Will Chinese consumers increase their spending in 2023?

With numerous COVID-19 lockdowns and restrictions in China dampening consumer confidence and spending, 2022 has been a “real rollercoaster” for consumer companies and retailers in the country. After averaging 124.9, 119.5 and 121.2 in 2019, 2020, and 2021, respectively, China’s consumer confidence hit an all-time low of 86.7 points in April 2022 and has yet to recover. Overall, retail spending has been flat in 2022 with a decrease in discretionary spending and a double-digit decline year-over-year in Shanghai. So, the big question is will Chinese consumers increase their spending in 2023?

2023 is expected to be “brighter,” according to an Oliver Wyman survey [among 4,000 consumers in China in October 2022] . While current consumer sentiment is negative across the board, all Chinese income and age groups are much more positive about 2023 and eager to spend more again.

Presently, the lowest income groups (with monthly household incomes below RMB20,000) are most negative. They are particularly concerned about job security and their ability to both cover their rent or mortgage and pay off their debts. Consumers in lower tier cities are also more worried than those in China’s major cities. This brings into question the continuation of lower tier cities as an economic growth engine, as it would require more cautious expansion efforts. Nevertheless, 61% of the respondents surveyed said they would increase their spending in 2023, mainly desiring to invest in a better lifestyle in 2023 and planning to use their accumulated savings to do so.

There is a clear divergence between Gen Z and all the other age groups on where they want to spend their money in 2023. While Gen Z wishes to live in the moment, the other generations desire investing in their overall wellbeing and having a healthy future. A generation that was the key driver of the huge growth in the domestic luxury market in 2021, as they like to spend and reward themselves whenever they can. While the same domestic luxury boom isn’t likely this time around, Gen Z will continue to be a key driving force for discretionary categories such as fashion and skincare.

Interestingly, even though Chinese consumers are overly optimistic about 2023, all age groups are less optimistic about the economic situation five years from now. This is especially the case for Gen Z, which is the most optimistic about 2023 but the least optimistic among all age groups about China’s economic outlook in the longer term. With a current unemployment rate in China of 20% for people aged 16 to 24, they are more worried than the broader population about job security. Additionally, with economic growth slowing down, they are more worried about upward mobility.

While 2023 is likely to be a “much better” year for consumer and retail companies in China, concerns about the Chinese consumer remain in the longer term. “The Chinese government will need to do much more to bring back long-term confidence and successfully use domestic consumption as a key engine for future growth.”

Travel still low on the agenda

Nobody knows when mainland China will resume traveling without any quarantine. Even when that happens, it will take time before the number of mainland Chinese tourists return to pre-COVID-19 levels (155 million travellers in 2019).

Compared with 18 months ago, Chinese travellers have become more cautious about resuming international travel. According to the survey, 55% of the respondents are worried about getting COVID-19 while traveling, and 50% are worried about dealing with potential changes in re-entry policies.

However, if they resume international travel, Hong Kong continues to be the top destination of choice to visit. Overall, the desire for short-haul travel has also gained popularity over long-haul travel. With the current situation in mind, it may still take a few more years to see a 100 million Chinese tourists annually. The outbound travel market likely will not rebound completely in the near term even if the Chinese border reopens properly and quarantine restrictions are cancelled.