China: politics, mobility and hesitant consumers

On Wednesday, after a meeting of the Politburo Standing Committee in Beijing, the major legislative sessions were set for 22 May, a delay of over two months. Known collectively as "two sessions", or Lianghui, the gatherings are the most important political affair of the year, keenly watched as Beijing announces its economic growth projections are targets during the meetings.

While China has been in recovery for a number of weeks, this was seen as a sign that the central leadership feel confident enough that a second wave is not imminent, and if there were to be one, it could be contained. Indeed, with up to 5,000 delegates from across the country typically descending on Beijing, confidence in the country and its recovery took a positive step.

This is a major milestone in a country that saw a 6.8% contraction in growth in Q1 2020 as the impact of the coronavirus outbreak and lockdown was truly felt. 

Headwinds to the Chinese economy

Even with these continued positive signals, there are however a number of reasons to be cautious. On the consumption side, despite an increase in shopping centre footfall, shoppers, uncertain about the outlook are not opening their wallets as quickly as hoped. On the retail side, sales in March dropped 15.8% from a year earlier, after a 20.5% decline in the first two months of the year. Much discretionary spending is being held back as the full impact on the economy is being felt, and the government is likely to prioritise policies to boost consumption over the coming weeks.

On the manufacturing side there are also indications that things slowed in April, with the drop off in external demand impacting the sector. The Caixin Markit PMI manufacturing index dropped to 49.4 in April, from March’s expansionary 50.1. The 50-mark separates growth from contraction on a monthly basis, with the global lockdown and fall in export orders from around the world hindering China's economic recovery.

But real estate markets continue to see an uptick in activity

Despite these headwinds preventing the economy getting back to full capacity, there is no doubt that our teams across China are seeing more activity in the real estate markets. Most notably, in the industrial sectors, while the challenges in manufacturing remain, e-commerce led logistics demand has been strong, with an increase in enquiries across most Tier-1 cities.

On the residential side, activity continues to pick up in April as discounts by developers and the existing demand/supply imbalance in Tier-1 cities have ensured that activity continues to rebound.

With more certainty now as to the situation with coronavirus domestically, we expect to see a continued pickup in activity over the coming months.

Beijing out of quarantine 

In parallel with the announcement for the legislative meetings, there was also an announcement that Beijing would lift its quarantine regulations from this week. For those that live and work in Beijing (me included), this will have a huge impact in terms of internal travel, meaning, for example, that we can go to Shanghai and back without the compulsory 14 days either at home or in a government facility.

For residents and businesses in Beijing, this is extremely welcoming news, and it is hoped will be another positive sign for the economy going forward.