Consumer confidence regained ground in China as work resumption greatly advanced by the middle of the year and more people are expected to increase spending over the next three months, a report by UBS Securities said on Tuesday.
The international brokerage identified digitalization, health, and consumption upgrade as the dominating trends defining the sequential consumption rebound after a deep plunge caused by the COVID-19 pandemic.
Tracking 3,000 Chinese consumers from different cities, age and income groups on their finances and consumption pattern, the study conducted in May found that 61 percent of the respondents expect their income to increase, while 58 percent planned to increase consumption in the next three months.
Such optimism is backed by the fact that an overriding 94 percent of the respondents had reported work resumption by late May, up from just 52 percent in a similar survey in March.
Areas where most respondents planned to increase spending are sports and gymnasiums, as well as medical and healthcare sectors. Consumption upgrade is continuing with 77 percent of the respondents indicating that they would pay more for better products.
“While explosive spending for pent-up demand is unlikely, we do anticipate some substantial pickup in spending as people need to perk up their moods after enduring lockdowns and COVID-19 related immobility,” said Peng Yanyan, head of China Consumer Sector at UBS.
This will give market-leaders in each segment a further leg up, securing an even larger share, said Chen Yang, a UBS consumer staples analyst.
For instance, Chinese milk tea chain HEYTEA opened its 500th outlet worldwide on Monday in Shanghai’s downtown East Nanjing Road, as it quickly shed the pandemic-related negative effect strangling many food and beverage enterprises.
The store decorated in black and golden colors, which the company said indicates “prime design in prime locations”, sits adjacent to the city’s premier shopping center Shanghai New World Daimaru, suggesting strong bargaining power in securing store location by topper-forming brands.
“We have witnessed a conspicuous acceleration of new store openings since the second quarter,” said Peng. “It’s indeed a good timing to obtain an ideal location as business orders are still normalizing.”
The consumption upgrade trend is continuing, albeit blunted by the COVID-19 shock. Over three quarters of respondents said they are willing to pay more for goods of premium quality and services, and over half would choose self-improvement items such as education and sports. This preference is especially noticeable among residents in top-tier cities like Beijing and Shanghai.
Analysts remain optimistic about prospects of domestic luxury market, though it has inevitably suffered from restrained overseas travel and short-term income uncertainties.
“Generally speaking, higher-income groups are a lot less vulnerable to the economic shock compared to the lower-income population,” said Peng. “So these demands did not simply vanish－people just lack the previous common purchase channels, such as during outbound travel or duty-free shops.”
She expects the luxury segment to recover in the second quarter, especially as steady income growth is back on track and new business entities such as duty-free shops in city centers start to take root in the country over time.