Consumers and companies have good reason to be “cautiously optimistic” about China’s post-Covid-19 reopening and economic recovery, according to McKinsey’s latest China brief.
Retail spending continues to be higher than pre-pandemic levels, despite talk of China’s economic slowdown. The value of the apparel and cosmetics segments grew 5.5 percent and 5.9 percent, respectively, during the first half of this year compared with 2021. A clear winner was the auto industry, which expanded 12.8 percent — with electric vehicles soaring 44 percent year-on-year in volume during the six-month period.
While luxury brands continue to be popular, Chinese consumers are engaging in “smart shopping” — meaning they look for better deals and sales across platforms like Douyin and Pinduoduo, where products are often sold for “half or less” than on more established competitor shopping apps.
In a May survey of Chinese consumers, McKinsey found that while many remained loyal to their favorite brands, 47 percent of respondents reported switching retailers to obtain a “lower price/discount.” In June, skincare products on Douyin sold for 109 RMB ($15) on average compared to 243 RMB ($34) on Tmall, according to the market intelligence firm.
Chinese consumers are engaging in “smart shopping” — meaning they look for better deals and sales across platforms like Douyin and Pinduoduo.
However, consumers will continue to “splurge” on themselves. Travel, restaurants and apparel were the top categories consumers were spending on, the survey revealed. Fashion was a priority, given the nation’s full domestic reopening — consumers sought to add to their closets, with their social lives and outside activities resuming.
McKinsey also states that China’s upper-middle-class will grow by an additional 50 million households to 200 million by 2025, meaning that disposable income will expand and continue to drive consumption over the next few years.
Another indication of China’s continued economic recovery is the nation’s travel sector.
Chinese domestic tourism in June was 7 percent higher than during pre-pandemic levels (in 2019), according to the report.
However, international travel in June was still 58 percent lower than pre-pandemic levels, though the number of outbound flights from China is “rising rapidly.” It’s only a matter of time until Chinese outbound travel and tourism returns to 2019’s peak levels given many consumers’ desire to get out and about after years of containment.
Brands will need to keep a careful eye on consumer sentiment in the months ahead, as China’s economy continues to recover. Cautious optimism is key, as companies must evolve in alignment with changing consumer behaviors in post-pandemic China.
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