What Caused China’s Retail Slump In October? And Is There Hope For the Rest Of 2022?

    Months after the Shanghai lockdown, China’s retail sector has not fully recovered to pre-pandemic levels. What are the reasons and will a rebound happen?
    Months after the Shanghai lockdown, China’s retail sector has not fully recovered to pre-pandemic levels. What are the reasons and will a rebound happen? Photo: Shutterstock
    Zihao LiuAuthor
      Published   in Retail

    What happened

    China’s retail sector and overall economy slowed down in October, according to the latest economic data released by China’s National Bureau of Statistics (NBS).

    Normally, September and October are known by China’s retail and hospitality sectors as “Golden September and Silver October” (金九银十) for their long holidays and busy retail activities. However, this year a lukewarm consumer sentiment and pandemic restrictions have neutralized the traditional shopping stimulus brought by the holidays.

    Retail sales, which include online retail, reached 560 billion (4.03 trillion RMB), a 0.5 percent decrease compared to the same time last year and a 0.68 percent decrease compared to September. Dining revenue continued its downward momentum in the third quarter, dropping by 8.1 percent compared to last October.

    In the nation’s urban areas, the unemployment rate is at 5.5 percent — nearly the same as in the third quarter, which saw a rate of 5.4 percent. However, in China’s 31 large cities, which range from Beijing and Shanghai to Yinchuan and Hohhot, the rate is at 6 percent.

    NBS also shared economic data from January to October. Industrial output witnessed a 4 percent year-on-year growth. Meanwhile, total retail sales reached 5 trillion (36 trillion RMB), a 0.6 percent year-on-year growth. Online retail revenue was 1.5 trillion (10.9 trillion RMB), a 4.9 percent increase year on year, and online retail of physical items accounted for 26.2 percent of all retail during the period.

    According to Reuters, JPMorgan lowered its GDP forecast for China’s fourth-quarter GPD growth to 2.7 percent from a prior 3.4 percent in response to the data release, while Citibank lowered it to 3.7 percent from 4.6 percent. Earlier in October, The International Monetary Fund cut its forecast for China's growth to 3.2 percent this year, compared to 8.1 percent in 2021.

    The Jing Take

    The underwhelming performance of China’s retail sector in October shows that the country’s consumer sentiment has yet to recover from the pandemic. The data suggests that even if the stringent lockdowns in Shanghai had ended sooner, other lockdowns across China’s interior including Zhengzhou and Xining also collectively discouraged retail and consumption.

    This is also reflected in plummeting consumer confidence levels: The latest available data is 87.2 in September, a 28 percent drop compared to September 2021 and barely an increase from 86.8 at the height of the Shanghai lockdown this May.

    A closer look at Chinese consumers’ spending choices reveals a more cautious consumer base as well. Per NBS data, food and beverage sales from January to October both experienced noticeable growth at 9 percent and 6.6 percent, respectively. Faced with unpredictable lockdowns, consumers tend to stock up on basic necessities and consume more beverages, including soda and alcoholic drinks, during online socialization or for homely spiritual comfort.

    There were reasons to believe that November will still see a stronger rebound in retail, but this was dashed as China just announced mass lockdowns in Guangzhou and Shijiazhuang in Hebei amongst surging cases in those areas and Beijing, causing a slide in Asian market and crude oil prices.

    China had just recently unveiled 20 new measures to ease up its COVID-19 pandemic control policies, which will likely make consumers less concerned about stepping outside and visiting shopping malls. The recent Double 11 e-commerce shopping festival did not report total sales results, but reports suggest that the total gross merchandise value (GMV) from all major e-commerce platforms surpassed 139.6 billion (1 trillion RMB) for the first time - a strong indicator of positive momentum this month.

    Rising consumer interest in outdoor sports, art toys, wellness, health, and education were also evident throughout the shopping festival. Therefore, focusing on products and services that offer long-term returns to Chinese consumers will be the key to success for international brands amid China’s slower-than-expected recovery.

    The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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