The China Consumption Outlook is a quarterly series that helps companies better understand the complex dynamics of China’s consumer market by providing insight and analysis of important consumption trends and underlying drivers in China.

Insights for What's Ahead 

• Weak retail sales growth will continue through 1H 2022 meaning that a consumption rebound later in the year is unlikely. Retail sales growth declined sharply in the second half of 2021 while consumer confidence weakened. Retail sales plunged to 1.7 percent growth y-o-y in December 2021 (down from 3.9 percent in November, and 4.6 percent in December 2020). The Consumer Confidence Index (CCI) has been trending downward since early 2021 and remains well below pre-COVID levels.
• E-commerce has boomed throughout the pandemic period until recently. Recent e-commerce growth has been well below expectations. Government promotion of e-commerce in rural areas could bolster consumption later this year. Just like overall retail sales, online sales growth was on a downward slope for most of 2021, even turning negative in December. Q4 2021 online retail sales growth was 3.9 percent y-o-y, substantially below the 7 percent annual growth needed to hit the government’s official 2025 online retail sales growth targets.
• In-person consumer services continue to flail amidst recurring COVID flareups across China. A near-term recovery is unlikely. In-person consumer services like catering are hit particularly hard by COVID-related restrictions and the resulting consumer pivot to online services. Adjusting for base effects, catering sales growth was negative for most of the second half of 2021. The strict containment measures – comprising lockdowns, business shutdowns, quarantines, mass testing, and mobility controls – look set to remain firmly in effect for the foreseeable future.
• We expect the currently low inflation in consumer prices to climb in the coming months, on the back of rising food and fuel prices, and a high PPI. The war in Ukraine is causing a rise in global energy prices and disruptions to China’s imports of agricultural products. Both add significant inflationary pressures. The current headline CPI target of 3 percent (implying modest CPI growth) in 2022 is going to be very challenging to maintain. Hiking consumer price inflation, combined with slow income growth, COVID restrictions, and slow job creation will weigh on household expenditure growth in 2022.
• Chinese consumers have become more cautious. The COVID pandemic has shifted previous household spending patterns away from discretionary spending towards non-discretionary necessities like food. Before the pandemic, urban households were allocating a growing share of their household spending to discretionary categories while spending on necessities grew at a much slower pace. Since the start of the pandemic, growth rates for discretionary spending categories have slowed down significantly, some even turning negative. Slower disposable income growth, a weak labor market, a high precautionary savings rate, and strict mobility controls are holding back discretionary spending.
• New energy vehicles (NEV) sales were a consumption bright spot in 2021. Although there will be subsidy cuts this year, we expect some of 2021’s momentum to sustain through Q1 and maybe into Q2 this year. Unlike traditional cars, NEV sales grew strongly throughout 2021. Sales rose to 3.3 million units in 2021, a nearly two-fold increase over 2020. Despite the subsidy cuts announced for 2022, which were clearly driving some of the 2021 growth momentum, we expect demand for high-end and low-end NEVs to continue, two segments that won’t be as affected by the subsidy cuts.