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McKinsey Says About Absence of Signs of Recovery in Consumer Activity in China

Experts from the international consulting company McKinsey said that in the foreseeable future, Chinese consumers do not intend to spend large amounts of money on buying goods, which is why local companies should focus more on strategic planning within their business concepts to master the market, which remains huge, despite various problems.

McKinsey Says About Absence of Signs of Recovery in Consumer Activity in China

Daniel Zipser, head of McKinsey’s consumer and retail practice in Asia, says that a gradual improvement in the situation in the Chinese consumption sector is possible over the next year. At the same time, he stated that there is no indication that a V-shaped recovery will be observed in this case.

Since the beginning of the coronavirus pandemic in 2020, retail sales in China have declined significantly. At the end of last year, this country completed the fight against COVID-19, as a result of which various restrictions were lifted that stopped or slowed down the process in the sphere of the economy. The current year has started favorably for the Chinese economic system, but the momentum of recovery has quickly waned. In this case, Beijing had to face difficulties such as the decline in global demand for goods produced in the Asian country, and the almost catastrophic situation in the local real estate sector.

The Chinese government is trying to overcome the negative impact of current realities. Beijing is taking measures to support the real estate sector, which is in an extremely difficult situation. At the same time, another factor of pressure on China’s economic growth and its prospects is the tension in relations with the United States. Washington has already restricted the access of companies from the Asian country to advanced chips. In response, China has taken similar measures concerning the supply of graphite, germanium, and gallium needed in the next-generation technology industry.

Daniel Zipser says that the recovery of the economy and the real estate market in the specified country after the completion of the large-scale fight against coronavirus turned out to be not as intense and significant as Beijing initially expected. Against this background, there is an obvious need to adjust China’s strategy of action in the economic space.

Insufficient growth and lack of positive dynamic in the real estate sector were the reasons that consumer sentiment in the Asian country remained at the same level as it was recorded 12 months ago. In this case, there is a situation when the functioning of the state outside the prohibitions that arose against the background of COVID-19, from the point of view of economic indicators, does not differ from the state of affairs during the period of restrictive measures.

According to Mr. Zipser, the recovery of the economy and the real estate market did not meet not only the expectations of the authorities but also of society. He noted that residents are well aware of the tension in the space of geopolitical relations.

Currently, another of the main factors of pressure on the Chinese economy also is the decline in exports. This circumstance is a consequence of a decrease in the level of demand for goods produced by this country.

Currently, experts are not sure that the situation in the Chinese economy will change next year. There is also a lack of positive sentiment regarding the prospects for 2025.

The dismal state of the Chinese economy has, in some ways, sparked debate about the extent to which local consumer companies are influencing the current state of affairs. McKinsey analyzed 80 publicly listed firms, most of whose revenue comes from mainland China. The results were more than ambiguous. Many companies are currently recording double-digit revenue growth from mainland China. However, there are quite a few firms that have announced a double-digit decline in their respective indicators.

Daniel Zipser said that the days have passed when investors focused on doing business in China could direct funds to any line of activity, having the highest possible probability of success. He noted that today the market of this country is more competitive, emphasizing the growth of what can be described as consumer sophistication.

The tastes of Chinese residents as buyers of goods and services have changed amid the economic boom of recent decades. In the context of the positive state of affairs, a profitable market has been formed for global brands such as Apple and Starbucks.

World Bank data shows that China’s GDP per capita more than doubled between 2012 and 2022. reaching the $12,720 mark. In the United States, the corresponding figure increased by about 47% during this period, amounting to $76,398.

The vast territory of China is a guarantee that in the event of a slowdown in economic growth to 4% or 5% per year, the increase in retail sales in this country will be the same as the combined volume of corresponding sales in India, Indonesia, and South Korea. This is the opinion of Daniel Zipser.

At the same time, it should be borne in mind that the slowdown of the dynamic does not cancel the very fact of growth. In October, retail sales in China increased by 7.6% compared to a year ago. In this case, the result exceeded analysts’ expectations. The largest Chinese e-commerce companies reported revenue growth in the third quarter of this year.

Daniel Zipser says that in China, consumers spend more not on goods, but on services. According to him, restaurant companies are doing particularly well in this country. He noted that against this background, the so-called related categories, among which, for example, alcohol, receive good support.

The expert also expects Chinese consumers to start traveling the world more shortly. In his opinion, the simplification of the procedure for obtaining visas and reducing the cost of air tickets can contribute to the implementation of this scenario. Currently, the international travel indicators of Chinese residents are half of those figures that were recorded before the coronavirus pandemic.

Mr. Zipser says that the business of premium brands is successfully developing in the Asian country. According to him, this is because local consumers, when realizing their intention to save money, do not abandon a certain brand of goods, but look for ways to reduce the price, for example, by purchasing a smaller package. However, gross merchandise volume in livestream grew by 19% during that time.

As we have reported earlier, China’s Manufacturing Activity Shrinks.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.