Tourists visit ice sculptures in Harbin, Heilongjiang Province on New Year’s Day 2023.
Chinese news site | VCG | Getty Images
BEIJING – It might be a while before Chinese consumers really start spending money again, despite China’s abrupt move towards reopening.
About a month after town of Guangzhou resumed dining in stores, local cafe owner Timothy Chong said revenues were recovering to 50% of normal levels.
“At the tip of December, the flow of shoppers steadily normalized, with a slight upward trend, but [a recovery in] business size has yet to attend,” he said in Chinese, translated by CNBC.
He expects it to be a minimum of three or 4 months before revenue returns to normal. Chong said that over the past six months, revenues had fallen to 30% of typical levels. He said the primary Bem Bom Coffee store opened in late 2019, followed by a second store and low academy in August 2021.
Official data showed that retail sales in China fell barely in 2022 from November. Consumption has lagged behind overall economic growth for the reason that pandemic began nearly three years ago.
In the approaching 12 months, Bain’s partner Derek Deng fell in need of expectations. “We hope to a minimum of get back to Q1 2022 levels,” he said, noting that this was just before the lockdown in Shanghai.
According to Wind Information, retail sales in the primary three months of 2022 increased by about 3.3% in comparison with last 12 months, but slowed all the way down to a decline of 0.7% in the primary half of the 12 months.
A return to 2021 – when retail sales rebounded by 12.5% - could be an optimistic scenario, Deng said. “I do not think people see it as a type of baseline scenario, mainly since the macro aspects are literally less favorable in comparison with 2021.”
Most of the wealth of Chinese households is tied to real estate, a once-hot market that has fallen over the past 12 months. Mainland China stock markets fell in 2022 for the primary time in 4 years. Exports, which fuel China’s growth, have began to say no over the past few months as global demand has slowed.
Deng also highlighted fears of a second wave of Covid-19, a highly contagious subvariant of XBB omicron coming from overseas, and geopolitical uncertainty.
“I feel it also has an impact on people’s perception of their disposable income or whether or not they need to avoid wasting to weather all these uncertainties,” he said.
The propensity of Chinese consumers to avoid wasting reached an all-time high last 12 months, based on surveys by the People’s Bank of China.
Hope to return to travel
Analysts are keeping an in depth eye on the upcoming Lunar New Year holiday for clues about consumer sentiment. The tourist season for the large holiday in China runs from around January 7 to February 15 this 12 months, with around 2.1 billion trips expected based on official estimates.
That’s twice as much as last 12 months and 70% of 2019 levels, China’s Ministry of Transportation said on Friday. It noted that almost all trips are more likely to be for family visits and only 10% might be for leisure or business.
This 12 months, many more Chinese will finally have the opportunity to travel abroad. The country is restoring the power of Chinese residents to go abroad for recreation after strict border control on the mainland for nearly three years. On Sunday, China also formally lifted quarantine requirements for travelers entering the country.
However, Chinese individuals are unlikely to travel abroad until the following public holiday in early April, said Chen Xin, head of entertainment and transportation research in China at UBS Securities.
By then, people will have the opportunity to process passport applications and the variety of international flights could increase to 50% or 60% of 2019 levels, Chen said. He added that measures reminiscent of virus testing requirements before flying to certain countries may very well be relaxed inside months.
In China, Chen expects travel to realize one other momentum after February, when business travel picks up, bringing hospitality operations back to 2019 levels by the tip of the 12 months. This relies on an industry benchmark that measures revenue per available room.
Not everyone seems to be leaving
The streets of China’s big cities are getting busier as the primary wave of infections passes.
But it’s mostly younger and middle-aged people who find themselves out again, said UBS’s Chen, noting that older people could also be more cautious about going out.
After phasing out Covid controls, Chinese authorities abruptly dropped a lot of the country’s virus testing and call tracing measures last month. However, vaccination rates for the elderly in China have been relatively low. Only domestic vaccines are generally available in China.
Bain’s Deng can also be watching to see if consumers start going out more. He said that in the primary three quarters of 2022, around 56% of consumer spending was at home – a reversal of the pre-pandemic trend.
If the share of out-of-home spending could increase by as much as a number of percentage points, it is going to affect the best way malls and restaurants consider their business strategy, especially for delivery services, Deng said.
Over the past 18 months, the Chinese e-commerce giant JD.com reduced the delivery time of many products from next day to simply one hour. Thanks to the partnership with Dadanow majority owned by J.D.
The company’s data showed that between December 16 and January 1, the one-hour delivery platform saw sales of vegetables, beef and mutton around twice as much as a 12 months ago. According to the info, sales of fridges increased by 700%, while sales of flat-screen TVs increased tenfold in comparison with last 12 months.