HONG KONG (S&P Global Ratings) Jan. 23, 2024--China's weak property market will cast a shadow over retail spending this year. We stick with our view that retail sales (ex-petroleum) will advance a lukewarm 4.2% in 2024, despite a bump in auto sales late last year.
"Chinese consumers will be cautious with their discretionary spending this year," said S&P Global Ratings credit analyst Sandy Lim. "With the government focused on boosting investments and manufacturing to support GDP, consumption will contribute a smaller portion of growth than in 2023."
By our estimates, retail sales will lag the 4.6% GDP growth we expect in 2024. Last year retail sales increased 7.7%, ahead of our estimate of 5.8%. The performance was boosted by a late-year bump in auto sales, due to major price cuts and promotions.
"In our view, discounts and promotions will have less sway than consumer concerns over the struggling property market," said Ms. Lim. "Retailer discounts will lead to slightly lower margins."
In terms of key retail category, we expect:
- Catering sales to rise 6.5% in 2024: Delivery is driving outperformance amid more events and occasions. Dine-in activity normalized in 2023 but the sector has limited room to increase prices.
- Food and beverages sales growth to come in at 5.0%: This niche is facing deflationary pressure across many food categories, including protein. Beverage is better positioned.
- Apparel sales to underperform at 4.0% growth: This discretionary category will stay price sensitive. Mid-end products and discounting should continue to outperform in 2024.
- Household appliance sales will accelerate just 1.0%: This sector is tied to China's weak underlying property market. A shortening replacement cycle and upgrades add some support.
- Auto sales momentum will fall back to 3.5%: The boost in new car sales from late 2023 could last until lunar new year (early to mid February) before dissipating.
ONLINE VERSUS OFFLINE
In terms of physical goods, we forecast faster growth in online purchases than in-store ones this year. By our estimates, online purchases will make up 32.8% of physical goods purchases in 2024, 1 percentage point higher than in 2023.
"Online sales will continue outperforming offline in 2024 as consumer habits stick," said Ms. Lim. "Delivery conditions are getting better for consumers in terms of lower costs, faster deliveries, better return policies, among other measures."
| Our China retail forecasts for 2024… | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| …are largely unchanged despite late 2023 bump | ||||||||||||
| China key data (%) | Change from prior forecast (percentage points) | |||||||||||
| 2022a | 2023a | 2024e | 2023 | 2024 | ||||||||
| GDP (%) | 3.0 | 5.2 | 4.6 | |||||||||
| Retail sales (ex-petroleum) | -1.2 | 7.7 | 4.2 | 1.9 | -0.02 | |||||||
| By category | ||||||||||||
| Catering | -6.3 | 20.4 | 6.5 | 2.5 | 0 | |||||||
| F&B | 5.5 | 6.3 | 5.0 | 1.8 | 0 | |||||||
| Apparel | -9.8 | 11.6 | 4.0 | 0 | 0 | |||||||
| Household Appliances | -6.7 | -2.1 | 1.0 | 1.1 | 0 | |||||||
| Auto | -0.3 | 8.5 | 3.5 | 4.2 | 0 | |||||||
| Others | 0.5 | 2.8 | 4.0 | -0.5 | 0 | |||||||
| By channel | ||||||||||||
| Offline sales | -5.8 | 7.2 | 2.7 | 0.5 | 0.06 | |||||||
| Online sales (phy gds) | 10.7 | 8.8 | 7.4 | 4.7 | -0.18 | |||||||
| Online penetration (phy gds) | 31.5 | 31.8 | 32.8 | 0.8 | 0.80 | |||||||
| A--Actual. E--Estimated. Phy gds--Physical goods. Sources: S&P Global Ratings, National Bureau of Statistics of China. | ||||||||||||
Related Research
- Economic Outlook Asia-Pacific Q1 2024: Emerging Markets Lead The Way, Nov. 27, 2023
- China Retail: Tighter Belts, Broader Defenses, Oct. 17, 2023
This report does not constitute a rating action.
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,600 credit analysts in 27 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.
| Primary Credit Analyst: | Sandy Lim, CFA, Hong Kong 2533 3544; sandy.lim@spglobal.com |
| Secondary Contacts: | Flora Chang, Hong Kong + 852 2533 3545; flora.chang@spglobal.com |
| Aras Poon, Hong Kong (852) 2532-8069; aras.poon@spglobal.com | |
| Manqi Xie, CFA, Hong Kong 852-2532-8001; manqi.xie@spglobal.com |
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