BEIJING – China’s zero-Covid consumption recovery has begun – after a depressed fourth quarter.
When the Michelin-starred restaurant Rêver reopened Thursday from the Lunar New Year break, it was fully booked, said Edward Suen, chief operating officer of the Guangzhou venue. Reservations for the next three days are almost at capacity, he said.
He hopes business will improve this year – and allow Rêver to recover about 35% in lost revenue last year. The city of Guangzhou was one of the hardest hit by China’s Covid control at the end of 2022, before Beijing abruptly ended the measures in early December and a wave of infections hit the country.
“Last Christmas, it was the first time in three years that we didn’t open to a full house, because a lot of people made reservations but then got infected,” Suen said. He founded Rêver in June 2020.
In a Chinese city known worldwide for its Cantonese cuisine, Rêver explores a new market by serving modern French cuisine, with multi-course dinners priced at 1,280 yuan ($183) or 1,680 yuan.
For next year, “we’re trying to be a little more conservative about what’s going on,” Suen said. “Because everything has changed so quickly and suddenly these days.”
In 2022, China is looking at one of the slowest years of economic growth in decades. In a decline in retail sales of 0.2% to 43.97 trillion yuan ($6.28 trillion), catering sales fell 6.3%.
More recent data shows Chinese consumers are starting to open their wallets again, especially for travel.
During the seven-day Lunar New Year holiday that ended on Friday, national tourism revenue rose 30% from last year to 375.84 billion yuan, according to official figures. But still less than 2019 spending.
“Consumer sentiment is better. Spending power is kind of back,” Ashley Dudarenok, founder of China’s digital consultancy ChoZan, said on Friday. “But I don’t think that suddenly from one month to the next it will go back … to 2019 or twice 2019.”
Dudarenok said that in 2023 and the Chinese New Year, some small brands have become more conservative in China and cut their marketing budgets for the country in half.
“Consumer sentiment was really down, nobody knew what was going on, and a lot of marketing budgets and dollars went into 11.11. [Singles Day] and also not successful, so the brand did not get much through 11.11 “and other shopping festivals in December, he said. “Then suddenly China opened. A lot of people don’t expect it [and were] very surprised by this rapid development.”
Dudarenok expects overall consumer trends to continue, whether it’s people in big cities spending more to “feel better” or people in smaller towns paying more for premium products.
Many analysts expect high savings rates among Chinese consumers during the pandemic to translate into greater spending this year.
At the policy-making level, Chinese authorities say they are prioritizing consumption. Premier Li Keqiang presided over the State Council’s first post-holiday executive meeting on Saturday, and “called for efforts to speed up the recovery of consumption and keep trade and foreign investment stable,” according to the reading. The meeting said policies to boost consumption of cars and other big-ticket items would be “fully implemented.”
However, unlike the US, China has not distributed cash to consumers nationwide due to the pandemic. Li told reporters in 2022 that policymakers will focus on supporting businesses and jobs.
“We believe that the most important factor affecting consumption is the prospect of future income which is related to many factors,” Hao Zhou, chief economist at Guotai Junan International, said in a note. “That said, easing policy and virus uncertainty will certainly help boost sentiment.”
They expect 7% year-over-year growth in retail sales.
Hainan recovery plan
Hainan, a tropical province that aims to become a duty-free shopping destination, announced a retail sales growth target of 10% this year. That’s after retail sales fell 9.2% last year.
The island’s 12 duty-free shops achieved gross sales of 2.57 billion yuan during the Lunar New Year holiday week, according to the local commerce department.
Holiday sales more than quadrupled in 2019, the release said, reflecting the region’s growth and new mall openings over the past few years.
LVMH and Coach-parent Tapestry both signed deals in 2022 with local authorities to expand their business in Hainan, including the establishment of Tapestry’s travel retail headquarters in China, according to government announcements. The two companies did not immediately respond to CNBC’s request for comment.
Top executives from US and European brands, among others, plan to visit Hainan this year as Covid restrictions have been relaxed, said Ruslan Tulenov, global media officer for the Hainan International Economic Development Bureau. He declined to say how much or when.
“Prior to me personally, I had some discussions with some top companies last year or two, but at that time. [there were] some Covid restrictions, it is difficult to come to China,” he said. “Some companies, they even want to take private jets to fly to Hainan directly, but at that time there were some Covid restrictions.”
New trends, change fast
Brands in China must adjust to changes not only in the Covid situation but also in the market.
The company is moving more marketing dollars to ByteDance’s Douyin, a local version of TikTok, and away from Weibo, Dudarenok said.
While the brand has been on Douyin for years, it hasn’t been part of the social conversation on the most popular app, he said. As for the brand, he said the current thinking is that “China has changed, most importantly China has opened up, and to enter the business, we need to be part of that conversation.”