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Insight | Time: Mar 13 2023 2:39PM  Editor:Monica Jiang
How to treat booming demand in China local market?
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After Chinese Lunar New Year started in Feb, the demand in China local market has been booming. The market participants keep asking that why the good performance of demand has not been strongly felt by the plants.


First, the number of tourists during the Spring Festival reached 308 million, a year-on-year increase of 23.1%, returning to 88.6% of the comparable 2019 level.


In Feb, the PMI hit a 129-month high of 52.6%. Although social retail data was not released in Jan, the retail data published in mid-March is expected to perform well.


As to textiles, apparels and home textiles, traders for each link started to actively build up stocks. Last week, the analysts from CCFGroup visited the Nantong market and found that the supply of bedding products was tight, and some specifications of yarn raw materials were even out of stock.


Based on various performances, it is an objective fact that domestic demand boomed in Feb, then how to treat such prosperity?


Firstly, it is the result of expectation for economic recovery. With the shift of the epidemic control policy, people's living patterns have undergone significant changes. Family visits, tourism, travel, business, and even investment activities have increased significantly.


Secondly, the deposits of the resident increased significantly by 17.84 trillion yuan and hit new highs in 2022, which means a huge consumption potential.


Thirdly, the inventory of traders is relatively small. There is obvious demand for restocking in most links, and some buyers even replenished stocks for quarterly or even semi-annual consumption. But there are particularities and limitations for such recovery.


Take the number of tourists for example, the flow of people has been greatly restricted since the epidemic outbreak, and some migrant workers have not been able to return to their hometowns for three years. After the epidemic control was lifted and the manufacturing industry in East China greatly increased the holidays, the number of tourists still failed to return to the pre-epidemic level after those returnees were included in the number of tourist trips. At the same time, tourism revenue has only recovered to 73% of the previous level, lagging behind the recovery of the number of travelers.


Although a huge amount of household deposits have been accumulated in the past year, the increase in the deposits is not only a reduction in passive consumption scenarios, but also a response to future uncertainties. At the same time, the structure of the distribution of these deposits in the residential sector is also noteworthy. Considering the Gini coefficient of 0.468 released by China in 2020, the distribution of deposits is not very even. According to the data from China鈥檚 central bank, the proportion of depositors with a deposit amount below 500,000 yuan in China is as high as 99%. Under the environment of delayed retirement and medical insurance reform, it will restrain the release of consumption by the general public.


The intensive stocking by traders is largely due to the swing epidemic prevention policy since Nov of 2022, the concentrated outbreak of the epidemic, and the long Spring Festival holiday, resulting in less stocking before. Although the recent stocking has brought about a surge in demand, with the completion of the stocking, this large-scale stocking cannot be sustained. Even if the demand starts to recover later, it will turn to a normal restocking rhythm. Therefore, the robust demand is not likely to be sustainable.


Returning to the question at the beginning of the article, the recent contradiction between strong demand and poor feeling of the plants, the core problem is cycle mismatch. At present, the quantity that can be supplied in the market is mainly the output from Dec 2022 to Feb this year. During this period, affected by factors such as the epidemic and the Spring Festival, the real stable production only lasted for more than one month, while the demand was released for Mar-May that is expected to rise. When the long-term demand is released in the short term in Feb, it will obviously lead to strong demand.


China's economy has made great achievements since the beginning of this century, which has been contributed by people's hard work and wisdom, and the government's coordination and organization. It also benefits from a stable and open international environment and vigorous global demand. Since the Russia-Ukraine conflict, the stable and open international environment has been challenging, and the status quo has become increasingly indescribable. As for textile industry, while seizing the opportunities of economic recovery, the participants still need to remain in awe of the current uncertain global situation. The 17th China Hangzhou Cellulose Fiber (Viscose) Industry Forum will further discuss on the current situation and countermeasures.

[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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