When David Tan visited Shanghai in November, he said he was surprised to see so few people in shopping malls, and restaurants that were half-empty at dinner time.
Though noteworthy, what Tan observed was not totally unexpected. As the owner of Richmond-based Sunnylife Health Enterprises Inc., which has exported health-care products to China for more than a decade, he has seen demand drop significantly in the past year.
“Our export value to China has dropped by 25 to 30 per cent since last year, as our clients have seen their demand decrease by Chinese consumers,” said Tan.
One of his clients, which previously ordered US$300,000 in products per year, ended its contract, and two Chinese e-commerce stores that used to carry Sunnylife Health’s products have closed their doors. Weaker consumer spending is also being seen throughout the Chinese economy.
“Compared to previous years, Chinese consumers are now more hesitant to spend money, and that means less sales for businesses,” Tan said.
China’s consumer spending is not recovering to the pre-pandemic level. In contrast, rising uncertainty over the country’s economic prospects, amid the housing market downturn and a year of massive layoffs, has restrained household spending.
This contributed to a modest 0.2-per-cent annual increase in consumer prices in 2023, according to December data from China’s National Bureau of Statistics.
China’s GDP grew by about 5.2 per cent in 2023, according to NBS data released Jan. 17 – an increase from three per cent in 2022. GDP is expected to decrease to 4.2 per cent or lower from 2024 to 2028, according to Statista.
“In terms of evaluating China’s economy, we’re seeing the four Ds, which are debt, demography, de-risking and demand,” said Vina Nadjibulla, vice-president of research and strategy at the Asia Pacific Foundation of sa国际传媒.
“There’s been a slowdown in the economy domestically in China for those four big reasons. There might be some impact of COVID.… There’s also bigger structural things that consumers are watching and they’re nervous, so they’re saving not spending.”
If a collapse or significant price drop happens to the real estate market, as many Chinese people fear, it will have a large impact on China’s economy and household wealth, given how much home values account for household balance sheets, added Nadjibulla.
“That impacts their confidence and a desire to save rather than to spend. To the extent that those dynamics in play domestically in China will impact exporters from sa国际传媒”
sa国际传媒 importers pushed to sell more
sa国际传媒 importers may also face pressure from Chinese wholesalers grappling with a weaker domestic market.
“Because their domestic demand and sales decrease, companies are trying to increase international sales so are pushing importers to purchase more,” said Michale Lee, owner of Watson Enterprises Inc., an Asian food wholesaler headquartered in Richmond.
Compared to affordable basic food such as frozen buns and dumplings, demand for products such as meat has seen a bigger decline in China, so sellers for these products rely more heavily on the international market, resulting in greater price fluctuations.
For example, the import price for duck meat, an ingredient for the popular snack ‘spicy duck neck,’ has dropped to nearly half of its high point after demand decreased significantly in China, according to Lee.
“When consumers are uncertain about the economy, the first thing they cut in the food sector is leisure food. Then Chinese wholesalers may lower the price for international clients but expect them to take on a larger volume,” he said.
Other sectors in China such as home renovations and clothing face even more pressure to expand to the international market, Lee added.
In addition to the real estate market, labour market conditions will be another key factor relating to China’s economy and Chinese consumer spending in 2024, according to Claire Fan, economist at the Royal Bank of sa国际传媒 (TSX:RY).
“The sentiment and confidence is something that’s a bit hard to turn around, but we are seeing a little bit more optimism towards the end of 2023,” said Fan.
“If home values start to appreciate, that’s when you can see things really turn sour, because on paper households would all of a sudden become a lot less wealthy.”
Chinese companies eyeing sa国际传媒 market
For now, sa国际传媒 businesses that have relied on the large Chinese market need to adapt to make it through the challenging time, said Tan. For his company, this means developing more new products to attract new clients and being more demographically targeted.
“We will be more focused on the senior population in China,” said Tan. China is now home to the world’s largest senior population. By 2022, there were 280 million people aged 60 and over in China and the number is estimated to be more than 400 million by 2040.
“When economy is good, most people can afford our products. But when economy is cooling, younger people have other priorities such as paying the mortgage and raising the family. Compared to them, seniors have less life pressure and are more willing to pay for quality health products,” he said.
Lee also said providing more high-quality products is key to catching up with sales in a challenging economy, and sa国际传媒 may see more Chinese companies visiting to look for opportunities and partnerships in 2024.
“As the Chinese economy is cooling, more Chinese companies are eyeing the abroad market for expansion and investment, and they see potential in the Canadian market. There are opportunities for partnerships and together, we can explore a better path forward.”
