China’s consumer spending shows signs of strong rebound

CONSUMER spending in China has picked up rapidly in recent weeks, especially on eating out and travel, giving a boost to an economic recovery that has become increasingly reliant on local demand.

High-frequency indicators of spending in some sectors have shown double-digit growth from a year ago, while leading travel companies and retailers have reported a strong increase in sales so far this year.

China’s consumers are in focus after a government meeting this week suggested that officials would avoid large stimulus through infrastructure investment or the property market – leaving household spending to drive demand in the world’s second-largest economy.

A consumer rebound will also help offset the slump in exports as economic growth in some of China’s key markets, such as the US and Europe, weakens. After three years of on-off Covid restrictions, economists are betting consumers will help drive China’s growth to above 5 per cent this year.

High-frequency data support anecdotal reports of packed restaurants in cities such as Beijing. A rolling 30-day average of restaurant revenues in major cities tracked by BigOne Lab, a China-based data provider, recorded 24 per cent year-on-year growth in early February.  

Mobility indicators – such as road and subway travel – which tend to track consumer spending, also experienced strong growth in recent weeks. An index of traffic congestion in China’s 15 largest cities compiled by BloombergNEF reached its highest reading in more than a year in February.

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Investors remain cautious about the outlook, though, concerned by the lack of economic stimulus from officials at the National People’s Congress, the annual parliamentary gathering this week. The MSCI China Index erased all its gains for the year on Friday, dropping as much as 2.2 per cent.  

Beijing has refrained from the direct cash handouts to consumers seen in other countries, betting that a recovery in hiring will lead households to spend more. 

Online retailer JD.com, whose shares slumped on Thursday (Mar 9) because of weak revenue last quarter, warned of a gradual rebound in sentiment. While social-contact related consumption – such as restaurants and tourism – was recovering quickly, hiring by small and medium-sized companies “would take some time” to pass through to a full recovery in consumer confidence, the company’s chief executive officer Xu Lei said on a conference call this week.

Retail sales rebound

After declining each month of the last quarter, retail sales for the first two months of the year – due to be released on Mar 15 – will likely show a year-on-year increase of 3.5 per cent, said economists in a Bloomberg survey.

That data probably will not reflect recent strength in consumer spending, as it incorporates data from January, when China was hit by a wave of coronavirus infections that followed the government’s sudden ending of Covid restrictions.

A measure of Chinese consumer confidence by Morning Consult, a US consultancy, rose to the highest level in nine months in February.

“February should look much better than January,” especially in sectors such as car sales, said Larry Hu, head of China economics at Macquarie Group.

Car sales in China, a key component of retail sales, grew 10.4 per cent in February from a year earlier, the China Passenger Vehicle Association said this week. The auto market is poised for a “period of steady growth,” the association’s secretary general Cui Dongshu said.

Travel within China is picking up quickly, with the number of domestic flights in February up 17.2 per cent on the same month in 2022, data from VariFlight Technology showed. 

Short-haul travel has already reached nearly double the levels before the pandemic, Jane Sun, chief executive of online travel agency Trip.com told investors this week. 

Some chains are already reporting better sales. Chinese budget retailer Miniso Group Holding said on Feb 28 that sales in its physical stores have increased 20 per cent year-on-year so far this quarter. 

Consumers are also flocking to cinemas, with the value of movie ticket sales in the first nine weeks of the year rising 11.8 per cent from the same period in 2022 to reach over 14 billion yuan (S$2.7 billion), latest data from Maoyan Entertainment showed.

While consumer price inflation slowed to a one-year low of 1 per cent in February, that does not mean the consumption recovery was soft, Citigroup economists led by Yu Xiangrong wrote in a note. 

“The rise in rent prices and solid domestic mobility data seem to suggest that recovery is in shape,” they noted. BLOOMBERG