Key to our recovery scenario is our assumption that Covid\u2019s negative impact will begin to wane in 2023. Policy indicators, healthcare developments, and general population trends are all part of our rationale. This recovery in consumer activity and sentiment will also be critical to stabilizing the property and housing market. In fact, a consumer recovery will be even more important than the wave of property-market stabilization measures we expect to see for generating what we estimate will be a \u201cmoderate rebound\u201d of the real estate sector. We see clear signs of pent-up demand for both first-time and \u201cupgrade\u201d buyers.<\/p>\n
Chinese Consumption Outlook<\/h3>\n
Given the low base effects of a weak economic year in 2022, we estimate full-year growth in total retail sales of consumer goods to jump 10% in 2023. We expect quarterly growth to peak in 2Q23 and stay stable in the second half of the year. Some of the worst consumption trends in the past two years have been in just the recent quarter. Passenger traffic in this past fall\u2019s National Day holiday was less than 60% of pre-pandemic levels and down 36% YOY. We expect consumption activity to pick up significantly with the recovery in traveling. Experiential consumption such as dining, mass discretionary consumer goods such as apparel, and family travel will likely recover rapidly in 2023.<\/p>\n
![\"\"](\"https:\/\/htsc-us.com\/wp-content\/uploads\/2023\/03\/h1-1.png\")
\n![\"\"](\"https:\/\/htsc-us.com\/wp-content\/uploads\/2023\/03\/h2-1.png\")
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Negative Situation for China Autos in 2023<\/h3>\n
However, the strength of the auto sector in 2022 that we saw should give way to weakness in 2023. Output has been exceeding demand by about 10 percentage points or more for the past 3 months, and energy cost-related indicators should drive less demand in the near term.<\/p>\n
![\"\"](\"https:\/\/htsc-us.com\/wp-content\/uploads\/2023\/03\/h3-1.png\")
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Property \u2013 GDP drag of 3-4PPTs in 2022, but likely to boost GDP by 1-2PPTs in 2023<\/h3>\n
We still see a close, cyclical relationship between China property sales, funds available for developers, and investment. Look for nationwide property investment to improve marginally in 2023, with yoy growth picking up from around -10% in 2022 to 0-5% in 2023.<\/p>\n
In terms of demand, we expect nationwide property sales to rise by 5-10% yoy by value\/area in 2023, higher than the -20% to -25% in 2022. In terms of supply, we expect yoy growth in sales payment collections by developers nationwide to improve from -20% to -25% in 2022 to 5-10% in 2023, thus narrowing the yoy decline in new starts from 40-45% in 2022 to 15-20% in 2023.<\/p>\n
From March to October 2022, 15 policy measures were put in place to improve the property sector to limited effect. But we think the additional measures announced since November 1 show a sense of increasing urgency to support China\u2019s real estate sector, the most important measure being the statement advocating for equal loan access for both private and state-owned real estate companies.<\/p>\n
Sector-wise, beneficiaries of a property-related consumption rebound include furniture, home appliance, and home decoration materials providers. For reference, these three property-related retail sectors contributed about 5% to China\u2019s GDP in 2021. We think these sectors will see a recovery 1-2 quarters after property sales rebound which we project to occur in 2023.<\/p>\n
![\"\"](\"https:\/\/htsc-us.com\/wp-content\/uploads\/2023\/03\/h4-1.png\")
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Manufacturing & Investment<\/h3>\n
Huatai estimates a 10% rebound in consumption as above, but manufacturing investment should be up 10-15% in 2023, as strong or stronger, despite an overseas slowdown and lower domestic inflation. China infrastructure spending should also rise 5-10% in 2023.<\/p>\n
Industries in China that will continue to benefit from medium-term industrial policies are new energy, high-end manufacturing, supply chain development, and aerospace. In terms of supply-chain development, China has also experienced significant disruption during COVID across high-tech, energy, healthcare, and agricultural sectors which is spurring numerous initiatives to make their system also more resilient.<\/p>\n
![\"\"](\"https:\/\/htsc-us.com\/wp-content\/uploads\/2023\/03\/h5-1.png\")
<\/p>\n
Sample of 11 government programs to support industrial development since 2021<\/p>\n
Inflation \u2013 Bucking the Global Trend<\/h3>\n
We expect China\u2019s CPI and PPI growth to fall in 2023 \u2013 we expect CPI growth to fall from 2.2% in 2022 to 1.9% in 2023, given easing food inflation pressure and low levels of non-food inflation. Even with a bigger than expected consumption rebound, the CPI should remain at a low level.<\/p>\n
Importantly, PPI growth may drop from 4.6% in 2022 to nearly zero in 2023, but we do not rule out the possibility that PPI growth may turn negative in 2H23. Huatai believes global oil prices will remain elevated in 2023, with US inventory rebuilding and keeping demand elevated. But globally weak economies will keep Chinese rebar, iron, and other materials weaker.<\/p>\n
The Trend for Monetary Policy and the RMB<\/h3>\n
As rates rise globally, we expect the People\u2019s Bank of China (PBOC) to be reluctant to reduce interest rates. However, the PBOC will deploy structural refinancing as a countercyclical tool to boost base money supply, to support new infrastructure, and to meet capital needs in property financing and delivery. We do expect the PBOC to lower the RRR by 25bp to supersede MLFs and supplement liquidity in 4Q22. We continue to project that RMB weakness remains a function of the US Dollar. We expect the RMB should rebound from 2Q23 as the US dollar peaks out and we estimate the RMB will be at its strongest in 4Q23 at Y6.98.<\/p>\n
Huatai China Economic Forecast November 2023<\/p>\n
![\"\"](\"https:\/\/htsc-us.com\/wp-content\/uploads\/2023\/03\/h6-1.png\")
<\/p>\n
Patrick L. Springer,
\nPatrickLSpringer@htsc-us.com<\/p>\n","protected":false},"excerpt":{"rendered":"
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