Flowers, fresh fish and movies: China is spending again, carefully

In downtown Nanjing, China, a fishmonger two weeks ago sold significantly more ribbonfish than usual for Lunar New Year family gatherings. A florist in a ramshackle mall on the south side of town sold more roses.

But a lamp vendor a few steps down the mall has seen no recovery in sales. And at an Infiniti car dealership on the outskirts of Nanjing, customer visits have jumped 20 or 30 percent, but have yet to translate into additional car sales.

“The economic impact of the epidemic persists in some respects, but we believe things will be better this year,” Edith Xu, the dealership’s marketing manager, said Thursday.

Two months after China abruptly abandoned its strict ‘zero Covid’ policy and let the virus sweep through its population to deadly effect, the country’s economy has begun to recover. Consumers are spending again after taking a long break during lockdowns in Shanghai last spring and many Chinese cities in late fall. Factories and ports are operating well as the end of citywide shutdowns resolved the disruptions that have plagued global supply chains for the past three years.

Yet weaknesses remain and the hoped-for post-pandemic “revenge spending” frenzy has yet to materialize. Domestic air travel, tourism spending and subway use all rose sharply from a year ago. But they have yet to match 2019, before the pandemic hit.

China’s cabinet, the State Council, is betting that consumer spending will pick up, but hedged that bet by promising continued economic stimulus at a Jan. 28 meeting. The cabinet said major infrastructure projects planned last year, when the economy was on its knees, should go ahead. Small businesses will continue to benefit from various tax breaks.

The cabinet also promised new measures to help sales of cars and other big-ticket items. China rebounded quickly in 2009 from the global financial crisis, in part by sharply reducing taxes on car and appliance purchases.

“The greatest potential of China’s economy lies in the consumption of the 1.4 billion people,” Premier Li Keqiang said in a statement after the cabinet meeting.

The world is watching closely. Many investors and economists expect China to do much better than the 3% growth rate it achieved last year. But hardly anyone expects a rebound like the country’s 8.1% growth in 2021, when it quickly recovered from a 76-day lockdown in Wuhan at the start of the pandemic.

The International Monetary Fund predicted last Monday that China’s economy would grow 5.2 percent this year. Investors have already bet heavily on a recovery.

In the Shanghai and Shenzhen stock markets, shares of big companies rose 18% from a low in late October. They pulled off the gain despite a modest selloff on Friday, when some traders worried about the strength of the recovery in China.

“The next step may require better economic data,” said Larry Hu, an economist at Macquarie Securities.

The question marks hanging over the Chinese economy concern demand: how much of the country’s huge production of goods and services will consumers in China and abroad buy? At the end of last year, exports to the United States and the European Union plunged, as the purchasing power of businesses and individuals was reduced by high inflation.

Real estate remains one of the biggest concerns in China. The construction sector accounts for a quarter to a third of the nation’s economic output, including steel, cement, and new housing development.

Years of heavy borrowing by developers, landlords and speculators led to a slow-motion crash that began in the fall of 2021 and is still not over. Many would-be owners are still jittery after hundreds of thousands of families who had prepaid apartments were left with unfinished homes as several dozen developers failed in late 2021 and throughout last year.

Sales of new apartments fell last month compared to the same period at the start of last year. Weak apartment sales are in turn hurting demand for home furnishings.

Ying Yongxiang, the manager of a lamp and light store in Nanjing, is still waiting for customers to start coming back. “Our company’s sales haven’t changed much since the epidemic policy was changed,” he said.

Movie box office receipts rebounded during the recent week-long Lunar New Year holiday compared to the same holiday last year.

Ren Xuejie, 25, said he can barely remember the last time he went to the cinema as he mostly stayed at home last year due to Covid restrictions.

“Now that there are not many epidemic restrictions, I may go to the cinema more often this year,” he said while waiting for a Chinese animated film to be shown in a cinema. of Nanjing, a city of 8 million people in the central east. China which was once the capital of the country.

While domestic Lunar New Year box office receipts were up sharply from a year ago, they were still down 13.6% from a record high during the same holiday. in early 2021. This is when China saw a spending spree after appearing to beat Covid with the Wuhan lockdown.

The movie industry is one of many industries with lasting scars from the pandemic and “zero Covid” policies. The pandemic has forced the closure of almost a third of Chinese cinemas since 2020.

Last year “was a really tough year for us – I feel like we worked two or three times harder,” said Yi Li, general manager of Appotronics, a maker of laser displays and cinema projectors in Shenzhen, a city adjacent to Hong Kong. “We are delighted that life is returning to normal.”

Chinese cities are also stuck with large numbers of quarantine rooms, cabins and Covid testing labs, and other investments the central government has forced them into that cannot easily be used for other purposes. . Jinan, the capital of eastern China’s Shandong province, announced last month that it was converting 650 rooms at a newly built quarantine center into low-cost accommodation for skilled factory workers in a adjacent industrial park.

By contrast, China’s huge manufacturing sector appears to have weathered the rapid Covid outbreak in December very well.

Fette Compacting is one of Germany’s leading manufacturers of machinery and equipment for processing pharmaceutical chemicals into tablets. In just a few days in December, the virus wiped out four-fifths of its workforce at its factory and offices in Nanjing. But none of the roughly 140 workers fell seriously ill and everyone recovered quickly, said Andreas Risch, general manager of the company’s China operations.

With high demand for pharmaceuticals, Fette Compacting worked overtime to deliver nearly twice as many machines in December as usual, Risch said. Neighboring businesses supplying sheet metal and other components for the machines were also able to make on-time deliveries throughout the outbreak of infections.

But the economic boost for China for this kind of spending is likely to be temporary. And with uncertain exports, local governments strapped for construction projects and a struggling real estate sector, China’s economy is most dependent on sustained consumer spending in the country, said Rhodium Group Partner Daniel Rosen. , a New York consulting firm.

“Epic household consumption is needed right now,” he said.

Li you contributed to the research.