Chinese consumers out of COVID gates with caution, rather than zest
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[March 14, 2023] By
Casey Hall and Sophie Yu
SHANGHAI (Reuters) - Chinese consumers, unshackled from COVID-19
restrictions, are returning to hotels, restaurants and some shops, but
they are choosy about what they buy, disappointing hopes for an
immediate post-pandemic splurge.
China's battered property market, lingering worries over job stability,
and government parsimony in wages, pensions and medical benefits are
keeping shoppers cautious.
Analysts say their prudence adds pressure on policymakers, who have
flagged boosting domestic demand as a top priority, to further stimulate
the economy. But direct consumer subsidies are unlikely, sources told
Reuters last month.
In the absence of additional support, the recovery in household
consumption, long seen as key to improving sustainability of growth in
the world's second-largest economy, is likely to be gradual and uneven,
they say.
After China dropped most pandemic controls late in 2022, the share
prices of many consumer-facing companies rose, reflecting optimism that
a spending splurge was imminent.
"We have been warning that markets may become overly bullish about
'revenge' spending and the release of pent-up demand," said Nomura chief
China economist Ting Lu, referring to the V-shaped spending recovery
seen in the U.S. and other countries after COVID restrictions were
lifted.
"Markets should curb their enthusiasm due to the limited possibility of
a large stimulus package, the elevated unemployment rate, a lack of
confidence in the property sector, a slump in exports and geopolitical
tensions."
Prices of new Chinese homes fell for 16 months before steadying in
January.
A survey of white-collar workers published last month by recruiting firm
Zhaopin showed 47.3% of respondents were worried they might lose their
jobs this year. Meanwhile, cash-strapped local governments have cut
wages for civil servants, and older citizens are struggling with
pensions that barely cover their costs of living.
Some economists, pointing to new household savings reaching 17.8
trillion yuan ($2.59 trillion) last year, an increase of 7.9 trillion
yuan from 2021, had expected pent-up demand to drive a recovery in
consumption even without policy support.
But there is little sign that enough money is being spent on goods and
services to make much difference to consumption.
Data last week showed consumer inflation had slowed in February to its
lowest annual rate in a year, while passenger car sales for the first
two months of the year were down 20% on a year earlier. Imports have
fallen faster than expected.
A data report on Wednesday is expected to show January-February retail
sales were only 3.4% higher than a year before, when annual growth was
6.7%, according to a Reuters poll.
Daniel Zipser, senior partner at McKinsey, said most shoppers were still
in wait-and-see mode, and the next holiday season, in May, would offer
the next clues on whether their mood was changing.
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People walk past shops near the tourism
site of Qianmen street, in Beijing, China March 14, 2023. REUTERS/Tingshu
Wang
"People are free to travel and spend, but they're not fully there
yet compared to about 18 months ago, when they were incredibly
confident about their future prospects," said Zipser.
Consumer confidence ticked up in January from 2022's record low, but
was well below the levels seen in the past two decades.
UNEVEN
Free tables in restaurants and coffee shops in Beijing or Shanghai
are hard to find at peak hours, and many hotels and travel agencies
have gone on a hiring spree as domestic tourism has returned.
The China Tourism Academy, an industry body, says domestic tourism
revenue in 2023 could reach about 4 trillion yuan, about 95% more
than last year but still only about 71% of the 2019 level.
Also, earnings updates suggest the business sector has subdued
near-term expectations.
Yum China, which runs KFC and Pizza Hut in China, said last month it
would offer promotions to get customers through the door. Starbucks
warned of a "cautious" recovery in its China sales. Alibaba said it
saw demand for healthcare and wellness products improving, but sales
for apparel and discretionary goods looked weak so far.
E-commerce giant JD.com said consumer confidence would take time to
rebuild.
"Consumers have become more meticulous in their spending," its chief
executive, Xu Lei, said in an earnings call on Thursday.
MIDDLE CLASS SQUEEZE
Other businesses are noticing it as well.
One mid-range guesthouse owner in Dali, in Yunnan province, told
Reuters that China's reopening had brought tourists back to the
lake-side town, but not everyone was benefitting equally.
"Now the Chinese tourists are either super rich or very poor," said
the owner, who spoke on condition of anonymity.
"They are choosing either top-end or budget hotels."
Julian Evans-Pritchard, an analyst at Capital Economics, attributes
people's reluctance to open their wallets to household wealth
declining for the first time in at least two decades last year due
to falling prices for shares and homes.
"This suggests that once the initial reopening rebound has happened,
we shouldn't expect a further surge in consumer spending," he wrote
in a note to clients.
($1 = 6.8780 Chinese yuan renminbi)
(Editing by Marius Zaharia and Bradley Perrett)
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