A trip to Beijing, and a sense of the economy and mood in China

I did a quick trip to Beijing just after Chinese New Year for some Rio Tinto work, and also to get a sense of the economy and mood in China. Many people who haven't been to Beijing ask me what the air pollution is like. This is very much an old view of Beijing as the air quality is now much improved with a decade or so ago.

I met with a range of people while there- eg senior government leaders in Finance and Commerce, an academic advisor to the top leadership, a Think Tank leader, a leading consultant to Chinese companies, the Deputy Editor of Caixin magazine, a CIO of a local large consumer investment fund, a China based investor for a Middle East based PE group, and some "old friends".

I also visited a lot of shopping malls- high end and low-end, as well as some recent extremely popular local brand retail outlets eg Laopu Gold?– who have been dubbed the "Hermès of gold" and known for its traditional Chinese craftsmanship in jewellery. There were long queues to get into all of their stores.

I came away feeling that there actually are glimmers of positive momentum building in the economy- and a slight uptick in overall confidence among Chinese business leaders- especially in the consumer and from the VC investor fronts. I was also excited to hear about the emphasis among policy makers that I met, that for any government initiative to have impact, there has to be a strong private market- or there will be no multiplier effect. This seems to be a recent shift in thinking, or at least emphasis of the current leadership group. But there is still a long way to go in the immediate term. I have been worried in the past 2 years about the macro economy in the short term, but less so in the medium to long-term.

Although there are worries about the impact of further tariffs on exports, China’s export position vis-a-vis the US has changed a lot since 2016- eg the US accounted for about 33% of Chinese exports in 2016, and now the US accounts for about 13-14% of total exports.

Despite the news on tariffs, the mood was more positive than in visits during 2024- I think driven, in part, by:??

1. There has been a strong emphasis by government policy makers in the last 6 months, and particularly the last 3 months on the consumer. This has increased funds to very poor people- who have lost jobs due to the real estate slump and the retail slow down; to civil servants and to teachers. There is "Light at the end of the tunnel" on the Real Estate restructuring (and it is not a train :)). The Real Estate crisis, and its restructuring, have been a major driver downwards on all aspects of the Chinese economy- in terms of its direct effects- eg infrastructure, steel, commodities demand- but also indirectly, in terms of the consumer. Real estate is where most wealth is held, and the decline in the market has made people save more. China did not do a stimulus program during Covid like most Western countries, so consumers also had to draw down on savings to get through that period- and the sense is that they are just getting through that. Savings rates in the last 18 months have been at the highest rates since 2000. Policy makers and local Chief Investment officers that I met, spoke about a mid-2026 recovery in Real Estate with trends moving in a positive direction since last November.

2. It is also important to look at the granularity of growth, particularly in China, and not just overall macro numbers. And there are a large number of pockets of growth among regions and cities and amongst various consumer segments (eg GenX and baby boomers in Tier 3 cities). McKinsey has some very good analysis on this which I reference below.?

3. The announcement and the high performance of the DeepSeek AI model and its minimal development cost, when compared to performance / cost of US-based incumbents’ models has buoyed domestic investors' and peoples' spirits. (The Chinese tech sector listings are on a tear upward over the last 3 weeks- and the Hang Seng Tech 30 is up 20% in the last month with more IPOs are occurring).?

4. The recent significant shift of some US TikTok subscribers to Xiaohongshu (or Red Note in English- Reuters reported that over 700,000 new users joined). This has led to a lot more communication between “everyday” Americans and Chinese- on what life is like and proving to be a significant morale booster for many Chinese- (ie "our life is tough in China" but may be the US is also a tough place for the 'everyday' person)- everyone was talking about this.?

5. Visa free travel- in bound tourism to China is nearing record levels. For example, Shanghai has become a "regular weekend destination" for many people in Seoul, given the ease of entry, low-cost travel and great tourist infrastructure in Shanghai. This is also deepening many Chinese consumers' understanding of how challenging economies are in different parts of the world- not just China. (There has not been much inbound travel to China for the past 5 years since COVID, and only 10% of Chinese have a passport to travel abroad).?

6. Innovation abounds, not just in the manufacturing space, as I have written about before, but also on the consumer front. I found some recent new popular food offerings most interesting. eg see photos of Starbucks "pork flavoured" latte coffee or the "fried-chicken" ice cream.

There is continued deep investment in the energy transition- across renewable energy generation, the transmission grid, and energy storage (while coal still plays an important part in the energy mix an article FT described China as “the world’s first green-powered electrostate” in an article on 12th?February 2025).

Looking forward- unlocking consumption by improving consumer confidence remains a particular focus. The equipment “trade-in” subsidy (eg trade in your old cell phone for a new cell phone, or old rice cooker for a new rice cooker) is helping and has proved to be very effective- about $25 billion was put aside for that in the last 6 months. This will be doubled again to $50 billion over the next year.