Chinese consumers are now going into reopening with strong household balance sheets. One key difference between Chinese and US households is that Chinese households have had high savings rates historically – in the 30 percent+ range compared to 5-6 percent in the US, even before the pandemic, before rising to a record 38 percent in 2020.
Recent surveys suggest the top three activities Chinese consumers want to participate in post-Covid are: traveling, dining out and exercising outdoors.
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In the US and Europe for example, the reopening was marked by a gradual reversal of spending away from goods into services (such as recreation, and dining out of the home) – with the latter not being an option for consumers during lockdowns.Īs in the West, we are likely to see the pendulum shift sharply back towards bricks and mortar retail from online in the immediate term, as consumers rediscover the joy of in-store shopping and offline entertainment and experiences. Even people electing not to travel over the holiday period are likely to spend more money on local goods and services this year compared to previous years, with retail, catering and entertainment businesses allowed to operate without any restrictions. While the relaxation of Covid restrictions in China may not be all smooth sailing, China’s reopening is already being noted to have a substantially positive impact on the domestic economy as «pent-up» demand starts to be unleashed into the Spring Festival. Traffic is already noted to be rebounding strongly in large cities with intra-city mobility returning close to pre-pandemic levels and demand for travel during the New Year holidays up significantly within China. It appears to have exhausted itself in urban China, which is home to two-thirds of Chinese before the Chinese New Year festivities likely spark a further wave in rural areas, the end of which is expected to mark the «return to normal life» after three years.
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However, we believe that the coming upturn in Chinese consumption is far from priced into share prices of Chinese equities or global equities with a significant China consumer exposure (including luxury stocks) as we expect the pace and extent of demand recovery both to exceed current market expectations.Ĭovid, of the Omicron variant, has been spreading rampantly in China since the country took its first steps towards a full reopening in December. We are reminded of another rabbit – the White Rabbit from the children’s classic Alice’s Adventures in Wonderland, fretting anxiously: «Oh dear! Oh dear! I shall be late!» Investors who have seen the Chinese market as well as China-exposed stocks rebound materially since November 2022 may share this sentiment of having «missed out» on the Chinese recovery story.
At the same time, the easing of China’s zero-Covid policy has granted the Chinese economy and markets a much-anticipated boost for the rest of 2023. The advent of Chinese New Year – the first in China since 2019 without any Covid restrictions, brought with it the end of the year of the Tiger and the beginning of the year of the Rabbit. This article has been published on finews.first, a forum for authors specializing in economic and financial topics.
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In an essay on finews.first, Jian Shi Cortesi outlines the drivers and likely beneficiaries of an expected sharp resurgence in Chinese consumption in 2023.
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