The reduction of offline spending is significant
Survey showed improving work resumption but reduced income & spending
A UBS Evidence Lab China Consumer PulseCheck survey, conducted on 1-6 April, shed some light on the impact of COVID-19 on consumer behaviour, income, and future expectations and spending plans. By early April, 85% of those who travelled before Chinese New Year (CNY) had come back and work resumption had picked up progressively, especially in higher tier cities, consistent with findings in our Daily Activity Tracker. While few reported losing jobs, 54% of respondents reported income decline since the outbreak. As a result, over 60% of respondents reduced their offline spending significantly compared to before the outbreak even after the removal of quarantine restrictions.
Consumers expect some recovery in income & spending, but plan to reduce debt
42% of respondents expect their income to increase in H2 2020 while 15% expect some decline. 48% of respondents plan to increase spending on sports and entertainment and 28% plan to increase spending on daily goods. 27% of respondents reported an increased desire to purchase a car. While 19% of respondents plan to borrow more in the future, more respondents (28%) plan to reduce their outstanding debt, especially online instalment loans.
More online spending & delays in property purchase
In contrast to continuing to spend less offline, most respondents have continued to spend more online than before the outbreak. On a net basis, 38% of respondents increased spending on online shopping in early April, higher than during the quarantine period, and about three-quarters of respondents said they plan to buy online at least as often as now in the future. For the half of respondents who had property purchase plans, half reported no change in their plans, about 40% would delay their plans while about 9% cancelled their plans.
Consumer sector: omni-channel strategy is the winning formula in COVID-19
We think investors will increasingly give more value to the consumer companies with omni-channel abilities which allow them to adapt to changing consumer behaviors. Industry consolidations will likely accelerate given leaders' strong balance sheets and robust supply chain management.
Internet sector: faring relatively well but we are not back to normal
The survey indicates continued recovery in consumption, which is consistent with what our companies are seeing in March and April so far. However, the better-than-expected 1Q does not make us more positive for the rest of the year, as the survey also suggests downside to income and household debt de-leveraging, which could offset some of the upside from higher online penetration in consumption and entertainment.
China banks: consumer loan growth and asset quality under pressure
China's consumer credit excluding mortgages declined in January-February, and the survey showed that consumer willingness to leverage up may be dampened by income decline and uncertain outlook. Meanwhile, we expect NPL formation ratio for consumer credit to double from 2.8% to 5.8% in 2020.