Wealth Outlook 2024 - Slow then grow

109 Wealth Outlook 2024 | Regional outlook Asia: faster growth for 2024 as headwinds recede Consumers in China are deeply impacted by the real estate crisis. Many developers with large inventories of pre-sold but incomplete projects await restructuring. Many consumers have deposits held by these players. New prospective buyers also worry whether their purchases will be completed. Demand for property has collapsed as a result, taking prices lower. Pricing for secondary sales has fallen meaningfully, too. Chinese households use real estate as a store of wealth. Seventy percent of their assets are in real estate. The impact on the economy is therefore multiplied, as Chinese households have chosen to massively increase their precautionary savings over the past two years rather than make new discretionary purchases. There were 32 trillion yuan ($4.7 trillion) in new bank deposits over this period, the largest increases on record.1 1 People's Bank of China as of September 2023. Chinese business sentiment is poor as well. The repeated regulatory actions over the past two years – on the large internet firms, the after-school tutoring industry and the property sector (not to mention, the long months of zero-COVID shutdowns) – have left many business owners wary of making growth- oriented investments or seeking higher profits for fear they could be putting their fortunes and/or even their personal safety at risk. Government support for now-favored industries such as electric vehicles, green energy and semiconductors – while helpful for gross domestic product (GDP) statistics – does not restore business confidence. These focus industries are not labor-intensive enough to spark a broad-based economic recovery. Until policymakers signal a broader “all-clear” for greater operating flexibility and less micromanagement of the wider economy, sentiment is likely to remain tepid. Neither of these problems are intractable. The central government has the resources to continue deflating the property bubble while making more homeowners whole. The resumption of high-profile initial public offerings and a few other key free-market policy signals would go a long way toward restoring business confidence. Yet, these fixes feed into a larger, existential conflict experienced at the highest levels of government, over how far or how fast Chinese liberalization can proceed without putting internal stability and security at risk. That conflict is not going to be resolved in the near term. — Over the past two years, Chinese households have socked away 32 trillion yuan – nearly $4.5 trillion – in precautionary savings deposits, the largest increase on record. Until then, we believe that the aggregate economic impact of the policies of 2023 is likely to produce a mild cyclical recovery in 2024. Potential tactical investment opportunities could arise among industrials, consumer discretionary and information technology – especially in the most advanced technology areas now favored by policies and benefiting from other surprise tailwinds fromUS-China decoupling (see The implications of G2 polarization on global technology on page 98) .