Over the last ten years, China witnessed brand-conscious spenders and active consumers dominating all shopping venues. But this consumption-oriented lifestyle gradually faded amid stringent COVID lockdowns and the resultant economic downturn.

Karl Shen is the director, and Jenny Huang is the senior director of China’s corporate research at Fitch Ratings. Both have recently published an article saying that the shopping habits of Chinese consumers have changed significantly and will be challenging to return to normal even after COVID curbs are lifted.

According to the report, the Chinese Communist Party’s draconian zero-tolerance approach, coupled with brutal crackdowns on different sectors such as real estate, technology, and private tutoring, has undermined Chinese consumer confidence significantly and resulted in uncertainty about future income.

Therefore, Chinese people today tend to cut excessive spending on cosmetics and luxury products and turn to “necessities and practical value-for-money goods” instead.

Official data show that consumer confidence indexes plummeted in April and have languished at low levels until now. As a result, Fitch Ratings projects that consumer spending will decline 0.4% in real terms this year.

Survey data from the People’s Bank of China in the June quarter indicated that Chinese consumers want to save more than invest since the COVID-19 pandemic began in early 2020.

In addition, the most recent wave of travel restrictions in Guangdong, Sichuan, Yunnan, and Inner Mongolia is also hampering consumer sentiment.

China’s jobless rate in April hit a 26-month high of 6.1% before dropping to 5.3% in August. The unemployment rate for the 16-24 age group also surged to 18.7% that month.

However, Fitch believes that these figures did not reflect the actual graduates. Among the 24 million college and vocational school students who were supposed to obtain university degrees in June, many had to delay graduation and keep studying until better employment opportunities came. 

The report noted that online selling was one of the few businesses that could rebound amid Beijing’s harsh COVID-19 control measures.

This is due to the CCP often prohibiting physical stores from opening to avoid spreading in high-risk areas. Even in low-risk areas, many cities require citizens to present a negative test result taken within 24 to 72 hours to enter malls, supermarkets, restaurants, and shops. To save bother, Chinese consumers decided to switch to online shopping sites. 

As a result, Fitch Ratings expect online selling to make up about 29% of total retail sales this year, contrasting with 23.4% in 2019 before the pandemic. 

In general, online shopping receipts in the year’s first eight months climbed 5.8%, while offline sales shed 1.8%.

Fitch experts commented, “The more people get used to these new habits, the more anchored this behavior pattern will get.” 

Both believe that Chinese consumers will likely maintain these new spending habits until the economy finally falls to its lowest point in years to come.

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