Chinese Consumers Are Hesitant To Spend Money After Beijing Relaxes COVID Regulations

The easing of stringent “zero-COVID” measures has been welcomed by China’s weary public and businesses, but Jorry Fan, who lives in the eastern city of Suzhou, said it has prompted her to cancel any plans to dine out for several weeks.

The 44-year-old mother of two prefers food deliveries over indoor dining and crowded places because she is afraid she or her family will contract COVID-19 now that China has dropped testing as a requirement for many activities.

“I’m very happy because previously, I had to do a nucleic acid test nearly every day, so this is more convenient,” she said. “On the other hand, we don’t know who is safe, we don’t know who has the coronavirus. So we will be more careful.”

Consumers like Fan demonstrate why analysts do not expect a quick, broad rebound in spending in the world’s second largest economy, as the joy that greeted the sudden relaxations was tempered by uncertainty for consumers and businesses.

In theory, prospects have improved for fast-food companies like McDonald’s Corp, Starbucks Corp, Yum China, and luxury firms like LVMH after measures like lockdowns slowed sales.

Nonetheless, the relaxations are expected to usher in a wave of infections that experts say could affect 60% of the world’s 1.4 billion people, driving many people off the streets and disrupting workplaces and supply chains.

Spending is also likely to be hampered by persistent concerns about job security and a slowing economy.

Some economists have reduced China growth forecasts for early next year, which appear set to repeat this year’s dismal growth figures, which were among the worst in a half-century.

“Moving from isolation facility quarantine to home quarantine will not increase retail sales significantly,” said Iris Pang, chief economist for greater China at ING.

The easing is also manifesting differently in different locations, with some retaining curbs dropped by others.

People in the commercial hub of Shanghai, for example, do not need a negative COVID test to enter restaurants since Friday, but the rule still applies in Beijing.

Despite some reports from analytics firms of increases in domestic flight and movie ticket bookings, the increases are from low bases and paint a picture that contrasts with scenes of empty subway seats during peak hours in major cities such as Beijing and Shanghai.

Queues outside pharmacies have been more common than outside malls and stores, as people stock up on antigen tests and medicines to treat cold and flu symptoms.

Many businesses say they were caught off guard, with one executive of a major hotel chain saying the company was “completely unprepared for such a dramatic and drastic reopening.”

With many of its hotels still being used for quarantine purposes, he told Reuters, it is difficult to persuade owners to open and hire more workers after the zero-COVID campaign bred a conservative mindset.

Cosmetics, wine, and spirits sales are expected to fall further in the coming months as cautious consumers stay at home, according to Jason Yu, Greater China managing director of consumer research firm Kantar Worldpanel.

Instead, he predicts, people will focus on items that promote health and wellness, purchasing fewer instant noodles and frozen items popular among those preparing for lockdowns.

Nonetheless, some analysts believe that a re-opening, however bumpy, bodes well for companies committed to China in the long run.

Fast food companies, for example, will be able to resume their planned major expansions.

According to Bank of America analyst Sara Senatore, new restaurant development in China will account for roughly half of global McDonald’s unit openings and roughly a third of new Starbucks locations by 2023.

According to Luca Solca, a luxury analyst at Bernstein, the end of the curbs is good news for the luxury industry, which is heavily reliant on Chinese consumers.

“My base-case scenario is that the softening should prompt Chinese consumers to go back to enjoying life and spending money – benefiting, among others, top luxury brands,” he said.

(Adapted from Reuters.com)



Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy, Sustainability

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