Chinese consumers wary of splurging after COVID strictures fall

Haidilao International Holding

11/12/2022 23:00

By Casey Hall
       SHANGHAI, Dec 12 (Reuters) - China's weary public and
businesses have welcomed the easing of stringent "zero-COVID"
measures, but 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 pre-requisite 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 such as Fan show why analysts don't 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 Corp  MCD.N , Starbucks Corp  SBUX.O , Yum
China  9987.HK  and luxury companies like LVMH  LVMH.PA , 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% 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
next year, which look set to continue this year'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
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 test to enter restaurants since
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 hour in major cities such as Beijing and
Shanghai. 
    Re-opening queues have been more common outside pharmacies,
rather than malls and stores, as people stock up on antigen
tests and medicines to treat cold and flu symptoms.
    A spa at a mall in downtown Beijing that resumed business on
Friday said most staff 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
    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
purposes, 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% of
resource is focused on capitalising on 'revenge' spending, while
reserving 20% 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 at home
in coming months, said 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 lockdowns, he said. 
    Still, some analysts said that a re-opening, 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 units, and
about a third of new locations for Starbucks, said Bank of
America analyst Sara Senatore. 
    Luca Solca, a luxury analyst with Bernstein, said the end of
the curbs was good news for the luxury industry, 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. 
 (Reporting by Casey Hall; Additional reporting by Joe Cash and
Sophie Yu in Beijing, Mimosa Spencer in Paris and Richa Naidu in
London and the Beijing Newsroom; Editing by Brenda Goh and
Clarence Fernandez)
 ((Casey.Hall@thomsonreuters.com;))