Chinese swop bags for trips as 'experience economy' booms

Watching orders dwindle as China's housing market slumped, factory owner Zheng Weirong decided to take action and protect his steel business from the real estate downturn.

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Betting on a tourism revival, he wound down a production line making metal bars in 2021 and shifted investment to producing container-size cabins, often used as guest houses.

The pivot paid off, with demand exploding in 2023 after travel in China rebounded following the lifting of Covid-19 pandemic restrictions.

With 50 full-time employees, Mr Zheng is aiming to increase revenue by 30 per cent in 2024, to around 130 million yuan (S$24 million) - an ambitious target amid a slowing economy and faltering consumer spending.

"More and more people are pursuing travel or high-quality and beautiful things," said the 38-year-old in the southern manufacturing hub of Guangdong.

Mr Zheng's success highlights a shift in Chinese consumption patterns, with people spending more on services, even as they remain thrifty and refrain from splurging on goods.

This has made services a bright spot in otherwise sluggish consumption, which has weighed on LVMH Moet Hennessy Louis Vuitton and prompted Apple Inc to cut prices.

Retail sales of services grew 7.5 per cent in the first half of 2024 compared with the same period in 2023, while goods sales rose just 3.2 per cent.

This presents both an opportunity and a hedge. With services at just about 50 per cent of gross domestic product, the sector has plenty of room to grow before reaching the 75 per cent level seen in the US or European Union.

And with manufacturing cooling and threatened by tariffs, greater domestic consumption of services would help Chinese factory owners withstand external shocks.

Recognising the potential of the services sector and the need to identify domestic growth drivers, China's Cabinet - the State Council - announced measures on Aug 9 to improve the supply of services.