China’s growth in 2023 largely hinges on the consumer: KraneShares

After a bloody year in 2023, how will the Chinese tech giants fare?

The Bund in Shanghai, China, 17 October 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 appears poised for a recovery in 2023, but much depends on one variable — the consumer, investment management firm KraneShares said.

“As foreign demand falls due to a looming recession in the West, China’s economy has to rely more on the consumer,” said Xiaolin Chen, international head of KraneShares.

“We believe that reopening in early 2023 could lead to a V-shaped recovery in China’s consumer brand share prices. The recovery could be driven by pent-up demand, high savings and a wealth effect if house 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, deteriorating ties with the U.S. and real estate “taper tantrum” in 2022 dampened growth, KraneShares said in a report published 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 lasted longer than expected, despite a government pledge to stabilize the sector,” Chen said.

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

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“Fortunately, the reopening and a fresh infusion of capital in China’s real estate development industry 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 like Alibaba and Meituan were hit by the tech crackdown, while consumer categories fared better.

“While offshore stocks (primarily internet companies) suffered from industry regulations and geopolitical risks, the A-share market (primarily consumer staples, healthcare and clean tech) benefited from the stimulus and supportive policies,” she said.

Chen added that emerging sectors like cloud services and semiconductors, while promising, could take years to make a significant contribution to the Chinese economy.

“In 2023, we encourage investors to take a holistic view of China’s capital markets and include both onshore and offshore stocks and bonds in any allocation to both manage risk and ensure they are exposed to the greatest possible opportunities,” Chen said .

“We also encourage investors to think long-term,” she added.