It was always going to be a bruiser of a quarter for GDP growth in China. Factories, logistics and consumer spending all felt pain from the lockdowns, impacting China’s economic output. So it was quite a feat that China still managed growth of 0.4% between April to June. Nevertheless, it was China’s poorest growth result since the initial lockdown in the first quarter of 2020 when the economy contracted 6.8%.
With growth for the first half of 2022 tracking at 2.5%, China’s full year target of 5.5% (set in March before the outbreaks) is now a loftier goal than ever. Nevertheless, the are some positive indicators for China with the worst of the lockdowns behind us.
Despite China’s main logistics gateway – Shanghai – hamstrung for much of the quarter, international trade continues to play an important part in driving China’s economic growth. Exports rose 13.2% in the first half of 2022. Growth in imports also grew at almost double the rate of GDP at 4.8%. Foreign investment in $100 million-plus projects were up 40.3% for the first five months of the year relative to last year.
Another of China’s strengths has been its ability to keep inflation under control. The US saw June CPI grow 9.1% on a year ago – its highest level in over 40 years – in line with many other countries facing rampant inflation. China inflation held firm at 2.5%.
Relatively low inflation and a positive 618 festival helped June’s retail spending return to the positive – 3.1% up on 2021. The most notable category growth was cosmetics, up 8.1%. Much like we saw after the 2020 lockdowns, it is likely a sign that Chinese consumers are back getting out and wanting to look good while doing it.
Consumer spending contributed around two-thirds of China’s GDP growth last year and Beijing is hoping it will drive further growth this year. We are already seeing incentives to drive spending on big ticket items which will move the dial, particularly those which are green and smart.
Beijing hopes to bolster sales of “green and smart” appliances through subsidies and making it easier to recycle and dispose of old appliances, and harder to trade them. This will have an impact on consumers’ behaviour in their homes, particularly for those buying kitchen appliances which will affect how they choose, prepare and consume food.
China is also looking to “unleash the potential” of automobile consumption. It doesn’t take a big uptick in car sales to increase consumer spending numbers. It will also support China’s fledging car industry. Government incentives have been backed up by car makers SAIC Motors, Volvo and Geely offering to subsidize purchase taxes, among moves to bolster car sales. The Government has also pledged to support the construction of parking lots and build 461,000km of new highways by 2035.
If consumers are tempted to spend on new cars, it will create further demand for products and services that support in-car consumption from convenient food packaging for moving vehicles, on-the-road cosmetics application innovations, to health supplements which cater to long road trips. Self-drive holidays are also likely to be even more popular for overseas tourists when borders open up again.
China’s consumer market is expected to grow more than any other country up to 2030, generating more than a quarter of all global consumption growth during the period, according to the McKinsey Global Institute. China’s headline growth numbers may not be what they were a decade ago, but they represent a much larger base and continue to present numerous opportunities for brands with smart and resonant marketing strategies. Contact China Skinny to learn more about how our research, branding, strategies and tools can assist your brand to better tap into these opportunities.
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