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What is happening in China today: five observations from the field

China is always on the move, let alone after almost four years in which it has remained closed to the rest of the world. Here are five big changes in recent times in the Dragon Country

12 January 2024

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China is always on the move and in my experience everything changes every year and a half. Let alone after almost four years in which it has been closed to the rest of the world. That is why I went to visit last month and as soon as I returned, I would like to share five big changes I noticed.

1. Pre-recession air

In addition to friends and colleagues, I spoke to many people I met during the trip. The general feeling can be summed up with this sentence: 'I know so many people who lost their jobs during Covid, I fear that I or my husband will also lose them, and that is why we are cautious about consumption'.

Chinese consumers are buying less and buying cheaper goods, and this despite the fact that there is currently deflation in China thanks to oil and gas bought on sale from Russia.

The problem is that this attitude is the self-fulfilling prophecy of recessions. If the government does not stimulate the economy soon by changing the mood of the country, it is very likely that 2024 will be recessionary.

2. Systemic change in the Chinese tourism model

We also notice it in Italy, there are not as many Chinese tourists as before Covid. This was noticed by Hong Kong's economy, which received 50 million a year, almost as many as all the tourists visiting Italy in a year. In fact, Hong Kong used to be a big open-air duty free and trading luxury goods to the Chinese was one of the pillars of the local economy.

And I noticed it when I arrived in Shanghai at Pudong International Airport, shops with empty shelves, lights off and the airport deserted like a horror b-movie.

However, the underlying reality is more complex. On the one hand, the Chinese consumer's desire to travel has remained. On the other hand, Asian and Chinese airlines, after massive layoffs during Covid, have not yet managed to restore capacity in terms of flight and ground staff, and it is estimated that they may only be able to return to pre-Covid levels (and low prices) by next summer.

But above all, as discussed in a previous article, during the pandemic the Chinese have learnt to travel for pleasure even within China, in particular to Hainan Island, with a duty free model that allows online shopping with discounted prices even six months after visiting the island. In summary.

Winners: Hainan, the domestic Duty Free in China, the Chinese consumer.

Losers: Duty Free from the rest of the world, and in the medium term, the world retail that counted with Chinese tourism (although with the return of intercontinental flights, 2024 will certainly be all about growth)

Big Loser: Hong Kong Retail.

3. China has won the global electric car battle

In Shanghai it is easy to recognise electric cars because they have green number plates, and they are almost half the number of cars I have observed in the city centre and on the highways around the metropolis.

Chinese shopping centres are populated by multiple showrooms of local electric car brands, brands that we are also beginning to see in Europe. The American Tesla is the visible tip of the iceberg of the electric car movement, but it is actually only the second player worldwide, while the first (BYD), the fourth (SAIC) and the fifth (GEELY) are Chinese, with many others following.

But it is not just cars that are Chinese, it is the whole industrial ecosystem behind them, starting with batteries, that is dominated by Chinese industry. On this, in my opinion, China has already won the world race.

4. Hong Kong, more and more China and less and less West

Having lived in Hong Kong for five years, the thing that made the most impression on me upon returning there after so many years is how much Mandarin one hears being spoken on the streets (in Hong Kong one normally speaks Cantonese).

Numbers in hand, since the clampdown on freedoms in the past three years, Hong Kong has seen 2% of the native population emigrate, which has been replaced by a large influx of Chinese workers and management. And Chinese companies are also replacing multinationals that have migrated to Singapore. According to Colliers/FT between 2019 and 2023, the percentage of Chinese companies renting office space at the IFC skyscraper has almost doubled from 20 per cent to 38 per cent, similarly at ICC from 10 per cent to 16 per cent.

This means having less international and more Chinese counterparts in branch and retail relations in Hong Kong, a radical change to which one has to adapt.

5. Good disposition of the population towards the West but "No politics, please"

Contrary to the negative mood towards China that we developed in the West after Covid, in China I found the common people open, curious and even more positive towards us than in the past, with a genuine hope of being able to overcome the current political tensions.

Despite this, a small reminder for interactions with Chinese colleagues and counterparts: refrain from conversations about their political system by comparing it with that of the West.

As we have already written in a previous article, there is a very clear pact in modern, capitalist China between the citizens and the central government: they are granted very wide freedoms of action and economic initiative that have generated the greatest and most meteoric rise in prosperity in the history of the planet. And in exchange for this prosperity, Chinese citizens are happy to give up some of their equally sacrosanct freedoms. One of the biggest mistakes a Westerner can make in China is to claim that our system of democracy and freedom is superior to theirs.

My advice remains to refrain from such conversations about their political system, even more so with the current international tensions. One can perfectly enjoy the company of one's Chinese colleagues, appreciating their culture, work ethic and desire to get things done and innovate without getting bogged down in political issues.

China continues to evolve, changing radically every few years. 2024 will be a crucial year because it could bring the first recession in many decades, but it is also true that the country has vast domestic resources to continue its spectacular growth. The elements are all aligned for a truly key year for China's future.

* Partner at FA Hong Kong Consulting