Tourists visit ice sculptures in Harbin, Heilongjiang Province, on New Year’s Day 2023.
China News Service | VCG | Getty Images
BEIJING — It will take some time for Chinese consumers to really start spending again, despite China’s sudden shift toward reopening.
About a month after Guangzhou resumed in-store dining, local coffee shop owner Timothy Chung said revenue is recovering — to 50% of normal levels.
“In late December, customer flow gradually returned to normal, with a slight upward trend, however [a recovery in] Business volume still needs to wait,” he said in Chinese, translated by CNBC.
He expects it will take at least three or four months before revenues return to normal. Over the past six months, revenue has fallen to 30% from typical levels, Chung said. He said the first Bem Bom Coffee store opened in late 2019, followed by a second store and a coffee academy in August 2021.
Official data showed that retail sales in China declined slightly for 2022 as of November. Consumption has lagged behind overall economic growth since the pandemic began nearly three years ago.
For next year, Bain’s partner, Derek Deng, has kept the expectations going. “We hope to get back at least to the level of the first quarter of 2022,” he said, noting that this was just before Shanghai’s lockdown.
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, according to Wind Information.
Ding said a return to 2021 – when retail sales rebounded 12.5% - would be an optimistic scenario. “I don’t think people see that as kind of the base case, because the macro factors are actually less favorable compared to 2021.”
The bulk of Chinese household wealth is related to real estate, which is a hot market for once Decreased in the past year. Stock markets in mainland China fell in 2022 for the first time in four years. Exports, an engine of Chinese growth, have started to decline in the past few months as global demand slumps.
Deng also cited his fears of a second wave of Covid, highly contagious XBB omicron subvariant Coming from abroad and geopolitical uncertainties.
“I think this has also affected people’s perceptions of their disposable income, or whether they need to save to face all that uncertainty,” he said.
Chinese consumers’ propensity to save has reached record levels Last year, according to the People’s Bank of China surveys.
Hopes for a travel revival
Analysts are closely watching the upcoming Lunar New Year holiday for signs of consumer confidence. This year’s Greater China holiday travel season runs from around January 7 to February 15 — with some 2.1 billion trips expected, according to official estimates.
China’s transport ministry said on Friday that’s double what it was last year, and 70% of 2019 levels. It noted that most trips will likely be to visit family, while only 10% will be for leisure or business travel.
This year, many Chinese people will finally be able to go abroad. The country is restoring the ability of Chinese citizens to travel abroad for leisure, after tightening control of the mainland’s borders for nearly three years. On Sunday, China officially lifted quarantine requirements for inbound travelers.
However, Chinese outbound travel is unlikely to rebound until 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, while the number of international flights may recover to 50% or 60% of 2019 levels, Chen said. He added that measures such as pre-flight virus test requirements to visit certain countries could be eased in a few months.
Within China, Chen expects travel to get another boost after February when business travel picks up, and to return the hotel business to 2019 levels by the end of the year. It is based on an industry metric that measures revenue per available room.
Not everyone gets out
China The streets of the big city are getting busier With the passage of the first wave of infection.
But UBS’s Chen said most of them are young and middle-aged people going out again, noting that older people may be more careful about going out.
After gradually rolling back Covid controls, the Chinese authorities abruptly last month eliminated the bulk of the country’s virus testing and contact tracing measures. However, vaccination rates for the elderly in China have been relatively low. Only home-made vaccines are generally available in China.
Bain’s Deng is also watching whether consumers start to checkout more. During the first three quarters of 2022, he said, about 56% of consumer spending was at home — reversing the pre-pandemic trend.
Ding said that if the share of out-of-home spending can go up by a few percentage points, that would affect how malls and restaurants factor into their business strategy, especially in terms of delivery services.
In the past 18 months, the Chinese e-commerce giant JD.com Shortening the delivery period for many products from the next day to just one hour. This is through his partnership with dadais now majority owned by JD.
Figures released by the company showed that from December 16 to January 1, the one-hour delivery platform saw sales of vegetables, beef and mutton nearly double compared to last year. Refrigerator sales are up 700%, while sales of flat-panel televisions have jumped tenfold over a year ago, according to the data.
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