of an ageing population.
To boost growth, the People’s Bank of China (PBOC) lowered policy rates and reserve ratio requirements, “obviously injecting liquidity into the banking system and trying to create a wealth effect in the stock market,” Tan points out.
In January, the PBOC implemented structural monetary policy tools to channel more liquidity into the stock market. The China Securities Regulatory Commission (CSRC) encouraged insurance funds, pension funds and other institutional investors to increase their equity investments. New policies were introduced to protect smaller investors, including special representative litigation and stricter regulations to combat financial fraud. Listed companies were encouraged to increase dividends and share buybacks to enhance shareholder value.
Efforts were made to improve the inclusiveness of platforms like the Star Market, ChiNext and the Beijing Stock Exchange, as well as optimise the overseas listing registration system to attract cross-border capital.
“The priority of boosting domestic demand will have a positive impact on retail consumption overall,” Tan reckons.
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source: Bloomberg
Gradual return of consumer confidence
During a recent interview, Sasseur’s Tan, who keeps a close eye on consumption in China, particularly retail spending, points to the consumer confidence index as her barometer for retail spending. Although economic activity is recovering, confidence remains a significant challenge. The Consumer Confidence Index showed a modest increase last year, rising from 85.7 in September to 86.4 in December before ending at 87.5 in January.
Although the Consumer Confidence Index was weak earlier last year, there was an uplift. “Even when it dropped, I noticed it didn’t return to the previous low. It dropped to a higher low. So I think there’s some sustained momentum in retail spending,” Tan observes.
“We are hopeful we are seeing a more sustained momentum of a gradual return of confidence. But I wouldn’t see a big uplift yet because China is still on the road to recovery. Once consumer confidence returns, it should benefit not just retail but also the discretionary spending sector,” she adds.
This is important because Sasseur REIT owns four outlet malls in second-tier cities Chongqing, Kunming and Hefei. According to the National Bureau of Statistics and the Chongqing Statistics Bureau, last year, Chongqing and Hefei’s GDP grew by 5.7% and 6.1%, exceeding China’s GDP growth. Retail sales in both cities also outpaced the national average.
Chongqing’s retail sales growth of 3.6% in 2024 was marginally ahead of China’s overall retail sales growth of 3.5%, while Hefei’s retail sales growth of 4.6% was significantly ahead. Kunming’s retail sales growth of 1.7% last year was notably below the national average.
Despite this, Tan was so confident of the performance of her malls that the REIT tied up with Chan Brothers travel agency to take investors on a tour of Kunming, including Sasseur REIT’s Kunming Outlet Mall. In addition to being the home of a Sasseur REIT mall, Kunming is in Yunnan, dubbed the “Eternal Spring” province because of its weather and popularity as a tourist destination. It is the hop-off point for Lijiang and a place named Shangri-la in the mountains, with road, rail and hiking tours to Tibet.
The advantage of China’s infrastructure is greater connectivity among cities and provinces. “In terms of connectivity, China is very progressive. When connectivity improves, intra-China trade can improve to equalise income levels across the provinces; otherwise, only richer cities can enjoy a better life,” Tan says.
Pure-play proxy for consumption
To counter the challenges posed by China’s slowdown, Tan has had to think out of the box to attract shoppers to her malls. For instance, the IT system in the REIT’s malls enables the management to collect the sales proceeds from all the tenants.
“We have a centrally controlled system where we collect the sales from the tenants. The system immediately captures sales so we know how much each consumer spends and the trade mix. We can capture the consumer profiling, which allows us to do trend analysis,” Tan explains.
Data is important because of the way Sasseur REIT attracts VIPs, who are repeat customers of its outlet malls.
“The VIP members contribute more than 60% of total sales. That’s why we host many exclusive VIP activities,” Tan says. One of these events was a Michael Kors Day at the Chongqing Liangjiang Outlet. “That means we offer exclusive and enticing discounts for VIP members for only one day and sales improved by 396%,” Tan says.
All in all, Sasseur REIT has around 4.2 million VIP customers. Sasseur REIT’s IT system enables the tenants to let the VIPs know whether new stock of their favourite brands has arrived, the latest promotions or new experiences at the mall. “We provide a very catered service. If you’re a VIP customer, you would receive a call and undertake pre-service research before we launch a new product,” Tan says.
“Chinese consumers look for not just price points, but the holistic experience. We roll out the thematic promotions and the whole environment for our VIP customers, and we will continue to up the game,” Tan continues. For instance, the Hefei Outlet has a petting zoo while Chongqing Bishan has a strawberry farm.
Sasseur REIT’s sponsor, Sasseur Group, controlled by Vito Xu, believes in combining art with business to create a lifestyle, experiential space in an outlet, including sustainable relationships with stakeholders such as employees, suppliers, customers and investors.
Problems remain
The oversupply in the residential property sector is one of the primary sources of China’s problems. CGSI believes the government will “find ways to stabilise the property and stock markets in a bid to increase consumption confidence”.
Destocking policies remain at the core of property market stabilisation efforts, says DBS Group Research. “Special local government bond proceeds will fund housing inventory acquisitions and idle land reserves, with local governments granted greater flexibility in purchasing unsold homes, including pricing and future use,” DBS explains. Whether this puts a floor under the property market remains to be seen, market observers say.
The PBOC’s affordable housing refinancing facility and white-list project lending programme should also help address supply-demand imbalances. Meanwhile, secondary sales have increased and prices may have stopped falling in first-tier cities, DBS suggests.
Even then, China continues to suffer from supply-demand imbalances, leading to downward price pressure. In February, the Consumer Price Index (CPI) fell into deflation with a 0.7% decline in prices on a y-o-y basis versus consensus expectations for a decline of 0.4%. This marked the 25th month of CPI inflation below 1% in China.
Likely, the earlier-than-usual Lunar New Year holiday contributed meaningfully to the negative CPI reading in February, with much of the weakness arising from lower food prices and tourism-related services, suggests Ronald Temple, chief market strategist, Lazard.
Food prices fell 3.3% y-o-y in February after rising 0.4% y-o-y in January. Non-food prices fell 0.1% y-o-y after rising 0.5% y-o-y in January. PPI deflation was sustained for the 29th month, with prices falling 2.2% y-o-y versus consensus expectations for a decline of 2.1%.
Temple says: “The government strategy of exporting excess production is increasingly unviable as trading counterparts defend their own producers from Chinese dumping. I am concerned that the failure of the central government to act aggressively enough to restructure the Chinese economy is increasingly likely to result in a long-term stagnation and is raising the risk of entrenching deflationary expectations into the Chinese corporate and consumer mindset.”
“The implications could be very negative in an economy as leveraged as that of China,” he adds.
On the other hand, Tang and Mak of Julius Baer believe that the latest policies “may still catalyse a positive move in the sector”. “This supports our thesis of broadening exposure to non-technology sectors, particularly the consumption sector,” they say.
As investors await a sustained recovery in consumption, CGSI has already recommended some China plays. Local investors bewildered by the array of stocks on the Chinese exchanges may opt for exchange-traded funds on the Singapore Exchange , with some priced in Singapore dollars (see Table 1).
