China: Consumption bounce ≠ surging goods imports

Unlike past recovery cycles, the sharp expected rebound in China’s private consumption may not result in surging imports. Our updated forecast now sees 8% plus consumption growth in 2023, much of it will be frontloaded, with the sequential quarterly pace winding down by year-end.

The impact on imports will be less spectacular for a number of reasons: First, this was no ordinary downturn, and the upturn will benefit domestic-focused services sectors the most. Indeed, services hurt by China’s zero-Covid policies have accelerated of late and have further room to run, which should offset the normalisation in goods demand.

What you will learn:

• But sectors sensitive to a reopening boost (distributive trade, transport, accommodation, and food services) make up only a little more than a quarter of total foreign value-add to final Chinese demand.
• Using conservative estimates of import elasticities of demand, we see minimal spill-over impact from higher Chinese demand on the US, Europe, and EMs outside of Asia, and more significant, albeit modest, influence on regional economies, particularly those with high trade links with China and/or geographic proximity to the mainland.
• Looking beyond the current cycle, China is shifting towards a less import-intensive economy. Constructing a proxy for import intensity-adjusted demand, we find that since the early 2010s, progress has been made in rebalancing the economy, although periods of policy easing (in the form of an investment push) have been at odds with reallocation efforts.