Light at the End of the Tunnel for Consumer Spending in China?

Consumer Spending is Rebounding, but Longer-term Challenges Persist

Post-zero-COVID reopening: China’s reopening and a resurgence in the levels of consumer activity and associated spending is not surprising, given that Chinese Lunar New Year season (January 21-27 in 2023) is traditionally a peak traveling and consumer spending period. Nonetheless, it is much-needed positive news on the consumption front. 

Mobility and travel activity: Multiple sources of high-frequency traffic data, including statistics on subway trips, highway congestion, and railway passenger traffic all indicate that mobility levels in China have been rebounding quickly.

Insights for What’s Ahead

• There is no doubt that China’s reopening has catalyzed a surge in consumer spending. All short-term indicators currently available, both official and unofficial, are pointing to a resurgence in the levels of consumer activity and associated spending. The pertinent question to address now, is not whether China’s consumer spending will rebound in 2023, but rather the strength and sustainability of this rebound. 
• With mobility restrictions now largely lifted for both domestic and cross-border travel, we anticipate robust growth in travel-related activities and spending. Similarly, with the lifting of restrictions on offline services we expect spending on in-person consumer services will continue to recover throughout the year. 
• So far, we are seeing a clear increase in spending, but not a return to pre-COVID levels. It is also a lopsided recovery, with retail and services industries driving the initial upswing. However, it will be the big-ticket items, such as cars and homes, which will serve as a more telling indicator of sustained consumer confidence. 
• A weak labor market, lower disposable income growth, and the resulting weak consumer confidence and high precautionary savings rates have been holding back consumer spending over the past years, particularly for discretionary items. The sustainability of the consumption recovery will largely depend on reversing these trends.