China is on the brink of a consumption rebound as Covid-19 restrictions continue to fade. Scenes of packed bars and mask-less catwalks, like those at China Fashion Week in Beijing, are becoming more common across the country. This suggests that Chinese household spending, which experienced a late-summer recovery, is now expanding and driving the next phase of economic recovery.

According to Zhang Qinghui, chairman of the China Fashion Designers Committee, sales in the domestic apparel market turned positive in August after a period of negativity. He predicts that the numbers for September and the fourth quarter will be even better. Sales of consumer goods, which serve as a proxy for consumption in China, saw a significant boost at the end of the third quarter. Auto purchases led the way as household incomes returned to positive growth and employment conditions improved following the impact of the Covid-19 pandemic. This recovery has made China a shining star in the global retail world and a major source of earnings for international consumer brands like Starbucks and Louis Vuitton.

However, spending on services in China has not yet caught up to spending on goods. Sectors like hospitality and catering have been particularly affected by social distancing rules, operating hour restrictions, and capacity caps. Nevertheless, as the easing of restrictions continues in the third quarter, the hospitality sector is expected to accelerate its recovery. In fact, its output contraction has already narrowed compared to the previous three months. Analyst Ernan Cui from Gavekal Dragonomics believes that the services industry, which was hit the hardest by Covid-19, will gradually emerge from its downturn and provide a strong boost to the overall recovery in the consumer market. It is anticipated that growth will return to pre-Covid levels by the end of the year.

While retail sales growth in September was still only a third of pre-Covid levels, economists predict a sharp rebound in the consumer market in the upcoming months. This is due to the reopening of entertainment venues, such as cinemas and KTVs, in August. During the “Golden Week” holiday on October 1, China’s box office saw its highest single-day sales in 2020 and the second-best ever for the holiday. Additionally, during the eight-day National Day break, China welcomed 637 million domestic tourists, which is 79% of last year’s total. This indicates that consumers are returning to their old habits and engaging in travel and entertainment activities.

The booming online consumption in China is also contributing to the consumption rebound. Tmall, Alibaba Group’s e-commerce marketplace, is expecting over 2,600 foreign brands to participate in the upcoming online “Double 11” shopping festival, which is set to break sales records for the 12th consecutive year. The improving job market is supporting this growth in online consumption. In the first nine months of the year, China created 8.98 million urban jobs, nearly reaching the government’s full-year target of over 9 million. In the third quarter, household income growth turned positive, increasing by 0.6% year-on-year.

The recovery in some sectors has taken on a different form. For example, Riviera Events, an event management company with branches across China, did not hold any virtual events before 2020. However, now half of their events are online. Co-founder Stephane de Montgros is hopeful that the event industry in mainland China will see year-on-year growth starting from the fourth quarter.

Overall, China’s consumption rebound is on the horizon as Covid-19 restrictions continue to fade. The return of consumers to various sectors, the booming online consumption, and the improved job market are all contributing to this recovery. As the year progresses, it is expected that China’s consumer market will regain its pre-Covid levels of growth.

Useful Links:
1. Bloomberg – China Consumer Revival
2. Al Jazeera – China’s Consumption Rebound