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Written by: Mark Martyrossian | Aubrey Capital Management
We posted a couple of pieces back in January describing the bounce in Chinese consumption after the demise of zero-Covid. This data was largely confined to spending on “experiences” and other lower-ticket items. However, there are signs that bigger ticket items are also beginning to leap from the shelves. Is this the beginning of a trend that sees the Chinese consumer come back to the fore?
Many of you will have seen BYD’s recent results. One number jumped out for me - car sales in the first quarter of this year topped 551,000 (+90% yoy) seemed like a punchy number from a population just a couple of months out of zero- Covid. And this in a quarter where the removal of subsidies has led to an overall dip in sales for the car market as a whole. Although comparisons with Tesla are not particularly meaningful, Q1 2023 sales globally for Elon were 440,000.
The average sales price may be a lot lower than Tesla (USD 15,000 to 25,000) but it is still a significant amount of money and shows that the Chinese consumer is willing to spend some of the estimated USD 5tn in excess savings accumulated over the course of the Covid lockdown. BYD are forecasting car sales of over 3 million this year, a rise of some 70% yoy.
A BYD Qin spotted on a street in Omaha Nebraska
Data on another even bigger ticket item, property, also seems to be improving. Although the data is by no means consistent across the whole of China and across different sectors, residential sales in first and second tier cities appear to be growing albeit from a low base. The value of new and second-hand housing in these cities rose in February. Not bad for a sector that has been blighted by toxic sentiment as recently as Q4 last year.
By contrast, unemployment is not moving in the direction which Beijing would like. 18% of the 16 to 24 year- old cohort is now out of work which is close to the high registered in the summer of last year. But if one reasonably assumes that the economy is set to put on some pace (people are back to work and will be “encouraged” by Dada Xi’s policy initiatives) then these figures should start to turn. When announcing the results, the Chairman of BYD said that he alone would be looking to hire 30,000 graduates in the months ahead. Small beer perhaps given a graduating cohort of over 10 million this year but...
Are BYD and property prices the bellwethers for Chinese consumption? I think this is an eminently reasonable assumption.
We increased our China exposure at the beginning of the year and are confident that the economy will continue its upward trajectory. We shall be in China for a number of weeks monitoring the consumers’ appetite and checking that our companies are continuing to benefit from the resultant increase in spending.
