China Has a Clever Plan to Keep Its Citizens Spending at Home

(Bloomberg Businessweek) -- China has become almost free of Covid-19. Its success results partly from draconian quarantines. And it isn’t letting its guard down. The capital city of Beijing, for instance, added restrictions just six weeks after resuming international flights in early September. Travelers from overseas must now be tested three times, instead of twice. They also have to spend two weeks isolated in a hotel chosen by the government. Some rooms can be quite dingy.

This lack of human touch naturally turns foreigners away. But Chinese who want to travel abroad have second thoughts, too. Who wants to be enclosed in a tiny room upon returning home?

The moves are part of China’s new strategy to stimulate the economy. Last year roughly 170 million Chinese traveled out of the mainland, splashing about $220 billion abroad. That money can, in theory, be spent at home instead.

Although wage growth has recovered to about 70% of pre-pandemic levels, the novel coronavirus has left lasting economic damage. People are more cautious, with savings rising 13.9% in September from the same month a year ago, higher than the average 10.4% growth rate in the previous two years, data from HSBC Holdings Plc show. No surprise, retail sales that month grew 3.3%, less than in the past, too. The pandemic has encouraged Chinese households to save more, because they don’t have much of a social safety net to get them through hard times.

Chinese tourists often spend heavily on luxury goods when they travel abroad. Now that fewer are venturing beyond the country’s borders, the governments and retailers are coming up with all sorts of gimmicks to coax people to spend at home. Jack Ma’s Alibaba Group Holding Ltd. expanded its annual Singles’ Day shopping extravaganza, offering two checkout periods with special discounts: a new one in the first three days of this month and its traditional 24-hour shopping window on Nov. 11.

Municipal governments have been handing out billions of yuan in shopping vouchers, often to be redeemed in physical stores only. People who go out to look around, say, in electronics shops, might eat out in nearby restaurants as well, the thinking goes. Unlike goods purchases, catering purchases are still shrinking.

On July 1, China raised the cap on duty-free shopping for travelers in Hainan—known as China’s Hawaii—to 100,000 yuan ($15,000). The impact was immediate: In the third quarter, the island’s duty-free sales rose 230% from a year earlier, with the bulk of the purchases in luxury categories such as cosmetics, jewelry, and watches.

With Covid-19 flaring up again in the U.S. and Europe, it makes sense for China to discourage nonessential foreign travel. But there is a financial motivation as well. By forcing travelers to quarantine in shabby rooms on their return, China is trying to keep its citizens, as well as their wallets, inside the country.

©2020 Bloomberg L.P.