The signs of spring are coming early to the China market
Although China’s winter will be upon us next month, it is already starting to feel like the long chill has lifted and spring is in the air in the China market. There is no doubt that bumps still lie ahead, but November has felt like the most optimistic month in a long time for foreign brands in China.
The most notable milestone was President Xi Jinping’s return to the charm offensive with his first face-to-face meetings with Western leaders since 2019. While the leaders acknowledged their differences, there appears to be more appetite to talk and look at ways to cooperate than there was even a fortnight ago.
Following Xi’s three-plus hour meeting with US President Joe Biden at the G20 last week, there has been more positive language on both sides of the Pacific. Xi has since met with Vice President Kamala Harris at APEC, and at the COP27 in Egypt the US and China renewed their partnership to tackling the climate crisis. China has also said that it is open to a meeting with the US defense secretary.
After a six year freeze, Xi also met with Australian Prime Minister Anthony Albanese in what are the first steps to providing an ‘off ramp’ for deteriorating bi-lateral relations. Although British Prime Minister Rishi Sunak had to cancel his meeting with Xi for an emergency Nato meeting following the missile strike in Poland, Sunak has rowed back from officially recategorizing China as a "threat" noting that the UK must engage with the country. Xi also met with leaders from France, Canada, South Korea, Japan, Singapore, Indonesia, New Zealand and others, on top of a meeting with German Chancellor Olaf Scholz in China earlier this month. With the exception of some friction with Canada's Justin Trudeau, the meetings were reportedly all constructive.
The meetings timed well with this month’s CIIE import expo, and have been supported by positive news in state and social media, which will improve consumer and business sentiment around foreign brands. The meetings demonstrate how much value good old fashioned face-to-face communication can bring, which will happen for more businesses who may soon be able to travel back into China to meet partners and customers, or host them in their home markets.
It hasn't been all good news from China though. It has been a rough month for Covid infections, with Beijing, Guangzhou, Chongqing, Zhengzhou posting their highest number of Covid infections ever, and the first deaths from the pandemic in nearly 6-months. Despite lockdowns in cities and surging cases, Beijing's actions are signalling an appetite to loosen Covid restrictions. Domestic quarantine and secondary contact rules have been eased, alongside reduced quarantine periods for incoming travellers. Late last week, capacity limits were removed for large entertainment venues and events in areas without outbreaks. Hospitals are being built and vaccination rates are increasing, helped by new inhalable boosters. Pfizer vaccines have been approved for German expats with anticipation that they may be rolled out wider. China is becoming better prepared to live with Covid, with many expecting the country to open up next year.
Another positive development which will help build consumer confidence is Beijing’s support of the struggling property market. 70% of China’s household wealth is tied to property, compared to 35% in the US, and few factors contribute to consumer confidence more than real estate. This month, Beijing unveiled sweeping measures to rescue its property sector, and by proxy, consumers’ security around their largest assets.
Beijing has an enviable array of levers it can pull to drive the economy and consumption. It is pulling more than we’ve seen in a long time, and coupled with President Xi’s diplomacy drive, is likely to see green shoots in China’s market for foreign brands. Goldman Sachs thinks so, as do a chorus of Wall Street bankers buying Chinese stock. AllianceBernstein is banking on 2023 being the year for the Chinese consumers return. It’s not just the finance folk, foreign entities ramped up investments into China 14.4% more so far this year than last.
Nothing is certain in this world, but the tea leaves point to a rosier China market than there has been in a long time. Watch this space!
