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China’s growth in 2023 largely depends 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 | Bloomberg | Getty Images

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

“As external demand plummets due to a looming recession in the West, China’s economy needs to rely more on the consumer,” said Xiaolin Chen, international director of KraneShares.

“We believe the reopening could lead to a V-shaped recovery in the stock prices of Chinese consumer brands in early 2023. The recovery could be driven by pent-up demand, high savings and a wealth effect as real estate prices are recovering. Chen said.

China’s gross domestic product grew by 3% in 2022less than half the rate of 2021. The country’s zero-Covid policy, deteriorating relations with the United States, as well as the real estate “tantrum” in 2022 have dampened growth, KraneShares said in a report released last week.

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

“The fallout from regulatory changes affecting the real estate development industry has lingered longer than expected despite the government’s commitment to stabilizing the industry,” Chen said.

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

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“Fortunately, the reopening and a new injection of capital into China’s property development sector has the potential to significantly boost consumer confidence, which would be a catalyst for Chinese markets in 2023,” Chen said.

Consumer categories

She noted that internet companies such as Alibaba and Meituan have been hit by the tech crackdown, while consumer categories have fared better.

“While offshore equities (primarily internet companies) suffered from industry regulations and geopolitical risks, the A-share market (primarily consumer staples, healthcare and cleantech) benefited. recovery and support policies,” she said.

Chen added that emerging sectors such as cloud services and semiconductors, while promising, could 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 onshore and offshore equities and bonds into any allocation to both manage risk and ensure exposure to the broadest set of opportunities. possible,” Chen said.

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

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