Wei Jianguo: Record 45t yuan consumption still appears possible this year
Source: China Daily
The 2020 Spring Festival holiday in January may have been the most extraordinary Lunar New Year break ever in history. On the one hand, China’s frontline medical staff had to battle the coronavirus outbreak, and are still having hectic, highly intensive working schedules. On the other hand, businesses in sectors like catering, ecommerce, entertainment, travel, beverages, fitness, and theme parks suffered unprecedented loss of business, and are shuttering or having a protracted break.
Estimates from the China Tourism Academy show total revenue of China’s tourism industry would hit 6.63 trillion yuan ($945.9 billion) in 2019. That means, the epidemic in 2020 will bring a big loss.
Zhu Min, head of the Tsinghua National Institute of Financial Research and former deputy managing director of the International Monetary Fund, estimated that total consumption in the first two months this year would be 1.38 trillion yuan lower than that of the same period last year.
Total retail sales of consumer goods last year was over 41 trillion yuan, up 8 percent year-on-year. The actual growth rate was 6 percent if we eliminate the influence of price change.
Currently, many experts are reportedly worried about slowing consumption’s impact on the economy amid the epidemic. Uncertainty shrouds recovery. Many of them even think consumption, the biggest driver of China’s economic growth for six consecutive years, would slow further.
I disagree. I think China’s consumption after the epidemic this year will rebound, especially consumption in new forms, upgraded consumption, consumption for material or tangible things, and consumption in the services sector. Retail sales of consumer goods this year are likely to hit 45 trillion yuan, up 8 percent year-on-year. China is likely to surpass the United States and become the world’s largest consumption market on the back of the factors discussed below:
New forms of consumption
The central government has encouraged the development of consumption in new forms as well as consumption upgrade.
On March 4, the central government signaled resumption of production while expanding domestic demand. Consumption that was halted due to the epidemic should be reinvigorated, and new forms of consumption that emerged during the epidemic prevention and control should be encouraged to boom. This could be a “refill” for consumption of real material goods and services, and the central government’s guidance pointed to the direction to take for the next phase of development of China’s consumption.
Four sectors will stand out in the near future: China’s new forms of consumption, upgraded consumption, consumption of real materials, and consumption of services, which will lead the market.
New forms of consumption, including cultural products, healthcare, and yangsheng — it is a Chinese word that describes a philosophy of preventive wellness to nurture life, by preempting small ailments from growing into major diseases — will see more rapid development after the epidemic.
Data from the National Bureau of Statistics show there were 2,072 art performance groups in China related to culture and tourism by the end of 2019. There were also 3,410 museums. In addition, the country had 3,189 public libraries that recorded 877.74 million visits, and 3,325 cultural exhibition halls. This year is likely to see more visits to museums and libraries, and more active visits to various shows.
China also has the world’s largest number of cinema screens. In 2019, some 12,178 cinemas boasted 68,922 screens. Consumption in the film sector was rapidly developing, until the epidemic dealt a blow to the industry with all films withdrawn from release during the Spring Festival holiday, a peak movie-going season. The films could have brought in about 7 billion yuan in box-office receipts. The impact of the epidemic on cinema chains in China is estimated to surpass 16 billion yuan.
I think there will be a boom in box-office sales after the epidemic. For, consumers will want to watch good, exhilarating films after experiencing boredom and anxiety caused by protracted confinement to indoors during the outbreak.
For their part, film producers would seek to recover from their losses by attempting to attract more audiences. However, cinemas are confined or enclosed places that could spark concerns if large crowds gather frequently soon after the contagion. Cinema owners and related staff will likely work toward innovative solutions to address such concerns.
Also, production of many reality shows and TV series was halted because of the epidemic, which means the number of productions will drop this year. Viewership of new content that goes past the postproduction phase to reach audiences is likely to be good. This will hold true particularly for shows, series or films that depict heroes fighting on the epidemic frontlines.
Fitness and wellness
A great lesson from the epidemic is that we should exercise to enhance our immune systems.
