Tourists visit ice sculptures in Harbin, Heilongjiang province, on New Year’s Day 2023.
China News Service | GVC | fake images
BEIJING — It will take time for Chinese consumers to really start spending again, despite China’s abrupt shift toward reopening.
About a month after the city of Guangzhou resumed in-store dining, local cafe owner Timothy Chong said revenue was picking 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] turnover still has to wait,” he said in Chinese, translated by CNBC.
He expects it to be at least three to four months before income can return to normal. Over the past six months, revenue has fallen to 30% of typical levels, Chong said. She said the first Bem Bom Coffee store opened in late 2019, followed by a second store and coffee academy in August 2021.
China’s retail sales fell slightly for 2022 from November, official data showed. Consumption has lagged behind overall economic growth since the pandemic began nearly three years ago.
For the coming year, Bain partner Derek Deng kept expectations at bay. “The hope is that we are at least back to the level of the first quarter of 2022,” he said, noting that this was just before the Shanghai lockdown.
Retail sales for the first three months of 2022 increased about 3.3% from a year earlier, but slowed to a 0.7% decline for the first half of the year, according to Wind Information.
A return to 2021, when retail sales rebounded 12.5%, would be an optimistic scenario, Deng said. “I don’t think people are looking at that as sort of a base case, mainly because the macro factors are actually less supportive compared to 2021.”
Most of Chinese household wealth is tied up in real estate, a once-booming market that is plummeted in the past year. Mainland China’s stock markets fell in 2022 for the first time in four years. Exports, a driver of China’s growth, have started to decline in recent months as global demand eases.
Deng also noted fears of a second wave of Covid, the highly contagious omicron XBB sub-variant from abroad and geopolitical uncertainties.
“I think that also has an impact on people’s perceptions of their disposable income, or whether they need to save to get through all those uncertainties,” he said.
Chinese consumers’ penchant for saving hit record highs last year, according to surveys by the People’s Bank of China.
Analysts are closely watching the upcoming Lunar New Year holiday for indications on consumer confidence. China’s big holiday travel season runs from around January 7 to February 15 this year, with about 2.1 billion trips expected, according to official estimates.
That’s double what it was last year and 70% of 2019 levels, China’s Ministry of Transport said on Friday. He noted that most trips will likely be to visit family, while only 10% will be for business or pleasure.
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 pleasure, after strictly controlling mainland borders for nearly three years. On Sunday, China also formally removed quarantine requirements for incoming travelers.
However, Chinese outbound travel is unlikely to pick up until around the next public holiday in early April, said Chen Xin, head of China leisure and transportation research at UBS Securities.
By that time, people will have been able to process their passport applications, while the number of international flights may have recovered to 50-60% 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 get another boost after February, when business travel picks up, bringing hotel business back to 2019 levels by the end of the year. That’s based on an industry metric that measures revenue per available room.
from China the streets of big cities are increasingly crowded as the first wave of infections passes.
But it’s mostly young and middle-aged people who are getting out again, UBS’s Chen said, noting that older people might be more cautious about venturing out.
After a gradual rollback in Covid controls, Chinese authorities last month suddenly removed most of the country’s virus testing and contact tracing measures. However, vaccination rates for the elderly in China have been relatively low. Usually only domestically manufactured vaccines are available in China.
Bain’s Deng is also watching whether consumers will start going out more. Through the first three quarters of 2022, about 56% of consumer spending was at home, the opposite of the pre-pandemic trend, she said.
If the share of out-of-home spending can rise by even a few percentage points, that will affect how shopping malls and restaurants view their business strategy, especially for delivery services, Deng said.
In the past 18 months, the Chinese e-commerce giant jd.com shortened the delivery window for many next-day products to just one hour. That’s through their association with Dadaistnow majority owned by JD.
The company’s figures showed that for the period Dec. 16 to Jan. 1, the one-hour delivery platform saw sales of vegetables, beef and lamb roughly double that of a year ago. Refrigerator sales soared 700%, while sales of flat-panel TVs increased tenfold from a year earlier, according to the data.