Amidst economic uncertainty, Chinese consumers exhibit prudence in their spending habits, indicating a recent study by PwC, a global advisory firm. The financial turbulence, fueled by a crisis in the real estate sector and soaring youth unemployment, has been a significant drag on consumer spending.
Michael Cheng, PwC Asia-Pacific consumer markets leader, pointed out that while Chinese consumers’ financial apprehensions may not be as sharp as their global counterparts, the spending trend on non-essentials has taken a discernible dip. Factors such as the yuan’s recent depreciation, dismal real estate, stock market performance, and all-time-high youth unemployment have taken their toll. “This cocktail of challenges has not only curtailed spending but also severely eroded consumer confidence, raising the specter of deflation,” Cheng added.
PwC’s biannual report gains particular significance given Beijing’s aggressive efforts to promote domestic consumption as a catalyst for economic growth. The study, surveying around 9,000 consumers across 25 nations since its inception in 2021, unveiled a shift towards more discerning spending in China. The prevailing economic atmosphere has made impulse buying less common, with consumers now emphasizing quality, value, and promotional deals.
Despite the prevailing economic winds, travel is one sector seemingly immune to the downturn. According to the report, 62% of the polled Chinese respondents expressed their intention to ramp up their travel expenses either slightly or significantly. This figure stands head and shoulders above the global average of 40%. Additionally, over half of these Chinese participants indicated a high likelihood of international travel in the latter half of the year, overshadowing the global mean of 44%.
However, even this silver lining comes with its clouds. The Economist Intelligence Unit, in a report released the same day, highlighted that the number of international flights during China’s summer holidays stood at a mere 50% of its 2019 counterpart. Moreover, projections anticipate that China’s international tourists count won’t surpass pre-pandemic levels until 2025.
A closer look at domestic consumption patterns reveals that in the year’s first half, spending was primarily propelled by sectors such as catering services (seeing a 21.4% YoY growth), luxury goods (with a rise of 17.5%), and apparel and footwear (registering a 12.8% increase).
Now armed with technology, Chinese consumers increasingly leverage platforms like WeChat groups and live-streaming promotions to snag the best bargains for essential items.
One of the PwC report’s major takeaways underscores a paradigm shift in consumer behavior. Nicole Sun, PwC China M&A advisory partner, elaborated, “Consumers are veering towards a more calculated and rationale-driven approach to spending, emphasizing value for money and product quality.” While born out of necessity, this transformation may set a new trend for future consumer patterns in China.
The aftermath of the Covid-19 pandemic has seen varied spending behaviors among consumers. While many have chosen austerity in uncertain times, others have gravitated towards luxury purchases as a form of self-indulgence. “Many consumers buy luxury goods as a therapeutic response to the crisis, a way to uplift themselves after the turmoil of Covid-19,” observed Sun. Interestingly, China’s affluent echelon continues to allocate a significant chunk of its disposable income to high-end brands, reinforcing the allure and status of luxury in the region.
Beyond individual spending habits, patterns are emerging among mainland Chinese tourists in Hong Kong. The past focus on splurging on luxury goods is witnessing a shift towards cultural expenditure. Cheng noted, “More mainland tourists are now immersing themselves in Hong Kong’s rich cultural experiences, indicating a shift in preferences.”
However, Hainan’s introduction of duty-free shopping has proven to be a game-changer for luxury retail tourism. The move has boosted the island province’s appeal, inadvertently redirecting traffic that once favored Hong Kong. Furthermore, enticing luxury goods promotions in Hainan and a rising Hong Kong dollar has dented Hong Kong’s once-undisputed price advantage for premium items.
“Hong Kong’s luxury retailers are feeling the pressure as China intensifies its push for mainland consumers to shop domestically for luxury goods,” Cheng elaborated. Yet, he remains optimistic about the city’s allure, asserting, “As long as there remains a price edge in Hong Kong, be it 5, 10, or 15 percent, the city retains its competitive advantage.”
Despite the challenges, global luxury brands haven’t lost faith in Hong Kong. They remain poised and committed to fortifying their foothold in the city. “Many luxury brands are strategizing to enhance and expand their presence, underscoring their belief in the market’s potential,” highlighted Cheng.
A piece of sage advice from Cheng pointed towards diversification. With spending by mainland tourists, a significant catalyst for Hong Kong’s retail sales, not matching pre-pandemic expectations, he suggests tapping into the burgeoning middle classes of Southeast Asia. By doing so, Hong Kong could mitigate its over-reliance on mainland tourists.
Optimistically, PwC projects a resurgence in mainland tourist numbers by year-end. The forecast anticipates a recovery of approximately 60% of pre-Covid figures, translating to an estimated 25 million visitors annually.
In a bright spot for Hong Kong, the first half 2023 witnessed a robust 20.7% surge in retail sales, buoyed by the government’s consumption voucher initiatives. However, PwC’s projection for the latter half is more conservative. They forecast an overall annual growth of 17%, amounting to HK$408 billion (US$52.05 billion). This tempered outlook factors in the city’s residents, who, driven by pent-up wanderlust, are likely to allocate a larger portion of their spending to travel, curtailing domestic retail expenditure.
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