Three-horse carriage for growth in China: Where are they heading

Throughout the journey, the Chinese economy has been driven by three main engines: exports, investments, and consumption, which are also known as the three-horse carriage for growth. At present, where are these horses heading?

During the pandemic, lockdowns in Western countries hindered service consumption but led to a surge in online shopping, resulting in increased demand for consumer goods and reduced inventories. This, in turn, boosted robust export growth of China. However, as the pandemic gradually subsided since the beginning of last year, service consumption has started to recover, leading to a decreased demand in consumer goods. China’s exports last year were mainly for inventories restocking in Western countries since inventory levels were extremely low previously. According to data from the US Bureau of Economic Analysis, the inventory-to-sales ratio has returned to 1.39 by the end of March this year, approximately the pre-pandemic level. This signifies that the favorable environment for China’s exports over the past two years has essentially come to an end. Before the pandemic in 2019, China accounted for about 13% of global merchandise exports, which increased to 15% during the peak of the pandemic in 2021. If China’s export share returns to pre-pandemic levels, we may see a slight contraction in exports this year.

On the other hand, many investors are concerned about the long-term impact of geopolitical tensions and rising labor costs on China’s export competitiveness. It is undeniable that some companies are considering the “China plus one” strategy, which involves seeking an additional production base outside of China to reduce reliance on Chinese production. However, export data from the beginning of the year until April shows that China’s exports still grew by 2.5% year-on-year, while popular “China plus one” locations such as Vietnam, India, and Thailand experienced declines of 11.8%, 4.7%, and 2.2% respectively during the same period. What’s more, despite a 7.5% year-on-year decline in May’s exports, China’s cumulative exports still rose by 0.3% for this year as of May.

As for the second horse – investment, it is estimated that fixed asset investment growth will remain at a moderate level. Achieving a significant acceleration in investment is not easy, as the real estate sector has had a large share and it is difficult for other industries to immediately replace its contribution. However, data showed that the growth focus of fixed asset investment has shifted from real estate to other sectors, including automobile manufacturing and high-tech industries. Infrastructure investment has also shown some strengthening in growth. However, we noticed the lack of momentum within fixed asset investment of private enterprises, with a growth rate of only 0.9% for the entire year of 2022. In the first four months of this year, the growth rate further dipped to 0.4% year-on-year, far below the overall growth rate of fixed asset investment at 4.7%. We believe the weak fixed asset investment of private enterprises is partially due to the lack of confidence after the regulatory overhaul of Internet companies. While certain sub-sectors may lag, investment is overall gaining traction.

Lastly, in terms of consumption, it appears to be gradually improving. In the first five months of this year, the business activity index of the Chinese retail industry has shown monthly improvements and has remained above the boom-bust line for five consecutive months. The ratio of household net savings to GDP, after deducting debt, has increased from 32% in the beginning of last year to 44% in March of this year, indicating that people have the ability to consume, but they are currently adopting a conservative approach and are willing to save cash.

Overall, two of the three horses, exports and investments, are still building momentum and waiting for a breakthrough. While consumption is clearly evidencing strong growth potential and is positioned for further improvement.


This document is based on management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this document, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. All opinions or estimates contained in this document are entirely Zeal Asset Management Limited’s judgment as of the date of this document and are subject to change without notice.

Investments involve risks. Past performance is not indicative of future performance. You may lose part or all of your investment. You should not make an investment decision solely based on this information. Each Fund may have different underlying investments and be exposed to a number of different risk, prior to investing, please read the offering documents of the respective funds for details, including risk factors. If you have any queries, please contact your financial advisor and seek professional advice. This material is issued by Zeal Asset Management Limited and has not been reviewed by the Securities and Futures Commission in Hong Kong.

There can be no assurance that any estimates of future performance of any industry, security or security class discussed in this presentation can be achieved. The portfolio may or may not have current investments in the industry, security or security class discussed. Any reference or inference to a specific industry or company listed herein does not constitute a recommendation to buy, sell, or hold securities of such industry or company. Please be advised that any estimates of future performance of any industry, security or security class discussed are subject to change at any time and are current as of the date of this presentation only. Targets are objectives only and should not be construed as providing any assurance or guarantee as to the results that may be realized in the future from investments in any industry, asset or asset class described herein.

In respect of any discrepancy between the English and Chinese version, the English version shall prevail.