Tourists visit ice sculptures in Harbin, Heilongjiang province on New Year’s Day 2023.
China News Service | VCG | Getty Images
BEIJING – It will take time for Chinese consumers to start spending again, unless China suddenly switches to reopening.
About a month after the city of Guangzhou resumed eating out, local coffee shop owner Timothy Chong said profits have rebounded – up to 50% of normal levels.
“At the end of December, the flow of customers gradually normalized, with a slight increase, but [a recovery in] business volume still needs to wait,” he said in Chinese, translated by CNBC.
He expects it to take at least three or four months before revenues return to normal. In the past six months, profits have dropped to 30% of normal levels, Chong said. He said the first Bem Bom Coffee shop opened in late 2019, followed by a second shop and coffee school in August 2021.
China’s sales fell slightly in 2022 from November, official data showed. Consumption has slowed overall economic growth since the pandemic began nearly three years ago.
For next year, Bain partner Derek Deng has kept a lid on expectations. “The hope is that we are back to the first quarter of the 2022 level,” he said, noting that was just before the Shanghai shutdown.
Retail sales in the first three months of 2022 increased by about 3.3% from last year, but slowed to a 0.7% decline in the first half of the year, according to Air Information.
Returning to 2021 – when the sale of goods has reappeared at 12.5% - will be an optimistic scenario, Deng said. I don’t think people see this as a fundamental type of debt, mainly because the big things are less attractive compared to 2021.
Much of China’s domestic wealth is tied up in real estate, a one-time hot market that collapsed last year. China’s stock markets fell in 2022 for the first time in four years. Exports, the driver of China’s growth, have begun to decline in recent months as global demand slows.
Deng also noted the fear of the second wave of Covid, the highly contagious XBB omicron from abroad and geopolitical uncertainty.
“I think this has an impact on people’s perceptions of their income, or whether they need to save to be able to cope with all those uncertainties,” he said.
The penchant of Chinese consumers to maintain a record high last year, according to the People’s Bank of China.
Hoping for another trip
Analysts are closely watching the upcoming New Year holiday for signs of consumer sentiment. China’s big holiday travel season runs this year from about January 7 to February 15 – 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 Friday. It noted that most of the trips will be for family visits, while 10% will be for leisure or business trips.
This year, many Chinese will finally be able to go overseas. The country is restoring the ability of Chinese citizens to travel abroad for leisure, after tightly controlling the country’s borders for nearly three years. On Sunday, China also formally lifted quarantine requirements for incoming travelers.
However, Chinese travel abroad is unlikely to resume until the next public holiday in early April, said Chen Xin, head of China leisure and transport research at UBS Securities.
At that time, people will be able to process their passport applications, while the number of international flights may be restored 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 relaxed for a few months.
Inside China, Chen expects that travel will receive another bouts after February when business travel takes off, returning the hotel industry to the levels of 2019 at the end of the year. That’s based on an industry metric that measures revenue per available room.
Not everyone is outgoing
The streets of China’s biggest city are getting busier as the first wave of infections passes.
But it’s mostly young and middle-aged people who go out and about again, UBS’s Chen said, noting that older people may be more cautious when going out.
After a slight pushback on Covid control, Chinese authorities last month abruptly ended most of the country’s virus testing and tracking measures. However, vaccination rates among Chinese adults have been relatively low. Only homemade vaccines are widely available in China.
Bain’s Deng is also looking at whether consumers will start to leave more. During the first three quarters of 2022, about 56% of consumer spending was domestic — a reversal of the pre-pandemic situation, he said.
If the share of out-of-home spending can increase even by a few percentage points, it will affect how stores and restaurants consider their business strategy, especially in delivery services, said Deng.
18 months ago, the Chinese e-commerce giant JD.com reduced the next-day delivery window for most products to just one hour. That is because of its relationship with each other Dadnow most of the owners of JD.
Figures from the company showed that from 16 Dec to 1 January, the one-hour delivery platform saw sales of vegetables, beef and mutton double from last year. Sales of refrigerators increased by 700%, while sales of flat-screen TVs jumped tenfold from last year, according to the data.