BEIJING: China’s consumption recovery from zero-Covid is off to a strong start, after a dismal fourth quarter.
When the Michelin-starred Rêver restaurant reopened on Thursday after a Lunar New Year break, it was full, said Edward Suen, director of operations for the Guangzhou venue. Reserves for the next three days were close to capacity, he said.
He is hopeful that business will pick up this year and allow Rêver to recover about 35% of the revenue it lost last year. The city of Guangzhou was one of the hardest hit by China’s covid controls in late 2022, before Beijing abruptly ended most measures in early December and a wave of infections swept the country.
“Last Christmas, it was the first time in three years that we didn’t have a full house, because a lot of people made reservations but then got infected,” Suen said. She co-founded Rêver in June 2020.
In a down-to-earth Chinese city known worldwide for its Cantonese cuisine, Rêver is exploring a new market by serving modern French cuisine, with a multi-course dinner priced at 1,280 yuan ($183) or 1,680 yuan.
For next year, “we try to be a little bit conservative about how things are going,” Suen said. “Because everything has changed so quickly and so suddenly these days.”
In 2022, China saw one of its slowest years of economic growth in decades. Within a drop in retail sales of 0.2% to 43.97 trillion yuan ($6.28 trillion), catering sales fell a further 6.3%.
More recent data shows that Chinese consumers are beginning to open up their wallets again, especially for travel.
During the seven-day Lunar New Year holiday that ended on Friday, domestic tourism receipts rose 30 percent over last year to 375.84 billion yuan, according to official figures. But that was still below 2019 spending.
“Consumer confidence is better. Purchasing power is back,” Ashley Dudarenok, founder of Chinese digital consultancy ChoZan, said on Friday. “But I don’t think all of a sudden from one month to the next things go back… to 2019 or double 2019.”
Dudarenok said that ahead of 2023 and the Lunar New Year, some smaller brands had become more conservative about China and halved their marketing budgets for the country.
“Consumer confidence was really low, nobody knew what was really coming, and a lot of money and marketing budget went into 11.11. [Singles Day] and it wasn’t successful either, so brands didn’t make much more than 11.11” and another shopping spree in December, he said. “Then all of a sudden China opened up. A lot of people didn’t expect that. [and were] quite surprised by this rapid development.”
Dudarenok expects general consumer trends to continue, whether people in bigger cities spend more “to feel better” or people in smaller cities pay for higher-quality products.
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Many analysts expect high levels of savings among Chinese consumers during the pandemic to translate into higher spending this year.
At the level of policymakers, the Chinese authorities say they are prioritizing consumption. Premier Li Keqiang led the first post-holiday executive meeting of the State Council on Saturday and “called for efforts to accelerate the recovery of consumption and keep foreign trade and investment stable,” according to a reading. The meeting said that policies to promote the consumption of cars and other expensive items would be “fully implemented.”
Unlike the US, however, China has not distributed cash to consumers across the country in the wake of the pandemic. Li told reporters in 2022 that policymakers would focus instead on supporting businesses and jobs.
“We believe the most important factor influencing consumption is the future income outlook which is related to many factors,” Hao Zhou, chief economist at Guotai Junan International, said in a note. “That being said, the reduced politics and uncertainties around the virus will definitely help improve sentiment.”
It expects 7% year-over-year growth in retail sales.
Hainan’s recovery plans
Hainan, a tropical province that aspires to be a duty-free shopping destination, announced a target of 10% growth in retail sales this year. That’s after its retail sales fell 9.2% last year.
The island’s 12 duty-free shops posted gross 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 higher than in 2019, according to the statement, reflecting the region’s growth and the opening of new shopping centers in recent years.
LVMH and Coach parent Tapestry signed agreements in 2022 with local authorities to expand their business in Hainan, including establishing Tapestry’s travel retail headquarters in China, according to government announcements. The two companies did not immediately respond to a CNBC request for comment.
Top executives from American and European brands, among others, plan to visit Hainan this year now that covid restrictions have been eased, said Ruslan Tulenov, global media officer at the Hainan Office of International Economic Development. He declined to say how many or when.
“Before me personally I had some conversations with some major companies last year or two years ago, but at that time [there were] some Covid restrictions, difficulties to come to China,” he said. “Some companies would even like to take their private planes to fly to Hainan directly, but there were some Covid restrictions at the time.”
New trends, changing rapidly
Brands in China have to adapt to changes not only in the Covid situation but also in the market.
Companies are moving more marketing dollars to ByteDance’s Douyin, the local version of TikTok, and away from Weibo, Dudarenok said.
While those brands were on Douyin for years, they weren’t part of the social conversation on the popular app, he said. For brands, he said it is now thought that “China has changed, the most important thing is that China has opened up, and to get into that business we need to be part of that conversation.”
Source: news.google.com