- China recorded 4.5 percent year-over-year growth in GDP in the first quarter of 2023, a sign of the ongoing economic recovery post the Covid pandemic. However, the road to recovery is bumpy, with mixed growths in different sectors of the economy.
- The automotive sector is an illustrative example: Compared to the overall positive consumption growth (+5.8 percent), Passenger Vehicle (PV) sales in Q1 2023 decreased by 13.4 percent in volume from one year earlier, according to CPCA. This reflects the post-pandemic difficulty to convince consumers to make purchases of durable goods as opposed to fast consumption.
- Interestingly, we observe that the premium cars sector in China is experiencing very robust growth in the same quarter. The total sales volume of PVs with a retail price above 300,000 RMB in Q1 2023 grew by 16.9 percent year-over-year.
- The strong contrast between the prosperous premium car sector and the shrinking sales of mass auto brands reflects one of the structural issues within the Chinese economy: Income and wealth inequality persists and affects the aggregate consumption level. The past pandemic worsened the situation by damaging lower-income groups most severely. Governmental policies did not help alleviate this either, by offering subsidies to businesses without direct financial support to residents.
- Therefore, for foreign companies catering to the upper middle class in China, the unleashed demand for premium goods that has been suppressed during the pandemic lockdowns will generate solid sales performance, at least in the short term. However, those who are competing for the mass market segments will face significantly weaker consumer demand and need to prepare for fierce price competition.
Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.