China's consumption market resuming after COVID response shift

BEIJING -- With China's latest optimization of COVID-19 response, restaurants, shopping malls and cinemas nationwide have reopened and reported burgeoning foot traffic, a sign that experts believe bodes the revival of the country's consumption market in 2023.

In Beijing, hordes of people crowded outside restaurants in commercial districts, waiting for seats during peak hours. Popular diners have posted over 80 percent of customer traffic compared with regular times, with some even seeing a full house.

The same thing goes for cinemas. Cinema staff confirmed that attendance at some movie theaters in Beijing has returned to 75 percent of the regular level. The cinemas are expected to witness more moviegoers with New Year's Day and the Spring Festival holiday approaching.

The consumption recovery momentum is further boosted by the ice-snow industry boom in the first snow season after the Beijing 2022 Olympic Winter Games concluded. Data from online travel service provider Trip.com Group shows that reservations for hotels related to skiing venues in Beijing surged 99 percent week on week from Dec 19 to 23.

Due to the lingering COVID-19 pandemic, China's consumption market has taken a hit. In the first 11 months of this year, the country's retail sales of consumer goods edged down 0.1 percent year-on-year. The catering industry and other contact-based sectors have taken the heaviest losses.

Covid response shift

To better coordinate anti-virus efforts and economic development, China has optimized its COVID-19 response policies dynamically. In its latest move, China announced to downgrade the management of COVID-19 from Jan 8, 2023, treating it as a Class B infection rather than a more serious Class A infection.

The adjustments of China's COVID-19 response will effectively stimulate the recovery of consumption, with catering consumption driven by local demands possibly taking the lead in resuming. Hospitality, tourism, and aviation consumption driven by non-local demand would follow, said Wu Yifan, deputy head of a research institute under Hua Chuang Securities.

The continued optimization of COVID-19 policies would significantly propel consumption growth next year, said Wu Chaoming, chief economist with Chasing International Economic Institute.

Wu anticipated that the per capita consumption expenditure of Chinese residents would increase from 8 percent to 12 percent in 2023, and the total retail sales of consumer goods would expand by 7 percent to 11 percent. He said COVID-19 policies would restore offline consumption and bolster the residents' willingness to travel and spend.

Pro-consumption policies

Experts believe that promoting consumption will be high on China's policy agenda for next year.

The country released a guideline on facilitating consumption on all fronts and accelerating the upgrading of consumption quality earlier this month. The annual Central Economic Work Conference held in mid-December also noted that China would prioritize the recovery and expansion of consumption next year.

Chief economist at CITIC Securities Ming Ming expected that China would probably step up the issuance of consumption vouchers in this regard, given its broad reach to residents.

Ming said localities nationwide issued 23 billion yuan (3.3 billion) of consumption coupons this year, with a projected leverage effect of five times.

Considering the combining strengths from other pro-consumption policy incentives, experts are upbeat about China's consumption outlook in the future.

"In the short run, China's consumption market will pick up, with consumption related to travel and services registering a bigger rebound. In the mid-to-long term, consumption will become a major driving force for economic growth," said Huang Wentao, chief economist with China Securities.