Visitors visit ice sculptures in Harbin, Heilongjiang province on New Year’s Day 2023.
China News Service | VCG | beautiful pictures
BEIJING — It will take time for Chinese consumers to really start spending again, despite China’s abrupt shift towards reopening.
About a month after the city of Guangzhou reopened in-store dining, local coffee shop owner Timothy Chong said sales are recovering – reaching 50% of normal levels.
“At the end of December, the number of customers gradually normalized, with a slight upward trend, but [a recovery in] Business volume still needs to wait,” he said in Chinese, translated by CNBC.
He hopes it will take at least three or four months before revenue can return to normal. Over the past six months, revenue has fallen by 30 percent from its usual level, Chong said. He said Bem Bom Coffee’s first store opened at the end of 2019, followed by a second store and a coffee academy in August 2021.
Official data shows that China’s retail sales have fallen slightly in 2022 since November. Consumption has lagged overall economic growth since the pandemic began nearly three years ago.
For the next year, Bain’s partner, Derek Deng, remains tight-lipped on expectations. “The hope is that we’ll at least get back to first-quarter levels of 2022,” he said, noting that was right before Shanghai’s lockdown.
Retail sales in the first three months of 2022 grew about 3.3% from a year ago, but slowed and fell 0.7% in the first half, according to Wind Information.
Deng said a return to 2021 — when retail sales recover 12.5% — would be an optimistic scenario. “I don’t think people see that as the base case, mainly because the macro factors are actually less favorable than in 2021.”
Much of China’s household wealth is tied to real estate, a once hot market that has shrunk last year. Mainland China’s stock market falls for the first time in four years in 2022. Exports, the engine of China’s growth, have begun to decline in the past few months as global demand weakens.
Deng also noted concerns about a second Covid wave, the highly contagious XBB omicron sub-variant coming from abroad, and geopolitical uncertainties.
“I think that also impacts people’s perception of their disposable income, or whether they need to save to get through all that uncertainty,” he said.
The saving propensity of Chinese consumers hit a record high last year, according to a survey by the People’s Bank of China.
Hope for tourism recovery
Analysts are closely watching the upcoming Lunar New Year holiday for signs of consumer sentiment. The travel season for this year’s major Chinese holiday runs from around January 7 to February 15 – with around 2.1 billion trips expected, according to official estimates.
That is double from last year and 70% from 2019, China’s Ministry of Transport said on Friday. It notes that most trips will likely be to visit family, while only 10% will be for leisure or business.
This year, many Chinese will finally be able to travel abroad. The country is restoring Chinese citizens’ ability to go abroad for leisure, after tightly controlling mainland borders for nearly three years. On Sunday, China also officially removed quarantine requirements for domestic travelers.
However, Chinese outbound tourism is unlikely to pick up until around the next public holiday in early April, said Chen Xin, head of China transport and entertainment research at UBS Securities. said.
At that point, people will be able to process their passport applications, while the number of international flights may have recovered to 50% or 60% from 2019 levels, Chen said. He added that measures such as pre-flight virus testing requirements for visiting certain countries could be eased in a few months.
In China, Chen expects tourism activity to pick up further after February as business trips pick up, bringing the hotel business back to 2019 levels by the end of the year. That’s based on industry metrics that measure revenue per available room.
Not everyone is out
The streets of China’s major cities are becoming more crowded as the first wave of infections passes.
But mostly young and middle-aged people go out, said UBS’s Chen, noting that older people may be more cautious when venturing out.
After gradually easing Covid control measures, Chinese authorities last month unexpectedly removed much of the country’s virus testing and contact tracing measures. However, China’s elderly vaccination rate is relatively low. China usually only has domestically produced vaccines.
Bain’s Deng is also monitoring whether consumers start going out more. He said in the first three quarters of 2022, about 56% of consumer spending was on the home – the opposite of pre-pandemic trends.
Deng said if the share of outbound spending could increase even by a few percentage points, it would affect the way malls and restaurants consider their business strategies, especially for retail customers. with delivery service.
In the past 18 months, the Chinese e-commerce giant JD.com shorten the delivery time for many products from the next day to just one hour. It is through a partnership with dadais now largely owned by JD.
Figures from the company show that between December 16 and January 1, the one-hour delivery platform saw sales of vegetables, beef and lamb nearly double compared to A year ago. According to the data, sales of refrigerators increased by 700%, while sales of flat-screen TVs increased tenfold from a year ago.