BEIJING — China’s zero-Covid consumer recovery is off to a solid start — after a dismal fourth quarter.
When Michelin-starred restaurant Rêver reopened from the Lunar New Year holiday on Thursday, it was fully booked, said Edward Suen, chief operating officer of the Guangzhou venue. Bookings for the next three days are close to capacity, he said.
He expects business to improve this year, allowing Rêvere to recover about 35% of the revenue it lost last year. The city of Guangzhou was one of the hardest hit cities in China’s Covid control in late 2022, before Beijing suddenly suspended most measures in early December and a wave of infections hit the country.
“Last Christmas was the first time in three years that we didn’t do a full house because quite a few people booked, but then they got infected,” Suen said. He co-founded Rêver in June 2020.
In an elegant Chinese city known worldwide for its Cantonese cuisine, Rêver taps into a new market by offering modern French cuisine with a multi-course dinner for 1,280 yuan ($183) or 1,680 yuan.
For next year, “we’re trying to be a little bit more conservative with how things go,” Suen said. “Because things have changed so quickly and suddenly these days.”
In 2022, China saw one of its slowest years of economic growth in decades. Retail sales fell 0.2% to 43.97 trillion yuan ($6.28 trillion), while catering sales fell 6.3%.
More recent data shows that Chinese consumers are starting to reopen their wallets, especially for travel.
During the seven-day Lunar New Year holiday that ended on Friday, national tourism revenue rose 30% from last year to 375.84 billion yuan, according to official figures. However, this was still less than the 2019 expenses.
“Consumer sentiment is better. Spending power is kind of backwards,” Ashley Dudarenok, founder of Chinese digital consultancy ChoZan, said on Friday. “But I don’t think it’s suddenly back to a month later … to 2019 or double 2019.”
Heading into 2023 and the Lunar New Year, some smaller brands are becoming more conservative with China and cutting their marketing budgets for the country in half, Dudarenok said.
“Consumer sentiment was really low, nobody really knew what was coming, and a lot of marketing budget and dollars went into 11.11. [Singles Day] and that wasn’t successful either, so the brands didn’t make much more than 11.11,” and another shopping festival in December, he said. “Then all of a sudden China opened up. Many did not expect this [and were] I was very surprised by this rapid development.”
Dudarenok expects overall consumption trends to continue, whether it’s people in big cities spending more to feel better or people in small towns paying for better quality products.
Many analysts expect high levels of savings among Chinese consumers amid the pandemic to translate into more spending this year.
At the policymaker level, Chinese officials say they prioritize consumption. Premier Li Keqiang presided over the State Council’s first post-holiday executive session on Saturday and called for “efforts to accelerate the recovery of consumption and stabilize foreign trade and investment.” Policies to encourage consumption of cars and other big-ticket items will be “fully implemented,” the meeting said.
However, unlike the US, China has not distributed cash to consumers domestically since the pandemic. Lee told reporters in 2022 that politicians would instead focus on supporting businesses and jobs.
“We believe that the most important factor affecting consumption is the outlook on future income, which is related to many factors,” Hao Zhou, chief economist at Guotai Junan International, said in a note. “That being said, reduced policy and virus uncertainties will definitely help improve sentiment.”
It expects 7% annual growth in retail sales.
Hainan’s recovery plans
Hainan, a tropical province aiming to become a duty-free shopping destination, has announced a target of 10% growth in retail sales this year. This follows a 9.2% drop in retail sales last year.
According to the local commerce department, the island’s 12 duty-free shops achieved total sales of 2.57 billion yuan during the week of the Lunar New Year holiday.
These holiday sales were four times more than in 2019, the release said, reflecting the region’s growth and new mall openings over the past few years.
LVMH and Coach parent Tapestry signed deals with local authorities in 2022 to expand their business in Hainan, including the establishment of Tapestry’s China travel retail headquarters, according to government announcements. The two companies did not immediately respond to CNBC’s request for comment.
Ruslan Tulenov, global media officer at the Hainan International Economic Development Bureau, said senior executives from US and European brands, among others, are planning to visit Hainan this year as Covid restrictions are eased. He declined to say how much or when.
“Personally, I had a few discussions with some of the leading companies last year or two, but at that time [there were] some Covid restrictions, difficulties in coming to China,” he said. “Some companies even wanted to take their private jets to fly directly to Hainan, but there were some Covid restrictions at the time.”
New trends change rapidly
Brands in China have to adapt not only to the Covid situation, but also to the changes in the market.
Dudarenok said the companies are shifting more marketing dollars to ByteDance’s Douyin, the local version of TikTok, and away from Weibo.
While those brands have been on Douyin for years, they weren’t part of the social conversation on the hugely popular app, he said. For brands, he said, the mindset now is “China has changed, the most important China has opened up, and we need to be part of that conversation to tap into that.”