China’s large consumer market has yet to recover to pre-pandemic levels

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

China News Service | VKG | Getty Images

BEIJING. It will take time for Chinese consumers to start spending money again, despite China’s abrupt transition to reopening.

About a month after the city of Guangzhou resumed food in stores, local coffee shop owner Timothy Chong said revenue is bouncing back up to 50% of normal levels.

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

He expects it to be at least three to four months before revenue returns to normal. Over the past six months, revenue has fallen to 30% of typical levels, Chong said. He said the first Bem Bom Coffee store opened at the end of 2019, while the second store and coffee academy opened in August 2021.

Retail sales in China in 2022 are down slightly as of November, according to official data. Consumption has lagged behind overall economic growth since the pandemic began nearly three years ago.

For the coming year, Bain partner Derek Deng has held back expectations. “Hopefully we are at least back to the level of the first quarter of 2022,” he said, noting that this was shortly before the quarantine in Shanghai.

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

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

Much of the wealth of Chinese households is tied to real estate, a former hot market that has plummeted over the past year. Mainland Chinese stock markets fell in 2022 for the first time in four years. Exports, the driving force behind China’s growth, have begun to decline in the past few months as global demand declined.

Deng also noted concerns about a second wave of Covid, a highly contagious sub-variant of XBB omicrons coming from overseas, and geopolitical uncertainty.

“I think it also affects people’s perception of their disposable income and whether they need to save to weather all these uncertainties,” he said.

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

Travel recovery hopes

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

This is double that of last year and is 70% of the 2019 level, China’s transport ministry said on Friday. He noted that the majority of trips are likely to be family visits, with only 10% being leisure or business travel.

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

However, overseas Chinese 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 be able to process their passport applications, Chen said, and international flights may have recovered to 50% or 60% of 2019 levels. He added that measures such as pre-flight virus testing requirements for visiting certain countries could be relaxed in a few months.

Chen expects travel in China to gain new momentum after February, when business travel picks up and hospitality returns to 2019 levels by the end of the year. This is based on an industry metric that measures revenue per available number.

not everyone goes out

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

If the share of out-of-home spending can rise even by a few percentage points, Dan says it will affect how malls and restaurants view their business strategy, especially with delivery services.

Over the past 18 months, the Chinese e-commerce giant reduced the delivery window for many products from the next day to one hour. This is thanks to a partnership with Yes YesJD currently owns the majority stake.

The company’s data showed that from December 16 to January 1, sales of vegetables, beef, and mutton on the one-hour delivery platform roughly doubled compared to last year. According to the data, refrigerator sales are up 700% and flat-screen TV sales are up ten times over last year.

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