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

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

Chinese news service | VC | Getty Images

BEIJING — It will be some time before Chinese consumers really start spending again, despite China’s abrupt shift to reopening.

About a month after the city of Guangzhou was able to dine in the shop again, local coffee shop owner Timothy Chong said sales were recovering – up to 50% of normal levels.

At the end of December, the customer flow gradually normalized, with a slight upward trend, but [a recovery in] the trading volume has yet to wait,” he said in Chinese, translated by TBEN.

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

Retail sales in China were slightly down from November for 2022, official data showed. Since the start of the pandemic nearly three years ago, consumption has lagged overall economic growth.

For the year ahead, Bain partner Derek Deng kept expectations in check. “The hope is that we will at least get back to Q1 2022 levels,” he said, noting that this was just before the Shanghai lockdown.

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

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

Most of Chinese household wealth is tied up in real estate, a one-time hot market that has collapsed over the past year. Stock markets in mainland China fell in 2022 for the first time in four years. Exports, a driver of China’s growth, have begun to decline in recent months as global demand slows.

Deng also noted fears of a second Covid wave, the highly contagious XBB-omicron sub-variant coming from abroad and geopolitical uncertainties.

“I think this also affects people’s perceptions of their disposable income, or whether they need to save to get through all those uncertainties,” he said.

According to surveys by the People’s Bank of China, Chinese consumers’ propensity to save reached an all-time high last year.

Hope for a travel recovery

Analysts are closely watching the upcoming Lunar New Year holiday for indications on consumer confidence. The travel season for China’s major holiday runs from about January 7 to February 15 this year. According to official estimates, some 2.1 billion trips are expected.

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That’s twice as much as last year and 70% of 2019 levels, China’s transport ministry said on Friday. It noted that most trips are likely to be for family visits, 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 the ability of Chinese citizens to go abroad for pleasure after nearly three years of tightly controlled mainland borders. On Sunday, China also formally scrapped quarantine requirements for inbound travelers.

However, Chinese are unlikely to travel abroad until around the next 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 have recovered 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.

Within China, Chen expects travel to regain momentum after February, when business travel picks up again, bringing hotel business back to 2019 levels by the end of the year. This is based on an industry statistic that measures revenue per available room.

Not everyone goes out

The streets of China’s major cities are getting busier now that the first wave of infections has passed.

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But it’s mainly younger and middle-aged people who are getting back out on the road, UBS’s Chen said, noting that older people may be more cautious about getting out.

Following a gradual rollback of Covid controls, Chinese authorities suddenly abolished most of the country’s virus testing and contact tracing measures last month. However, vaccination coverage for the elderly in China has been relatively low. Only domestically made vaccines are generally available in China.

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Bain’s Deng is also looking at whether consumers are going out more. During 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 consider their business strategy, especially for delivery services, Deng said.

In the past 18 months, the Chinese e-commerce giant JD. com reduced the delivery window for many products from next day to just one hour. That is through his collaboration with dadanow majority owned by JD.

Figures from the company showed that for the period December 16 to January 1, sales of vegetables, beef and mutton on the one-hour delivery platform roughly doubled from a year ago. Sales of refrigerators were up 700%, while sales of flat-screen TVs increased tenfold from a year ago, according to the data.