BEIJING — China’s consumption recovery from zero-Covid is off to a strong start — after a depressing fourth quarter.
When Michelin-starred restaurant Rêver reopened on Thursday after a Lunar New Year break, it was fully booked, said Edward Suen, chief operating officer of the Guangzhou site. Reservations for the next three days were close to capacity, he said.
He hopes business will improve this year and allow Rêver to recoup some 35% of revenue it lost last year. The city of Guangzhou was one of the hardest hit by Chinese Covid controls in late 2022, before Beijing abruptly ended most measures in early December and a wave of infections hit the country.
“Last Christmas was the first time in three years that we didn’t sell out because a lot of people made reservations but then got infected,” Suen said. He co-founded Rêver in June 2020.
In a down-to-earth Chinese city known worldwide for its Cantonese cuisine, Rêver explores a new market by serving modern French cuisine, with a multi-course dinner priced at 1,280 yuan ($183) or 1,680 yuan.
For the coming year, “we’re trying to be a bit conservative in how things go,” Suen said. “Because everything has changed so fast and so suddenly these days.”
In 2022, China experienced one of its slowest years of economic growth in decades. In a drop in retail sales of 0.2% to 43.97 trillion yuan ($6.28 trillion), restaurant sales fell 6.3%.
More 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, domestic tourism revenue jumped 30 percent from a year earlier to 375.84 billion yuan, according to official figures. But that was still below 2019 spending.
“Consumer sentiment is better. Buying power has kind of come back,” Ashley Dudarenok, founder of Chinese digital consultancy ChoZan, said on Friday. “But I don’t think all of a sudden from month to month things go back… to 2019 or double 2019.”
Dudarenok said that as 2023 and the Lunar New Year approach, some smaller brands have become more conservative towards China and cut their marketing budgets for the country in half.
“Consumer sentiment was really down, nobody knew what was really going to happen, and a lot of marketing budget and money was poured into 11.11 [Singles Day] and it wasn’t a success either, so brands didn’t make a lot of money on 11.11″ and another shopping fest in December, she said. “Then all of a sudden, China has opened up. A lot of people didn’t expect this [and were] quite surprised by this rapid development.”
Dudarenok expects general consumer trends to continue, whether it’s big city dwellers spending more to “feel better” or small town dwellers paying for higher quality products.
Many analysts expect China’s high levels of consumer savings during the pandemic to translate into increased spending this year.
At the level of decision-makers, the Chinese authorities say they give priority to consumption. Premier Li Keqiang led the first State Council executive meeting after the holidays on Saturday and “called for efforts to accelerate the recovery of consumption and maintain the stability of foreign trade and investment”, according to a report. communicated. The meeting said policies to promote the consumption of cars and other big-ticket items would be “fully implemented”.
However, unlike the United States, China has not distributed cash to consumers nationwide in the wake of the pandemic. Li told reporters in 2022 that policymakers would instead focus on supporting businesses and jobs.
“We believe the most important factor influencing consumption is future income prospects which are related to many factors,” Hao Zhou, chief economist at Guotai Junan International, said in a note. “That being said, the reduced politics and viral uncertainties will certainly help improve sentiment.”
He expects 7% year-on-year growth in retail sales.
Hainan’s stimulus plans
Hainan, a tropical province aiming to be a duty-free shopping destination, announced a 10% growth target in retail sales this year. That’s after its retail sales fell 9.2% last year.
The island’s 12 duty-free stores recorded 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 what they were in 2019, the release said, reflecting the region’s growth and the opening of new malls in recent years.
LVMH and Coach-parent Tapestry both signed agreements in 2022 with local authorities to expand their businesses in Hainan, including the establishment of Tapestry’s headquarters in China, according to government announcements. The two companies did not immediately respond to a CNBC request for comment.
Top executives from US and European brands, among others, plan to visit Hainan this year now that Covid restrictions are being eased, said Ruslan Tulenov, global media manager for Hainan’s Office of International Economic Development. He declined to say how much or when.
“Before personally, I had some discussions with some big companies last year or two years ago, but at that time [there were] some Covid restrictions, difficulties coming to China,” he said. “Some companies, they would even like to take their private jets to Hainan directly, but at that time there were Covid restrictions.”
New trends, rapid evolution
Brands in China have to adapt to changes not only in the Covid situation but also in the market.
Companies are shifting more marketing dollars to ByteDance’s Douyin, the local version of TikTok, and away from Weibo, Dudarenok said.
While these brands had been on Douyin for years, they weren’t part of the social conversation on the hugely popular app, she said. For brands, she said the thinking now is that “China has changed, the most important China has opened up, and to get into this industry, we have to be part of that conversation.”