China's growth in 2023 depends heavily on the consumer: KraneShares

China’s growth in 2023 depends heavily on the consumer: KraneShares

The Bund in Shanghai, China on October 17, 2022. China’s gross domestic product grew 3% in 2022, less than half the rate of 2021.

Qilai Shen | Mayor Bloomberg | fake images

China’s economy appears poised for a rebound in 2023, but a lot depends on one variable: the consumer, investment management firm KraneShares said.

“As external demand falls due to a looming recession in the West, China’s economy must become more consumer dependent,” said KraneShares international director Xiaolin Chen.

“We believe the reopening may lead to a V-shaped recovery in Chinese consumer brand share prices in early 2023. The recovery could be driven by pent-up demand, large savings, and a wealth effect on the rise.” as real estate prices recover. Chen said.

China’s gross domestic product grew 3% in 2022, less than half the rate of 2021. The country’s zero-covid policy, worsening relations with the US, as well as the real estate “tantrum” in 2022 they slowed growth, KraneShares said in a report published last week.

In December, China pledged to make domestic demand an economic priority.

“The consequences of regulatory changes affecting the real estate development industry lasted longer than expected despite the government’s commitment to stabilize the sector,” Chen said.

China’s property market slowed sharply in 2022 as the government tightened restrictions on developer lending.

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“Fortunately, the reopening and further injection of capital into China’s real estate development industry have the potential to significantly boost consumer confidence, which would be a catalyst for China’s markets in 2023,” Chen said.

Consumer Categories

He noted that internet companies such as Alibaba and Meituan were hit hard by the tech crackdown, while consumer categories fared better.

“While offshore stocks (mainly internet companies) suffered from industry regulations and geopolitical risks, the A-shares market (mainly consumer staples, healthcare and clean tech) benefited from stimulus and policies of support,” he said.

Chen added that emerging sectors such as cloud services and semiconductors, while promising, may take years to contribute significantly to China’s economy.

“In 2023, we encourage investors to take a holistic view of China’s capital markets, incorporating stocks and bonds both domestically and abroad into any allocation to manage risk and ensure exposure to the largest possible set of opportunities. Chen said.

“We also encourage investors to take a long-term view,” he added.

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