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HomeMarketThe Chinese Consumer Isn't the Same. What That Means for Recovery.

The Chinese Consumer Isn’t the Same. What That Means for Recovery.

Women cross a road near closed shops in a traditional Beijing neighborhood.

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Chinese consumers are coming out of a three-year isolation and living under the threat of Covid lockdowns that made every aspect of daily life uncertain. These consumers are on the cusp of a comeback, but they bear economic scars that could mean they aren’t the same as pre-Covid.

Lewis Xie, 29, graduate student in management in the western city of Chengdu, told Barron’s that he feels more at ease biking around the city and going to stores now that the risk of getting trapped in a government-designated high-risk zone and quarantine has eased. But he is still in savings mode, regardless of Covid rules, because he says recent college graduates have struggled to find work.

Xie is emblematic of the conundrum facing investors, who eagerly awaited a China reopening. But now as it unfolds faster than anticipated, testing China’s public-health system with a surge in infections, economists and strategists see the next couple of weeks as a crucial gauge of how consumers react.

If the coming Lunar New Year allows people to visit families for the first time in a couple of years, without a catastrophic rise in deaths and strains on hospitals, Matthews China lead manager Andrew Mattock expects a boost to consumer confidence—and spending.

That spending though may not be as robust as the aftermath of past slowdowns—or spent in the same way, says Alejandra Grindal, senior international economist for Ned Davis Research. He notes that Zero Covid, combined with a property slump and crackdown on the internet sector, has contributed to the 20% unemployment for young Chinese.

Consumer confidence has a long way to recover, coming in around 86.8 in the last reading in October, down more than 30% from its pre-Covid levels in December 2019. And unlike in the West, Chinese households didn’t get direct fiscal support, asset prices—both stocks and housing—have fallen sharply and the economy is struggling with a host of structural challenges, she adds.

Chinese officials’ rapid response to widespread protests over Covid restrictions and increased steps to stabilize the property market suggests recognition of the problem. “They need to maintain their legitimacy after everything that’s happened so there will be a lot of work done to restore consumer and investor confidence. I think you are going to see more support,” said Albert Kwok, an emerging markets equity fund manager at Jennison Associates.

It’s unclear if it will be enough for Chinese consumers to tap into their growing saving balances built up during the pandemic, with deposits growing 14 trillion renminbi ($2 trillion) in the first nine months of this year, according to a recent report by McKinsey.

About 70% of household wealth is tied up in property. With prices down 15%, TS Lombard Chief China Economist Rory Green says household wealth has fallen by at least 10%. “Household, banks and local-government balance sheets are all heavily damaged, and this will limit the strength of any post-Covid rebound,” he says.

A swath of China’s population lives month to month, with the lockdowns closing factories and stores and pushing many migrant workers to ride out the pandemic back home, where things cost a fraction of what they do in major cities, says Zak Dychtwald, founder of the Young China Group that tracks China’s consumers.

The top part of the income spectrum that global companies tend to focus on and that are synonymous with China’s consumer class has been more insulated from job losses. Even with the pain, 20- to 30-year-olds’ spending power now still far exceeds previous cohorts a decade ago, Dychtwald says, adding that the latest easing in restrictions is giving this group its first glimmer of hope in a couple of years.

But their spending preferences are changing. While demand for premium electric vehicles from
), iPhones from
) and apparel and bags from
LVMH Moët Hennessy Louis Vuitton
(MC. France) shows continued demand for luxury retailers, analysts see a growing preference toward local brands when viable options exist and a desire to seek out value, especially as bonuses shrink.

“The power of global brands is weakening and as people shift toward more value-oriented options and are posturing less, they don’t need high-end things to define who they are,” Dychtwald says. “When you look at the quality, Chinese brands have gotten so much better and are a great option as consumers think about value.”

Sales of e-commerce firm
), which caters to a more middle-income and bargain-hunting crowd, rose 65% in the third quarter, far greater than the anemic growth out of
Group Holding (
), reflecting that shift, analysts say. Car shoppers are also becoming more practical and drawn to better products coming out of local auto makers, with
(1211. HongKong) seeing long wait lists for popular models, analysts say.

As China reopens, travel is the most likely beneficiary as the world’s biggest cohort of globetrotters prepandemic come out of isolation. Macau gaming stocks like
Las Vegas Sands
) have already surged 40% and
) is up 75% since late October in anticipation.

Matthews’ Mattock owns casino and domestic airport operators, but is focusing now on broader beneficiaries of a recovery, including advertising firm Focus Media Information (002027. China) and Wingtech Technology (600745. China), a contract manufacturer for a range of consumer products.

“The protests marked a low point of hope,” Dychtwald said about the level of fatigue among local Chinese with the pandemic restrictions. “People are letting themselves hope again.”
For that hope to turn into something tangible, investors should watch if China can navigate through this period of surging infections in a way that doesn’t force consumers to stay stuck at home, again.

Tanner Brown in Beijing contributed to this article.

Write to Reshma Kapadia at


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