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China's Consumer Spending Yet to Fully Recover to Pre-Pandemic Levels

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China's Consumer Spending Shows Gradual Recovery, Yet to Reach Pre-Pandemic Levels

Analysts have noted that China's consumer spending is still not rebounding as rapidly as it did before the pandemic. While retail sales during the recent holiday period showed a 9% increase compared to the previous year, the overall trend indicates less than 3% annual growth since the start of the pandemic. Christine Peng, head of Greater China consumer sector at UBS, highlighted the cautious attitude of consumers towards spending, despite an increase in expenditure. She attributed this cautiousness to factors such as the impact of the property slump, decline in government spending, and uncertainties surrounding future income due to government regulations.

Domestic Tourism Rebounds, Overseas Travel Lagging

The long Chinese Golden Week holiday witnessed a rebound in domestic tourism, reaching levels close to those seen before the pandemic. However, overseas travel has yet to fully recover to 2019 levels. Economic uncertainty has contributed to Chinese residents' preference for domestic travel, with affluent consumers displaying caution due to the prevailing economic conditions. Notably, many affluent travelers chose Hainan, a tropical province known for its duty-free shopping malls and natural scenery, during the holiday period.

Chinese Luxury Spending Shows Recovery

Chinese luxury spending, both domestically and abroad, has shown signs of recovery. In September, luxury spending at home and abroad reached about 80% of the pre-pandemic levels in 2019, up from the 70% to 75% recovery seen in August. Chinese spending on luxury goods in the Asia-Pacific region has already returned to 2019 levels. However, in continental Europe, such spending remains at about half of the pre-pandemic levels. In contrast, tourists from the U.S. and Middle East are spending significantly more on luxury goods in Europe compared to pre-pandemic levels. Consumer spending in China has lagged behind the country's overall economic growth since the start of the pandemic. While the stringent COVID-19 restrictions were lifted in late 2022, the initial economic recovery has slowed due to a decline in the real estate market and a drop in exports. However, certain sectors have shown signs of improvement. Some casual dining restaurant chains have reported same-store sales recovering to 90% of the 2019 level, indicating a meaningful acceleration. Retailers selling toys and groceries have seen sales per store recover to 90% of the 2019 level, while sportswear brands have experienced sales growth of about 20% to 30% compared to the previous year's holiday period. However, sales of appliances, furniture, and premium products such as baijiu have been more subdued, indicating that certain categories dependent on corporate spending have not returned to pre-pandemic levels. China is set to release September retail sales data on October 18, along with third-quarter GDP figures, providing further insights into the country's economic recovery and consumer spending patterns.

Impact of China's Gradual Consumer Spending Recovery on New Businesses

The slow rebound of China's consumer spending could pose challenges and opportunities for new businesses. The less than 3% annual growth since the pandemic's onset signals a cautious market. New businesses must navigate this cautiously optimistic consumer sentiment, impacted by factors such as the property slump, reduced government spending, and regulatory uncertainties.

Domestic Tourism's Resurgence: A Silver Lining?

The rebound in domestic tourism during the Chinese Golden Week holiday offers a glimmer of hope. With overseas travel still lagging, domestic destinations like Hainan have seen an influx of affluent travelers. New businesses, particularly in the travel and tourism sector, could capitalize on this trend, focusing on enhancing domestic offerings.
Luxury Spending Recovery: A Sign of Consumer Confidence?
The recovery of luxury spending, particularly in the Asia-Pacific region, suggests a resurgence of consumer confidence. However, new businesses must be aware of the disparity in spending patterns across regions. While luxury spending in continental Europe remains at about half of pre-pandemic levels, tourists from the U.S. and Middle East are spending more than before. This indicates that new businesses, especially in the luxury sector, need to tailor their strategies to different markets. Despite the lag in consumer spending compared to overall economic growth, some sectors show signs of recovery. Casual dining, toys, groceries, and sportswear have seen sales nearing or exceeding pre-pandemic levels. However, premium products and those reliant on corporate spending are still struggling. As such, new businesses should carefully consider their target sectors, aligning with those showing stronger recovery. As China prepares to release its September retail sales data and third-quarter GDP figures, new businesses will gain further insights into these evolving trends.
Story First Published at: https://www.cnbc.com/2023/10/11/chinas-consumer-spending-isnt-growing-as-fast-as-it-did-pre-pandemic.html
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