China’s Consumer Spending Growth Still Slow Despite Pick-Up During Holiday Period
China’s consumer spending is not recovering as quickly as it did before the pandemic, according to analysts. Retail sales during the recent holiday period from September 29 to October 5 increased by 9% compared to the previous year, as reported by state media citing Ministry of Commerce data. However, this growth is still below the pre-Covid levels, with estimates suggesting less than 3% growth per year since the start of the pandemic. Experts believe that the recovery will be gradual and that it may take until the end of 2024 for consumption growth to reach 5% or 6%.
Consumer Confidence and Economic Factors Impacting Spending
Low consumer confidence, a property market slump, and a decline in government spending due to local debt issues are among the factors impacting consumer spending in China. Consumers remain uncertain about their future income due to government regulatory tightening. While consumers have started to spend more money, they still maintain a cautious attitude towards their spending habits. The long Chinese Golden Week holiday saw domestic tourism rebound to pre-pandemic levels, but overseas travel has yet to fully recover.
Preference for Domestic Travel and Luxury Shopping in Hainan
The economic uncertainty in China has led to a preference among Chinese residents to travel domestically. Hainan, known for its duty-free shopping malls and natural scenery, has become a popular destination for affluent Chinese consumers. During the latest holiday, tourist visits to Hainan increased by 15% compared to the peak year of 2021. China has been developing Hainan as a duty-free shopping center to attract Chinese consumers who previously traveled to Europe and other countries for luxury goods. Chinese luxury spending, both at home and abroad, has been gradually recovering, with spending in the Asia-Pacific region already reaching 2019 levels.
Slow Recovery in Certain Sectors
While consumer spending has rebounded in some sectors, such as casual dining and groceries, other sectors like appliances, furniture, and premium products have experienced slower growth. Retailers selling toys and groceries have seen sales per store recover to 90% of the 2019 level, while sportswear brands witnessed 20% to 30% sales growth compared to the previous year’s holiday period. However, sales of appliances, furniture, and premium products have not returned to pre-Covid levels.
Overall, the recovery of consumer spending in China remains gradual and is influenced by various economic factors and consumer confidence. China is set to report September retail sales and third-quarter GDP on October 18.