In the pre-epidemic phase, activities like long-distance running and tennis were popular. Consumption in the exercise and fitness sector covers numerous parts of an industry chain, including consumption of fitness products, fields, and competitions. China’s exercise and fitness market is expected to reach nearly 1.17 trillion yuan by 2019.
Tennis, volleyball, basketball, marathon, yoga … all such activities or sports for physical exercise might see a surge in the number of people practicing them. However, the industry still faces the problem of keeping the playgrounds open and safe, while preventing person-to-person virus transmission.
Meanwhile, healthcare for the elderly may also see a growing need, and that will drive the development of China’s traditional medicine, and related industries like herbs, senior care, and yangsheng. The development of the life-nurturing industry is also likely to promote economic development of some villages.
After the epidemic, there might be a large number of elderly people dancing in the parks, where the population density is very high. That is a challenge for urban management as it is important to offer the elderly a safe place to exercise while preventing the virus from spreading further.
The big upgrade
Upgraded consumption will also see rapid development after the epidemic. The epidemic has underlined the need for current consumption to upgrade from three aspects.
First, the way of consumption can be made even more convenient through online and offline channels, mobile payments, big data, and cloud computing.
Second, consumption of services can be upgraded through individualized and more specified services. It is also important to encourage consumption that is green or environmentally friendly.
Third, it is important to promote cross-border e-commerce. Imports and exports through cross-border ecommerce totaled 186.21 billion yuan in 2019. Going forward, it is important to promote China’s ecommerce services to the global market.
In addition to new forms of consumption and upgraded consumption, China’s consumption of real materials will also rise.
Merchandise retail accounted for a large part of total consumption goods retail in China. In 2019, China’s merchandise retail reached 36.49 trillion yuan, accounting for 89.3 percent of the total. Before the epidemic, China’s disposable per capita consumption was 30,733 yuan, while actual per capita consumption was 21,559 yuan.
It is worth mentioning that consumption by village residents is on the rise. The consumption propensity rate of rural residents in 2019 was as high as 83.19 percent.
Although there have been many orders made online, not all offline retail outlets of major supermarkets have reopened, which is affecting overall consumption. At present, it appears that supermarket stores and night markets in some cities have opened partially. It is expected that merchandise retail sales will see a steady growth through the rest of this year.
Industries like tourism, education and training, transportation and logistics will also see growth if the epidemic is brought under control, but those industries will not have rapid development in the short term.
Consumption of food via related services like restaurants and caterers, and of various kinds of beverages, and use of home services will see rapid development.
Consumption in the catering industry rises 9.4 percent to 4.67 trillion yuan in 2019, accounting for more than 11.3 percent of the total. The Spring Festival holiday has been a hot season for catering, alcohol and beverage consumption. However, places for dining and outdoor activities have been shut down due to the epidemic, which had a great impact on the industry.
China is a large market for global alcohol consumption. However, Chinese baijiu (clear distilled liquor) consumption dropped sharply due to the epidemic. As a result, liquor companies are under great pressure. There might be large consumption demand for baijiu and wine after the epidemic. Some liquor merchants said they have a large amount of liquor in storage, so they are confident of meeting pent-up demand.
China is home to varieties of tea. The country has a tea plantation area of about 44 million mu (2.93 million hectares) and an annual tea output of about 2.6 million metric tons, which accounted for 60 percent and 45 percent of the world’s plantation area and tea output, respectively, and ranked first in the world.
At present, China’s tea producers are actively resuming work under the guidelines of the government. It is expected that consumption of tea will see rapid development after the epidemic.
Demand for home services is also likely to increase after the epidemic, especially for high-quality service products. To date, people working in the home services industry surpassed 30 million.
There are around 400 million middle-income people in China whose purchasing power will likely become one of the most important driving forces behind overall consumption. Their consumption pattern is key to China’s economic development.
China’s high-quality economic development requires a higher level of consumption. For instance, consumption behaviors like eating wild animals should be strictly prohibited.
I am confident and optimistic about China’s consumption market, which is likely to continue to be a major driving force of China’s economic growth this year. Consumption in 2020 is likely to surpass 45 trillion yuan and hit a record high.