According to a 4,000-sample survey Oliver Wyman conducted in October 2022, following China’s National Congress, Chinese consumers generally had a good attitude heading into 2023 despite uncertainties. Overall, while consumer sentiment was positive about the new year, the younger generation was more cautious as the long-term economic outlook remained cloudy.

However, the situation changed quickly in the last two months of 2022. November saw China record its highest number of daily COVID cases since the pandemic began. As a result of widespread infections, China’s Consumer Confidence Index plummeted to a record low of 85. Then in December, following three years of strict lockdowns and closed borders, the government announced a relaxation of its zero-COVID policy. The country’s total retail spending in 2022 declined by 0.2% year-on-year, and its discretionary spending declined by 3.1% year-on-year.

Looking ahead, do Chinese consumers still feel positive about 2023? How will the spending habits of Chinese consumers change? To understand the latest consumer sentiment, we conducted a pulse check with 1,500 Chinese consumers in late December 2022 on their expected spending, purchase preferences, and desire to travel in 2023.

Light at the end of the tunnel

Due to recent COVID-19 outbreaks throughout China, its consumer sentiment has plunged significantly across all income and age groups. However, with the relaxation of China’s zero-COVID policy, consumers now appear to be less worried about China’s longer-term outlook. This is particularly true among the younger generation. While they were previously most skeptical about China’s future prospects, they are more confident about the country’s economic outlook over the next five years.

According to the latest survey, overall consumption spending is expected to rebound in 2023. This year, 56% of respondents expect to increase their expenditure, driven by the desire to improve their lifestyle, and because they have additional savings from 2022.

More rational and value-driven spending

Value-for-money spending has become more important to consumers. Compared to last year, 52% of respondents wish to focus more on value-for-money spending, and 57% will spend more time looking for good deals. Impulse purchases are expected to become less frequent, and consumers intend to spend more rationally going forward.

At the same time, while premiumization will continue, consumers want more concrete and tangible benefits before deciding to trade up. As paying a premium for a product that is essentially the same would not be well-perceived, brands will likely have to articulate better the incremental values of their products, such as improved product features and product innovation, to justify higher prices.

In terms of spending, health, sports, and wellness remain the top categories for 2023. According to the consumers surveyed, they are more motivated by preventive measures to maintain their health. This includes buying sports equipment, having medical check-ups, as well as buying health and life insurance.

Trade-off between travel and luxury

The miraculous rebound in the domestic luxury market in 2021 might not repeat in 2023.

Restricted leisure spending, as well as limited international travel, saw a growth in the domestic luxury market in 2021. Many Gen Z shoppers, which made up about 40% of the new luxury shoppers in 2021, spent a substantial portion of their income on luxury, with 18% of them spending over 20% of their income on this segment.

With the border reopening in 2023, the desire to travel both domestically and internationally has been reignited. Many of these new luxury shoppers will be forced to make a trade-off between travel and luxury. Part of the luxury spending that is expected to occur will be captured overseas. As the shoppers expect to spend about 40% of their travel budgets on shopping, the domestic luxury market will see a negative impact from this trade-off.

Visa and transport issues hampering international travel

With fewer travel restrictions and more people gaining immunity from recent infections, Chinese consumers are eager to travel again.

About 20% of those surveyed are planning to travel during the upcoming Chinese New Year holidays. International travel during this period will be very limited despite the reopening of international borders, with 12% of travel plans being overseas (including Hong Kong and Macau) versus 24% before the pandemic. COVID-19 concerns and uncertainties around border policies are holding many travelers back. Moreover, with visa-processing struggling to keep up with the skyrocketing demand, as well as low transport capacities, it will take time before international travel can resume to levels last seen before the pandemic.

Domestically, the first two days of the Chinese New Year travel rush witnessed about 40% more trips than the number that occurred in 2022. In fact, the Government expects a whopping 2.1 billion trips over the entire 40-day travel period, which would equate to about 70% of the pre-pandemic total.

The top three domestic destinations for this year’s Chinese New Year celebrations are Beijing, Hainan, and Yunnan. Hainan, as the largest duty-free market in China, has seen passenger flows rebound in the past few weeks. We also expect consumer interest in luxury shopping in Hainan to remain after the Chinese New Year period ends.

Short-haul travel will recover much faster

With international travel resuming, short-haul travel will recover first, as 51% of consumers are leaning more toward shorter trips than before the pandemic. Hong Kong and Macau will remain the most popular destinations for outbound travelers. With the border opening on January 8, and increased traveler quotas implemented before Chinese New Year, the proximity and convenience of travel by land, sea, or air mean Hong Kong and Macau are in the sweet spot to first welcome Chinese travelers.

For many Chinese travelers, Hong Kong as a destination has been overdue for almost four years. Many of Hong Kong’s latest attractions and shopping malls are new to Chinese travelers, and they have high expectations about their upcoming ventures in Hong Kong.

In spite of the rapid development of luxury retail in mainland China, travelers recognize that Hong Kong still has a clear edge in shopping experience excellence. About 80% of consumers who traveled to both Hong Kong and Hainan view the overall shopping experience in Hong Kong as more enjoyable, even though prices in Hainan might be more attractive than Hong Kong.

As many new luxury shoppers have only made luxury purchases in mainland China, further differentiating the shopping experience in Hong Kong beyond price advantage will be key to converting and retaining luxury shoppers going forward.

The end of stringent COVID-19 policies paints a brighter future for China’s consumption recovery in 2023, and beyond. Following a rollercoaster 2022, and the surprising 180-degree policy turn at the very end, we believe China is now again on a straight launch track for success. However, capturing the opportunities presented by China’s ever more demanding consumers will require more planning, better understanding of their preferences, as well as stronger and more differentiated value propositions. Retailers that fail to strategize accordingly will likely be left behind at the boarding platform.