China's large consumer market is not yet rebounding to pre-pandemic levels

China’s large consumer market is not yet rebounding to pre-pandemic levels

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

Chinese Intelligence Service | VCG | Getty Images

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

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

“At the end of December, the flow of customers gradually normalized with a slightly increasing tendency, but [a recovery in] trading volume still has to wait,” he said in Chinese, as translated by CNBC.

He expects it will take at least three or four months for revenues to return to normal. Over the past six months, sales have fallen to 30% of typical levels, Chong said. He said the first Bem Bom Coffee store opened in late 2019, followed by a second store and coffee academy in August 2021.

China’s retail sales for 2022 fell slightly in November, official data showed. Since the outbreak of the pandemic almost three years ago, consumption has lagged overall economic growth.

For the year ahead, Bain partner Derek Deng held expectations. “We hope to at least return to the level of the first quarter of 2022,” he said, noting that was just before the Shanghai quarantine.

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

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

Most of China’s household wealth is tied up in real estate, a one-time hot market that has slumped over the past year. Stock markets in mainland China fell in 2022 for the first time in four years. Exports, which drive China’s growth, have started to fall in recent months as global demand has weakened.

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

“I think it also has an impact on how people feel about their disposable income or whether they need to save to weather all the uncertainties,” he said.

According to surveys by the People’s Bank of China, Chinese consumers’ penchant for saving reached record levels last year.

Hope to travel

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

That’s double what it was last year and 70% of the 2019 level, China’s Ministry of Transport said on Friday. It noted that the majority of trips are likely to be to visit family, while only 10% will be for leisure or business travel.

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

However, Chinese overseas travel is unlikely to pick up until the next public holiday in early April, said Chen Xin, head of China leisure and transport research at UBS Securities.

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

Within China, Chen expects a further recovery in travel after February, when business travel picks up, bringing hotel business back to 2019 levels by the end of the year. That’s based on an industry metric that measures revenue per available room.

Not everyone goes out

The streets of China’s big cities are getting busier as the first wave of infections passes.

But it’s mostly younger and middle-aged people who are still out, UBS’s Chen said, adding that older people may be more cautious when venturing out.

After gradually easing Covid controls, Chinese authorities abruptly canceled most virus tests and contact tracing in the country last month. However, the vaccination coverage of the elderly in China is relatively low. In China, only domestically produced vaccines are generally available.

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Bain’s Deng is also watching to see if consumers start going out more. During the first three quarters of 2022, about 56% of consumer spending was at home — the opposite of the pre-pandemic trend, he said.

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

Over the past 18 months, the Chinese e-commerce giant has reduced the next day delivery time for many products to just one hour. Thanks to her partnership with Dadanow majority owner of JD.

The company’s data showed that between December 16 and January 1, the hourly delivery platform saw sales of vegetables, beef and mutton roughly double last year. Sales of refrigerators are up 700%, while flat-screen TV sales are up tenfold from last year, according to the data.

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