SHANGHAI - Chinese consumers, unshackled from Covid-19 restrictions, are returning to hotels, restaurants and some shops, but they are choosy about what they buy, disappointing hopes for an immediate post-pandemic splurge.
China's battered property market, lingering worries over job stability, and government parsimony in wages, pensions and medical benefits are keeping shoppers cautious.
Analysts say their prudence adds pressure on policymakers, who have flagged boosting domestic demand as a top priority, to further stimulate the economy. But direct consumer subsidies are unlikely, sources told Reuters last month.
In the absence of additional support, the recovery in household consumption, long seen as key to improving sustainability of growth in the world's second-largest economy, is likely to be gradual and uneven, they say.
After China dropped most pandemic controls late in 2022, the share prices of many consumer-facing companies rose, reflecting optimism that a spending splurge was imminent.
"We have been warning that markets may become overly bullish about 'revenge' spending and the release of pent-up demand," said Nomura chief China economist Ting Lu, referring to the V-shaped spending recovery seen in the US and other countries after Covid restrictions were lifted.
"Markets should curb their enthusiasm due to the limited possibility of a large stimulus package, the elevated unemployment rate, a lack of confidence in the property sector, a slump in exports and geopolitical tensions."
Prices of new Chinese homes fell for 16 months before steadying in January.
A survey of white-collar workers published last month by recruiting firm Zhaopin showed 47.3 per cent of respondents were worried they might lose their jobs this year. Meanwhile, cash-strapped local governments have cut wages for civil servants, and older citizens are struggling with pensions that barely cover their costs of living.
Some economists, pointing to new household savings reaching 17.8 trillion yuan ($3 trillion) last year, an increase of 7.9 trillion yuan from 2021, had expected pent-up demand to drive a recovery in consumption even without policy support.
But there is little sign that enough money is being spent on goods and services to make much difference to consumption.
Data last week showed consumer inflation had slowed in February to its lowest annual rate in a year, while passenger car sales for the first two months of the year were down 20 per cent on a year earlier. Imports have fallen faster than expected.
A data report on Wednesday is expected to show January-February retail sales were only 3.4 per cent higher than a year before, when annual growth was 6.7per cent, according to a Reuters poll.
Daniel Zipser, senior partner at McKinsey, said most shoppers were still in wait-and-see mode, and the next holiday season, in May, would offer the next clues on whether their mood was changing.
"People are free to travel and spend, but they're not fully there yet compared to about 18 months ago, when they were incredibly confident about their future prospects," said Zipser.
Consumer confidence ticked up in January from 2022's record low, but was well below the levels seen in the past two decades.
Free tables in restaurants and coffee shops in Beijing or Shanghai are hard to find at peak hours, and many hotels and travel agencies have gone on a hiring spree as domestic tourism has returned.
The China Tourism Academy, an industry body, says domestic tourism revenue in 2023 could reach about 4 trillion yuan, about 95per cent more than last year but still only about 71 per cent of the 2019 level.
Also, earnings updates suggest the business sector has subdued near-term expectations.
Yum China, which runs KFC and Pizza Hut in China, said last month it would offer promotions to get customers through the door. Starbucks warned of a "cautious" recovery in its China sales. Alibaba said it saw demand for healthcare and wellness products improving, but sales for apparel and discretionary goods looked weak so far.
E-commerce giant JD.com said consumer confidence would take time to rebuild.
"Consumers have become more meticulous in their spending," its chief executive, Xu Lei, said in an earnings call on Thursday.
Middle class squeeze
Other businesses are noticing it as well.
One mid-range guesthouse owner in Dali, in Yunnan province, told Reuters that China's reopening had brought tourists back to the lake-side town, but not everyone was benefitting equally.
"Now the Chinese tourists are either super rich or very poor," said the owner, who spoke on condition of anonymity.
"They are choosing either top-end or budget hotels."
Julian Evans-Pritchard, an analyst at Capital Economics, attributes people's reluctance to open their wallets to household wealth declining for the first time in at least two decades last year due to falling prices for shares and homes.
"This suggests that once the initial reopening rebound has happened, we shouldn't expect a further surge in consumer spending," he wrote in a note to clients.