Beach Holidays for Some in China, Belt Tightening for Others
China’s consumption is moving in different directions, with the wealthier shopping for luxury goods while the poorer cut back.
(Bloomberg) -- The recovery in China’s consumption is moving in two different directions, with the wealthier shopping for luxury goods and taking holidays to the beach, while poorer households continue to cut back.
Revenue at the tropical beach resort of Sanya was up almost 20% in July from a year earlier, and sales of some luxury car brands rose more than 20% in the month. By comparison, consumers cut back on purchases of clothes, home appliances or dining out, pushing total retail sales down about 1% in July.
Read more on the patchy recovery: China’s Industry-Led Recovery Continues But Retail Stays Weak
Unlike many other nations, China’s stimulus policies didn’t include direct support for individual incomes, being more focused on providing easier financing for companies. Millions of Chinese lost their jobs after the pandemic hit in January, and even if they have been able find new work or return to their old jobs, they won’t be able to easily recover that lost income.
Travel data shows the difference between who is spending and who isn’t. Many poorer Chinese travel by road, taking long-distance buses from their rural villages to the cities for work, and that is well down on 2019.
By comparison, flight numbers had recovered for many cities, indicating demand for more expensive plane travel.
Flights Into Selected Cities
Source: Cirium data showing domestic flights
Retail car sales growth accelerated in July, rising 7.9% from a year earlier, signaling a recovery from a two-year slump. But sales of cars from BMW AG, Mercedes Benz AG or Toyota Motor Corp.’s Lexus brand all grew at least 25% over the same period, showing how quickly luxury demand bounced back from the pandemic-induced contraction.
With the nation’s army of big spenders trapped at home, domestic tourism hot-spots have been big winners. Tour group reservations spiked mid-July after a ban was removed, data from Trip.com Group shows, with Lijiang in Yunnan and Sanya on Hainan island the top destinations for domestic visitors.
Read more: Best-in-Class Luxury Goods Lean on E-Commerce During Virus Alert
The expansion of duty-free shopping has also been one factor driving this rebound. More than 5 billion yuan ($723 million) was spent on duty-free goods in Hainan from early July to mid August, according to local government data, more than double the amount in the same period in 2019.
Hainan is often called the Hawaii of China, but with a popular 5-day package holiday there costing 2,700 yuan, or more than the monthly median disposable income, it’s the preserve of the few.
As elsewhere, the wealthy in China aren’t really affected by the pandemic -- they still have the same salary and can work from home, according to Iris Pang, Greater China chief economist at ING Bank NV in Hong Kong. But lower income groups have been hit hard by closures and social distancing.
“We need to have the mass market return to normal to see retail sales, especially the catering businesses, get back to the pre-Covid sales level,” she said. Until then, the “wealth gap will continue to widen.”
©2020 Bloomberg L.P.
With assistance from Bloomberg