China: Signs of recovery in world’s largest consumer market?

China signs of recoveryChinese consumers offer a glimmer of hope as the economic fallout from the coronavirus pandemic continues, according to Fidelity International. Life is slowly starting to go back to normal in the country where the pandemic first started, with more than half of the restaurants and 80% of retail stores reopening. As people resume public activity, “their outing signals the beginning of a recovery in the world’s biggest consumer market,” wrote Ned Salter, head of global research for equities at Fidelity International. He added: “Consumption of staples is clearly outshining discretionary or luxury goods in what is still very much a lukewarm and uneven recovery. Broader economic uncertainties are still prompting people to delay big-ticket spending: instant noodles and frozen foods are selling fast, while travel agencies and hotels still struggle to find customers.” The pandemic is unprecedented in recent times and new behaviours have emerged. According to Salter, the resumption of consumer spending is uneven and unlikely to follow past patterns. While the majority of retail stores (80%) have reopened, average daily sales have dropped 40% average compared to March 2019. “Footfall remains weak at high-end outlets, but luxury goods may find a silver lining in demand from people who cancel their overseas shopping trips,” said Salter. “Those who used to fly to Europe for designer handbags are staying in Beijing and Shanghai to minimise travel-related health risks. China cut a luxury consumption tax last year, adding to their incentives for local spending.” Supermarket chains have seen increased business as a result of the coronavirus pandemic, but online grocery stores have performed even better. Hotels, meanwhile, have borne the brunt of the consequences from Covid-19. “Not surprisingly, the outbreak has dealt a heavy blow to hotel operators, as people minimise travel throughout the first quarter,” said Salter. “The occupancy rates of many Chinese hotels have slumped to single digits, similar to situations in Japan and Korea.” © 2020 funds global asia

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