China consumers wary of splurging even after virus curbs are lifted

A shuttered shop at Tianzifang, a once-popular food and beverage area that saw wall-to-wall crowds, in Shanghai, on Dec 11. PHOTO: BLOOMBERG

SHANGHAI - China’s weary public and businesses have welcomed the easing of stringent zero-Covid measures, but Ms Jorry Fan, who lives in the eastern city of Suzhou, said it prompted her to drop any plans to dine out for weeks.

The 44-year-old mother of two aims to avoid indoor dining or crowded places, opting instead for food deliveries, as she fears she or her family could catch Covid-19 after China dropped testing as a prerequisite for many activities.

“I am 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 such as Ms Fan show why analysts do not expect a quick, broad rebound in spending in the world’s second-largest economy, as the glee that greeted the abrupt relaxations was tempered with uncertainty for consumers and businesses.

In theory, prospects have brightened for fast-food players such as McDonald’s, Starbucks, Yum China and luxury companies including LVMH, after measures such as lockdowns withered sales.

Yet the relaxations are expected to usher in a wave of infections that experts say could hit 60 per cent of a population of 1.4 billion, fear of which has driven many people from the streets while threatening to disrupt workplaces and supply chains.

Spending is also likely to stay inhibited by persistent worries over job security and a slowing economy.

Some economists have cut China growth forecasts for early 2023, which look set to continue 2022’s grim growth figures that ranked among the worst of the past half-century.

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

The easing is also playing out differently in various places, as some retain curbs dropped by others.

In the commercial hub of Shanghai, for instance, people have not needed a negative Covid-19 test to enter restaurants since last Friday, but the rule still applies for those in Beijing.

Despite some reports by analytics firms of jumps in bookings of domestic flights and movie tickets, the moves are from low bases and make up a picture that clashes with scenes of empty subway seats at peak hours in major cities such as Beijing and Shanghai.

Empty shelves at a pharmacy in Beijing’s Dongcheng district. ST PHOTO: DANSON CHEONG

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

A spa at a mall in downtown Beijing that resumed business last Friday said most workers had returned but customers were far fewer.

“Because of the epidemic, we are now using promotions and coupons to attract customers, which actually make us run at a loss,” one of the masseurs said.

Totally unprepared

People lining up at the fever clinic of a hospital as the Covid-19 outbreak continued in Beijing last Friday.  PHOTO: REUTERS

Many businesses also say they were caught on the wrong foot, with an executive of a major hotel chain saying it was “totally unprepared for such a dramatic and drastic reopening”. With many of its hotels still being used for quarantine, it is proving tough to persuade owners to open and hire more workers after the zero-Covid campaign bred a conservative mindset, he told Reuters.

“The company is now adjusting its strategy so that 80 per cent of resources is focused on capitalising on ‘revenge’ spending, while reserving 20 per cent of hotel occupancy and staffing in case quarantine returns,” the executive added, on condition of anonymity.

Sales of items such as cosmetics, wine and spirits are likely to continue to suffer as cautious consumers stay home in the coming months, said Mr Jason Yu, Greater China managing director of consumer research firm Kantar Worldpanel.

Instead, people will zero in on items that promote health and wellness, buying fewer of the instant noodles and frozen items popular with those preparing for a lockdown, he said.

Equipment used for mass Covid-19 testing of incoming passengers are stored away at the Hongqiao Railway Station in Shanghai. PHOTO: NYTIMES

Still, some analysts said that a reopening, however bumpy, bodes well in the long term for companies committed to China.

Fast-food brands, for example, will be able to get back to major expansions they had planned. In 2023, new restaurant development in China will account for about half of the global openings of McDonald’s outlets, and about a third of new locations for Starbucks, said Bank of America senior analyst Sara Senatore.

Mr Luca Solca, a senior analyst with Bernstein, said the end of the curbs was good news for the luxury industry, which is heavily dependent on Chinese spending.

“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. REUTERS

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