China’s $6 trillion consumer market is pulling itself out of the doldrums

BEIJING – China’s recovery from Covid-19 consumption is off to a strong start – after a dismal fourth quarter.

when Michelin-starred Restaurant Rêver Edward Suen, chief operating officer of the Guangzhou venue, said it reopened on Thursday of the Lunar New Year holiday, and it was fully booked. He said bookings for the next three days were close to capacity.

He’s hopeful that business will pick up this year — and allow Rêver to recoup the roughly 35% of revenue it lost last year. Guangzhou was one of the hardest hit by China’s grip on Covid in late 2022, before Beijing abruptly ended most measures in early December and a wave of infections hit the country.

“Last Christmas, it was the first time in three years that we didn’t run a full house, because so many people booked but then got sick,” Swain said. Co-founder of Rêver in June 2020.

In a traditional Chinese city known worldwide for its Cantonese cuisine, Rêver is exploring a new market by offering modern French cuisine, with multi-course dinners priced at 1,280 yuan ($183) or 1,680 yuan.

For next year, “we’re trying to be a little conservative about how things go,” Swain said. “Because everything changed quickly and suddenly these days.”

The professor says the big challenge facing China is to garner the confidence of the private sector

In 2022, China will experience one of the The slowest years of economic growth in decades. While retail sales fell 0.2% to 43.97 trillion yuan ($6.28 trillion), restaurant sales fell 6.3%.

Recent data shows that Chinese consumers are starting to open their wallets again, especially for travel.

During the seven-day Lunar New Year holiday that ended on Friday, national tourism revenue rose 30% over last year to 375.84 billion yuan. According to official figures. But that’s still less than 2019 spending.

“Consumer sentiment is better. Spending strength has kind of returned,” Ashley Dudarenoc, founder of Chinese digital consultancy Chozan, said on Friday. “But I don’t think things suddenly went back from month to month…to 2019 or double 2019.”

With 2023 and the Lunar New Year approaching, Dudarenoc said, some smaller brands have become more conservative towards China and cut their marketing budgets for the country in half.

“Consumer sentiment was really deteriorating, no one knew what was really coming, and a lot of marketing budget and dollars went into 11.11. [Singles Day] It wasn’t a hit either, she said, so brands don’t earn much more than 11.11 “and another shopping festival in December.” Then suddenly China opened up. Many people did not expect this [and were] Very stunned by such a rapid development.”

Dudarenok expects general consumer trends to continue, whether it’s people in big cities spending more “to feel better” or people in smaller towns paying for higher-quality products.

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Many analysts predict that high levels of savings among Chinese consumers during the pandemic will translate into higher spending this year.

At the level of policymakers, Chinese authorities say they are prioritizing consumption. Premier Li Keqiang presided over the first post-holiday executive meeting of the State Council on Saturday, calling for “efforts to speed up the recovery of consumption and maintain stable foreign trade and investment,” according to a statement. The meeting said policies to promote consumption of cars and other expensive items “will be fully implemented.”

However, unlike the United States, China has not distributed cash to consumers across the country in the aftermath of the pandemic. Lee told reporters in 2022 that policymakers will focus instead on supporting businesses and jobs.

“We believe that the most important factor affecting consumption is the outlook for future income, which is related to many factors,” Hao Zhou, chief economist at Guotai Junan International, said in a note. “However, the reduced policy and uncertainties surrounding the virus will certainly help improve morale.”

Retail sales are expected to grow by 7% year-on-year.

Hainan recovery plans

Hainan, a tropical province that aims to be a duty-free shopping destination, has announced a target of 10% growth in retail sales this year. This is after retail sales fell 9.2% last year.

The 12 duty-free shops on the island saw total sales of 2.57 billion yuan during the Lunar New Year holiday week. According to the local commerce department.

Those holiday sales were more than four times what they were in 2019, the statement said, reflecting the region’s growth and the opening of new malls over the past few years.

LVMH and Coach-parent Tapestry signed deals in 2022 with local authorities to expand their business in Hainan, including setting up Tapestry’s China travel retail headquarters, according to government announcements. The two companies did not immediately respond to CNBC’s request for comment.

Senior executives from US and European brands, among others, plan to visit Hainan this year now that Covid restrictions are eased, said Ruslan Tulinov, global media officer at the Hainan Bureau of International Economic Development. He declined to say how many or when.

“Before I personally had a few discussions with some big companies last year or two, but at that time [there were] Some covid restrictions, he said, difficulties coming to China. Some companies, even they would like to take their own planes to fly to Hainan directly, but at that time there were some covid restrictions.

New trends are changing quickly

Brands in China have to adapt to changes not only in the covid situation but also in the market.

Dudarenok said the companies are moving more marketing dollars to Douyin from ByteDance, the homegrown version of TikTok, and away from Weibo.

She said that while these brands have been on Douyin for years, they weren’t part of the social conversation on the hugely popular app. For brands, she said, the thinking now is that “China has changed, the main one being the opening up of China, and to get into that business, we need to be part of that conversation.”

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