Since the start of the Covid-19 pandemic in 2020, China's retail sales have not been particularly strong. Daniel Zipser, head of McKinsey's Asia consumer and retail practice, stated his hope that there will be gradual improvement in the following year, however he does not anticipate a rapid, v-shaped recovery. Zipser noted that in China there has been a switch in consumer spending from goods to services.
McKinsey's Daniel Zipser, leader of the Asia consumer and retail practice and authror of a new report titled "China Consumption: Start of a New Era," does not anticipate a strong, V-shaped recovery for China's consumer spending. Amid the ongoing Covid-19 pandemic and slumping real estate market, retail sales have remained stagnant since early 2020. With the government addressing long-standing issues in the real estate sector and rising tensions with major trade partners such as the U.S., economic growth is expected to slow. Zipser is hopeful for incremental improvement in the coming year, but companies must be strategic in order to tap into the still immense market.
Chinese consumer sentiment has remained steady for the last year, even with the lingering Covid restrictions, according to an interview with Zipser Thursday. He noted that the economic and property market recovery have not achieved people's expectations. Heightened geopolitical tensions and declining exports have further lowered confidence that the situation will improve in the next few years.
Despite the prevailing negative outlook, there is a differential in the influence on Chinese consumer companies. McKinsey's examination of 80 publicly-traded consumer companies that mainly receive revenue from mainland China demonstrated a large disparity - several experienced double-digit growth while others experienced double-digit drops. Zipser commented, "In the past, you could invest in whatever you wanted and anticipate growth in many firms. Those times have come to an end."
He stated that the market is more competitive now, noting that the product has become significantly more important and that consumers are much more knowledgeable. Thanks to the economic advances of the last few decades, US companies like Apple and Starbucks have found a rewarding market in China. The World Bank reported that China's per capita GDP raised twofold to $12,720 between the years 2012-2022, while the US's GDP per capita increased around 47% in the same period to $76,398. Even if China's economic growth slows to a rate between 4%-5%, the Chinese retail sales would still be as much as the merge of the retail sales from South Korea, India, and Indonesia. In spite of that, it is still considered growth, and the Chinese retail sales rose to 7.6% in October compared to its value of the previous year, better than the predictions. Also, major e-commerce companies have gained modestly in their third-quarter revenue, although Pinduoduo had almost doubled its proceeds from a lower base.
Zipser mentioned that Chinese consumers are spending more on services rather than goods, and related items such as alcohol are being given a lift. He also predicted that as visas become easier to obtain and flight prices decline, there would be an uptick in international travel - still not back to pre-pandemic levels. He added that premium brands are doing well because consumers are looking for deals rather than buying lower-priced alternatives; companies that adjust to consumer trends are thriving. The Singles Day shopping event revealed that conventional e-commerce channels experienced a 1% decrease in gross merchandise volume compared to the prior year, while those selling through livestreams saw a 19% increase.
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