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China economy
OpinionComment
Nicholas Spiro
Nicholas Spiro

Macroscope | Why the glass-half-empty view of China’s economic recovery needs a rethink

  • China’s domestic consumption-led recovery means that the spillover effects on the rest of the world are less pronounced
  • The bleak US outlook has put China’s performance under close scrutiny, and Western business expectations are running ahead of reality

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A large number of tourists visit Hongya Cave, a cluster of buildings with popular restaurants, in China’s Chongqing city on April 30, during the May Day ‘golden week’ holiday. Revenge spending is in full swing in the country. Photo: VCG
Nicholas Spiro
Barely a day goes by without a sign of disappointment and scepticism about China’s post-Covid recovery. While the doubts are voiced mostly by investment strategists and economists, the heads of a growing number of Western multinationals have begun to express their misgivings.
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On May 3, the chief executive of Qualcomm, the largest producer of smartphone processors, said the expectation was that “following the reopening, the China market was going to bounce back” but “we have not seen those signs yet”.

Even hospitality and consumer goods companies are sounding a note of caution. On April 26, the chief executive of Hilton said “China has been a little bit slower to … pick up steam on the development side”, while on May 2, the chief financial officer of Starbucks said “there’s a lot that we’re navigating” in China, adding that the coffee chain expected its business in the country to grow “at a more moderate pace” later this year.

To be sure, some other big Western firms, particularly in the luxury goods sector, are distinctly bullish, while several Wall Street banks remain upbeat about China’s reopening. Bank of America recently upgraded its forecast for Chinese growth this year to 6.3 per cent, significantly above the government’s 5 per cent target.

Indeed, according to the findings of Bank of America’s latest global fund manager survey, published on April 18, an overweight position in Chinese stocks – which remain cheap compared with their US peers – was still one of the most popular trades in markets.

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Yet, there is a palpable lack of confidence about the strength and durability of China’s rebound among many Western companies and financial institutions. Ever since China abruptly scrapped its zero-Covid policy, a glass-half-empty view of the recovery has held sway, with its weaknesses overshadowing its strengths.

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