Economics Q-series: Future Reimagined – What is the path to recovery for the Chinese consumer?

In the aftermath of the pandemic, as China is among the first to enter and exit COVID-19 mobility restrictions, its path and pattern of consumption recovery may shed light on recoveries elsewhere.

06 Jul 2020

Following China's path of consumption recovery?

Source: CEIC, UBS

This chart shows the path of China's consumption recovery.

Is the Chinese consumer's recovery path a template for other geographies?

In normal circumstances the Chinese consumer's behaviour is a critical factor, not only for China's economic expectations, but also for many other related international industries. In the aftermath of the pandemic, as China is among the first to enter and exit COVID-19 mobility restrictions, its path and pattern of consumption recovery may shed light on recoveries elsewhere. In this report, which is part of a series that started with an analysis of the 7 Megatrends for the Future, we leverage data from the third wave of UBS Evidence Lab's China Consumer Survey in May to assess how China's consumption might recover post COVID-19. The survey results show a strong sequential rebound in consumption expectations post a deep plunge as c60% of respondents expect income and consumption to increase in the next three months, after two-thirds recorded income declines. The survey results are consistent with macro level data showing retail sales/auto sales recovering in May, post a sharp contraction in Q120.

Accelerating and emerging megatrends in consumer behaviours

Given COVID-19's significant impact on the economy and labour market, it is not surprising that fewer respondents than last year expect a salary increase or higher consumption spending in the next 12 months, or that more want to increase saving and buy insurance. Echoing accelerating or emerging megatrends elsewhere, Chinese consumers are embracing faster digitization and e-commerce, spending more on services rather than goods, increasing their healthcare and sports/wellness expenses, and reducing traveling and offline entertainment. Surprisingly, 77% of respondents would still pay more for better products, reflecting the enduring trend of consumption upgrades in China, which is consistent with the recently robust rebound in sales of high-end products.

Implications for industries and companies

While air travel and offline entertainment may take quite a while to recover, digitization is accelerating across all industries. We think companies that can better use online platforms and distribution channels will likely fare better – likely leading to changed business models and increased consolidation. Staying at home for longer could continue to boost demand for utilities and telecom equipment and services, while social distancing could boost demand for private cars in place of public transport. Traveling less abroad and the enduring desire to upgrade could bring surprising changes to the retail landscape of luxuries and durables, and even trade flows. While weaker household finances would impact negatively on banks that rely more on consumer credit, consumers' higher intention to buy insurance protection should bode well for insurers over the next year.

Authorized clients of UBS Investment Bank can log in to UBS Neo to read the full report.