Large Chinese consumer market not yet rebounding to pre-pandemic levels

Tourists visit ice sculptures in Harbin, Heilongjiang Province on New Year’s Day 2023.

China News Service | CGV | Getty Images

BEIJING — It will take time for Chinese consumers to really start spending again, despite China’s abrupt shift toward reopening.

About a month after in-store dining resumed in Guangzhou city, local cafe owner Timothy Chong said revenue was recovering – to 50% of normal levels.

“At the end of December, the flow of customers gradually normalized, with a slight upward trend, but [a recovery in] the volume of business still has to wait,” he said in Chinese, translated by CNBC.

He expects it to take at least three or four months before revenues can return to normal. In the past six months, revenue has fallen to 30% from usual levels, Chong said. He said Bem Bom Coffee’s first store opened in late 2019, followed by a second store and a coffee academy in August 2021.

China’s retail sales fell slightly for 2022 in November, official data showed. Consumption has lagged overall economic growth since the pandemic began nearly three years ago.

For the year ahead, Bain partner Derek Deng has kept a lid on expectations. “The hope is that we will at least get back to the level of the first quarter of 2022,” he said, noting that was just before the Shanghai lockdown.

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Retail sales for the first three months of 2022 rose about 3.3% from a year ago, but slowed to a 0.7% decline for the first half of the year, according to Wind Info.

A return to 2021 — when retail sales rebounded 12.5% ​​— would be an optimistic scenario, Deng said. “I don’t think people see this as sort of a base case scenario, mainly because the macroeconomic factors are actually less favorable compared to 2021.”

Most of China’s household wealth is tied to real estate, a once-hot market that crashed last year. Mainland Chinese stock markets fell in 2022 for the first time in four years. Exports, the engine of Chinese growth, have started to decline in recent months as global demand weakens.

Deng also noted fears of a second wave of Covid, the highly contagious XBB omicron subvariant coming from overseas, and geopolitical uncertainties.

“I think it also has an impact on people’s perception of their disposable income or their need to save to get through all these uncertainties,” he said.

According to surveys by the People’s Bank of China, Chinese consumers’ inclination to save hit record highs last year.

Hopes for a travel rebound

Analysts are watching the upcoming Lunar New Year holiday closely for indications of consumer sentiment. China’s major holiday travel season runs from around January 7 to February 15 this year. – with around 2.1 billion trips planned, according to official estimates.

That’s double last year, and 70% of 2019 levels, China’s transport ministry said on Friday. He noted that most trips are likely to be to visit family, while only 10% will be for leisure or business trips.

This year, many more Chinese will finally be able to travel abroad. The country is restoring Chinese citizens’ ability to travel abroad for leisure, after tightly controlling mainland borders for nearly three years. On Sunday, China also officially scrapped quarantine requirements for incoming travelers.

However, Chinese outbound travel is unlikely to resume before the next public holiday in early April, said Chen Xin, head of China leisure and transportation research at UBS Securities.

By then, people will have been able to process their passport applications, while the number of international flights may be back to 50% or 60% of 2019 levels, Chen said. He added that measures such as pre-flight virus testing requirements to visit certain countries could be relaxed in a few months.

In China, Chen expects travel to see a new boost after February when business travel picks up, bringing hotel activity back to 2019 levels by the end of the year. This is based on an industry metric that measures revenue per available room.

Not everyone comes out

The streets of major Chinese cities are becoming busier as the first wave of infections passes.

But it’s mostly young and middle-aged people who are going out again, UBS’s Chen said, noting that older people might be more cautious about venturing outdoors.

After a gradual rollback of Covid controls, Chinese authorities last month suddenly scrapped most of the country’s virus testing and contact tracing measures. However, immunization rates for the elderly in China are relatively low. Only locally manufactured vaccines are generally available in China.

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Bain’s Deng is also monitoring whether consumers will start going out more. In the first three quarters of 2022, about 56% of consumer spending was at home — the reverse of the pre-pandemic trend, he said.

If the share of out-of-home spending can increase by even a few percentage points, it will affect how malls and restaurants think about their business strategy, especially for delivery services, Deng said.

Over the past 18 months, the Chinese e-commerce giant JD.com reduces the delivery window for many next-day products to just one hour. It is thanks to its partnership with hobbynow majority owned by JD.

Company figures showed that for the period from December 16 to January 1, the one-hour delivery platform saw sales of vegetables, beef and mutton around double from a year ago . Refrigerator sales soared 700%, while flat-screen TV sales were up tenfold from a year ago, the data showed.

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