We have finally left 2024 behind us and are looking forward to what the new year 2025–the Year of the Snake–will bring for China consumption.
Looking back at 2024, we’ve seen a steep contrast between perception and reality. Consumer and business sentiment remains at an all-time low, and there is no evidence that this will change anytime soon. At the same time, China yet again delivered 5.0 percent gross domestic product (GDP) growth and 3.5 percent retail sales growth. While these figures are not as exciting as in the past, economic development remained solid. Looking ahead, analysts are expecting healthy growth. The latest consensus estimates for GDP growth are 4.5 percent for 2025 and 4.2 percent for 2026.1 In 2024, economic performance exceeded the generally downbeat sentiment of many observers. Indeed, Chinese consumers remain concerned about future economic prospects. (Exhibit 1)
Looking back at consumption, we’ve seen people increasing their spending on daily necessities (food growing by 10 percent), and tourism continued to grow by double-digits. Along with outbound tourism growing strongly, we have also seen luxury spending shifting overseas. Particularly, Japan has been benefiting, accelerated by the depreciation of the Japanese Yen.
Cars and appliances are sectors that have seen very healthy growth (5 percent for cars, 12 percent for appliances), fueled by subsidies and technology changes (shift to electric vehicles). The number of electric vehicles sold grew by 40 percent in 2024, now making up almost half of total new car sales. In this context, it is also important to note that both the appliance and auto sectors have seen a strong shift from international to local brands, often with the claim of having a “better product at a lower price.” Other disposable categories like clothing and cosmetics have not seen growth or have even slightly declined in 2024, a result of low consumer sentiment with people reducing purchase frequency or delaying purchases. (Exhibit 2)
Major beneficiaries from these market shifts have been Chinese companies. Appliances have been for many years a predominantly local industry with local companies holding over 90 percent market share. In the automotive industry, consumers bought more cars from local brands compared to foreign brands for the first time. This shift has been in line with the innovations and growth of electric vehicles, a technology where Chinese brands are seen as competitive as or even stronger than foreign brands by consumers. (Exhibit 3)
In line with low consumer sentiment, the property sector has seen a steep decline in transactions. Historically, property has been the single largest investment for Chinese consumers. In the past two years, the market has not been liquid, with people holding their assets and not buying or selling. The surveyed urban employment rate remained stable and income levels continued to increase by 5 percent, leading to an increase in cash holdings. The “money is in the bank.” (Exhibit 4)
Let me turn to some more alarming numbers: 2024 has seen investors turning away from investing in the China market. This holds true for both foreign investors (foreign direct investment down by 27 percent and now below 2019 levels, according to the Ministry of Commerce) as well as Chinese private investors. The total transaction value of private equity and venture capital in Mainland China has further declined compared to an already low 2023. And maybe most concerning, fixed asset investment by China’s privately-owned enterprises (POEs) has not grown in either 2023 or 2024. This lack of business confidence and hesitation to invest in the future are two of the primary causes of the high rate of youth unemployment. Instead, we have seen state-owned enterprises (SOEs) investing. (Exhibit 5)
Key priorities for the new year will be reigniting confidence in the prospects of the China market and identifying investment opportunities with high ROI.
Let me end this China Brief on a positive note. While I’d be cautious with my outlook for the new year, the fourth quarter has seen some positive momentum. Retail sales growth returned to 4 percent, and fixed asset investments by private companies and even property transactions have seen slight growth. (Exhibit 6)
We continue to watch this space closely and plan to continue our updates in the new year. Wishing you and your family a prosperous Year of the Snake!
