Tourists visit ice sculptures in Harbin, Heilongjiang Province on New Year’s Day 2023.
China News Service | VCG | Getty Images
BEIJING – Despite China’s sudden shift to reopening, it will take time for Chinese consumers to really start spending again.
About a month after Guangzhou resumed eating at the store, Timothy Chong, a local coffee shop owner, said revenue had recovered – up to 50% of normal levels.
“At the end of December, the flow of customers gradually normalized, there is a slight upward trend, however [a recovery in] the volume of work still has to wait,” he said in Chinese, as translated by CNBC.
He expects it will take at least three to four months for revenue to normalize. Chong said revenue has fallen to 30% of typical levels in the past six months. According to him, Bem Bom Coffee’s first store opened at the end of 2019, followed by the second store and coffee academy in August 2021.
China’s retail sales for 2022 fell slightly as of November, according to official data. Since the pandemic began nearly three years ago, consumption has lagged behind overall economic growth.
For the year ahead, Bain partner Derek Deng maintained expectations. “The hope is to at least get back to the level of the first quarter of 2022,” he said, noting that was just before the Shanghai lockdown.
According to Wind Information, retail sales for the first three months of 2022 rose about 3.3% from a year ago, but slowed to a 0.7% decline in the first half of the year.
Deng said a return to 2021, when retail sales grew by 12.5%, would be an optimistic scenario. “I don’t think people see it as kind of a key situation because basically the macro factors are less favorable than in 2021.”
The bulk of Chinese household wealth is tied up in real estate, a once-hot market that has fallen over the past year. China’s mainland stock markets fell in 2022 for the first time in four years. Exports, the driver of China’s growth, have started to decline in recent months as global demand has weakened.
Deng also cited fears of a second wave of Covid, the highly contagious XBB omicron subvariant imported from abroad, and geopolitical uncertainties.
“I think it’s also affected people’s perception of whether they need to have disposable income or whether they need to save to get through all that uncertainty,” he said.
Chinese consumers’ propensity to save reached a record high last year, according to surveys by the People’s Bank of China.
Hopes for a travel rebound
Analysts are closely watching the upcoming Lunar New Year holiday for signs of consumer sentiment. The travel season for China’s big holiday will last from January 7 to February 15 this year. According to official estimates, about 2.1 billion trips are expected.
That’s double what it was last year and 70% of 2019’s level, China’s Ministry of Transport said on Friday. Most of the trips were to visit family, only 10% indicated that they would be for leisure or business trips.
More Chinese will finally be able to travel abroad this year. The country is restoring the ability of Chinese citizens to travel abroad for leisure after almost three years of strictly controlling mainland borders. On Sunday, China also officially lifted quarantine requirements for incoming travelers.
Chen Xin, head of China leisure and transport research at UBS Securities, said it was unlikely that China’s overseas travel would continue until the next public holiday in early April.
By then, people will be able to process their passport applications, and the number of international flights could be restored to 50% or 60% of 2019 levels, Chen said. It added that measures such as pre-flight virus test requirements for travel to certain countries could be eased in a few months.
Inside China, Chen expects travel to get another boost after February when business trips pick up and return hotel business to 2019 levels by the end of the year. This is based on an industry metric that measures revenue per available room.
Not everyone goes out
The streets of China’s big cities are becoming more crowded as the first wave of infections passes.
UBS’s Chen noted that older people may be more cautious about going out, with repeat walkers mostly being young and middle-aged people.
After a gradual backsliding in controlling Covid, Chinese authorities suddenly lifted the bulk of the country’s virus testing and contact tracing measures last month. However, vaccination rates for the elderly in China have been relatively low. In China, only domestically produced vaccines are generally available.
Bain’s Deng also observes that consumers will start going out more. In the first three quarters of 2022, about 56% of consumer spending was at home — a reversal of the pre-pandemic trend, he said.
If the share of out-of-home spending can increase even by a few percent, it will affect how malls and restaurants consider their business strategies, especially delivery services, Deng said.
In the past 18 months, the Chinese e-commerce giant JD.com shortened the next-day delivery window to just one hour for many products. It comes from his partnership Dadanow majority owned by JD.
The company’s figures showed that for the period from December 16 to January 1, sales of vegetables, beef and mutton on the one-hour delivery platform nearly doubled from a year earlier. According to the data, sales of refrigerators increased by 700%, and sales of flat-screen TVs increased tenfold compared to a year ago.