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China’s Consumer Spending During Spring Festival Was Weak. But Olympics-Related Wares Were a Hit

Feb 11, 2022

China’s Consumer Spending During Spring Festival Was Weak. But Olympics-Related Wares Were a Hit

Consumer spending during China's week-long Spring Festival was eclipsed by the attention on the Beijing Olympics — which may have been for the best, given the figures.

Tourism and moviegoing performed particularly poorly – both of which are typically strong performers over the Christmas season – but food and Olympic-related items performed better.

Earnings from tourism over the seven-day vacation declined 3.9 percent year on year to 289 billion yuan ($45.5 billion), while domestic travels fell 2% to 251 million, according to a public statement from the Ministry of Culture and Tourism. The figures were more than 50% lower than the 2019 pre-pandemic level.

However, overall travel increased as millions of employees and students went home for the country's most significant vacation. The amount of rail, road, and air traffic increased around 30% compared to the same period last year but remained a sharp 70% lower than in 2019.

"While more individuals traveled home for the holidays this year than previous, the data we have so far indicates that they stayed primarily at home and that overall expenditure was rather low," said Adam Wolfe, emerging markets economist at Absolute Strategy Research.

According to Mark Tanner, CEO of Shanghai-based market research firm China Skinny, his favorite statistic came from Trip.com Group (TCOM), which "saw a 63 percent increase in luxury car rentals over last year's festival, as many migrants returned home wanting to give their families the impression of their success in big cities by arriving in a nice set of wheels."

Yang Jingyi, a tour guide in western China, told Barron's that many of her customers opted for local or regional travels, as simply going through medium or high-risk Covid-19 zones in a vehicle or train might change your phone's green health code yellow or red, resulting in quarantine upon return. According to the travel website Qunar, 70% of domestic tourists choose short-distance journeys.

"While the federal government's Covid policy framework has become more accommodating, limiting the Omicron version has resulted in a slew of limitations on travel and consumer activities," Gavekal Dragonomics wrote in research.

According to the Gavekal analysis, "consumer services that have been affected by Covid limitations since 2020 — travel, tourism, hotels, and restaurants — are projected to remain depressed in 2022."

Beijing has also imposed travel restrictions within and around the capital in preparation for the Winter Olympic Games. The city itself attracts a significant number of tourists each year, but so do the winter recreation locations immediately outside the city, the majority of which have been closed to the public for weeks.

"The games have taken precedence over the well-being of the economy as the mainland experienced a surge in Covid-19 cases beforehand," Jefferies noted in a note on Monday.

Cinema attendance was also down. Overall, box office receipts in China decreased to 6 billion yuan ($950 million) from 7.8 billion yuan last year, according to the State Film Administration's website. All of the top-grossing films were domestic productions, headed comfortably by "The Battle at Lake Changjin II," the sequel of China's second-highest-grossing film of all time.

Wu Yi, a Beijing-based film analyst, suggested two possible explanations for this year's lackluster performance. "At first, there were just fewer worthwhile films to view. Second, they started to be at home almost all the time and are less ready to leave the house than they were previously."

After the Winter Olympics and two significant political conferences earlier this year, "consumer demand will gradually return to normal," Tian Yun, former vice director of the Beijing Economic Operation Association, said on state media on Sunday.

As predicted, digital sales were a rare bright light. Non-cash payments increased by more than 16% year on year to 14.9 trillion yuan ($2.3 trillion) over the Spring Festival period, the central bank said Monday. The State Post Bureau said Monday officially that parcel collection volumes increased by 12 percent, 338 percent, and 545 percent, respectively, compared to the same times in 2021, 2020, and 2019.

This was partly owing to robust online sales from Alibaba Group Holding (BABA) and JD.com (JD), both of which have flourished during the epidemic.

Despite the Beijing-related limitations on winter sports, Alibaba singled out Olympics and ski-related sales for locations outside of Beijing. Ski equipment sales climbed by more than 180 percent year over year on Alibaba's renowned e-commerce site Tmall, while other ice sports products increased by more than 300 percent, according to the business.

Contrary to China's enduring habit of scratch-cooking, sales of pre-prepared veggies soared 345 percent year over year on its fresh-food platform Hema and more than quadrupled on its flagship Taobao platform. Alibaba stated that this demonstrates the company's ongoing expansion in the "prefabricated food consumption line."

AliExpress, Alibaba's cross-border marketplace, experienced a 25% spike in Chinese smartphone sales abroad and a more than 100% increase in domestic smart home equipment sales. Alibaba, despite its worldwide focus, continues to give discounts throughout the Chinese holiday season.

China's much-watched Spring Festival Gala, broadcast on state-run CCTV, benefited JD.com, whose cloud infrastructure enabled interactive experiences—such as virtual "red envelopes"—for hundreds of millions of spectators, resulting in about 75 billion engagements with the company's app. Specific sales figures have not yet been disclosed.

JD.com stated that it was chosen for, and learns from, the increasingly quick response times demanded by Chinese viewers and consumers, who now anticipate 24-hour online service.

Additionally, the firm claimed record sales of merchandise featuring the Olympics' panda mascot Bing Dwen Dwen, as well as the triple-digit surge in sales of tigers, as 2022 is the Chinese zodiac Year of the Tiger.

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