BEIJING – 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.

       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. China’s consumption will gradually improve, he added.

       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 SE and prompted Apple Inc to cut prices.

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       The data supports this. Retail sales of services grew 7.5 per cent in the first half of 2024 compared with in 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 like Mr Zheng withstand external shocks.

       “From the central government to the local governments, everyone is trying to stimulate the economy and improve services,” he said. “People’s pursuit for a good life is also growing. It will definitely get better and better.”

       Recognising the potential of the services sector and the need to identify domestic growth drivers, China’s Cabinet – the State Council – announced sweeping measures on Aug 9 to improve the supply of services. The 20 key actions include boosting spending on dining, tourism, and accommodation for travellers.

       The push came days after President Xi Jinping led a Politburo meeting in July which called for making service consumption a “key lever” of driving consumption.

       “There is certainly more room to develop China’s services sector” when compared with the US or other advanced economies, said Ms Ernan Cui, China consumer analyst at Gavekal Dragonomics.

       However, she noted that Beijing’s policies are still tilted towards technology and manufacturing, and that more funding support is needed for the services sector.

       Tianshui, an ancient Silk Road hub in Gansu province, is a prime example of what economists call a boom in the “experience economy”.

       The town of some 2.9 million residents welcomed nearly four times as many tourists earlier in 2024 after a video review of its spicy street food went viral. Over two months, the town booked 5.9 billion yuan in tourism income, double the tax revenue it earned in 2023.

       An extensive high-speed rail network and increased car ownership have made it easier for people to explore lesser-known destinations like Tianshui or venture into the wilderness.

       Sales of outdoor gear such as paddle boards and diving equipment more than tripled during the annual shopping festival in June from the previous year, according to Chinese e-commerce giant JD.com.

       Sales of road bikes, cycling jerseys and electric skateboards also more than doubled, the data showed.

       “Shopping malls are very quiet these days. The outdoors offers richer experiences, and people like to be in nature now,” said Ms Chen Xinyue, a 24-year-old saleswoman at a company that makes camping equipment in Xuzhou, Jiangsu province. “Since the pandemic, many people have come to realise how fragile life is and prefer to live healthier and have fun.”

       This growing appetite for adventure is also reflected in the way people travel. Bookings for custom tours – which allow small groups to select their own routes, destinations, vehicles and food options – surged more than tenfold in the first seven months of 2024, according to Tongcheng Travel Holdings.

       That outpaced a 1.9-time increase in traditional group tours, despite the higher cost of custom tours.

       “That shows travellers increasingly prize the privacy, security and individual experience of their trips,” said the online travel agency in a statement to Bloomberg.

       Desperate to offset declining revenue from land sales, regional governments are capitalising on the experience boom by sponsoring new cultural and sports activities to attract tourists and stimulate growth.

       Rongjiang county in Guizhou saw success with its “village football league” – a carnival featuring football matches, ethnic music and dance, and fireworks displays.

       More than 12 million people have visited the place since May 2023, bringing in 13 billion yuan of tourism revenue.

       It is now courting investments from hotel chains in recreational vehicle parks and camping bases, while also lobbying for more frequent high-speed trains and football pitches.

       This strategy aligns with the State Council’s plan to expand sporting venues and host more events.

       Services accounted for 45 per cent of household spending in 2023, official data shows. The share could climb to more than 50 per cent by 2030, according to a projection from the China Institute for Reform and Development, a think-tank based in Hainan province.

       But consumer spending is still constrained by modest income growth and falling home prices, making home owners feel less wealthy.

       During a major five-day public holiday in May, travellers took 28.2 per cent more trips, but spent only 13.5 per cent more compared with during the 2019 break.

       This indicates lower per-person spending than before the pandemic and points to a trend of consumption downgrading.

       Macquarie Group economists, including Mr Larry Hu, wrote in a July 30 note: “The key to consumption recovery is the stabilisation of the housing market.”

       With this in mind, service providers have kept prices unchanged despite rising costs for raw materials, labour and transportation – a Caixin survey this week showed – as they are concerned about losing market share.

       The competitive pressure keeps Mr Zheng on his toes.

       To stay ahead, he spends the bulk of his time developing new products to cater to customer needs, and plans to eventually outsource everything except research and development, design and sales.

       He, too, is part of a consumption shift, now choosing “practical and durable” products over the high-end items he once favoured.

       “Everyone used to desire Maybachs or Mercedes-Benzes, but now we’re all pursuing domestic new energy vehicles,” he said. “What we call a consumption upgrade may not necessarily be an upgrade in terms of spending more money.” BLOOMBERG