Expected Rebound of Post-Epidemic Consumption

The outbreak of the novel coronavirus-infected pneumonia has greatly affected consumption of physical retail, tourism, catering, culture and sports. Since the peak of the epidemic has yet to be determined and the duration remains unknown, it is still too early to make estimates on losses of consumption. However, from an annual perspective, damage to consumption caused by the epidemic can be repaired. Experts predict that within six months after the end of the epidemic, consumption will return to the normal growth track.

The duration of consumption damage may have been cut by unprecedented efforts in epidemic prevention and control.

The prevention and control efforts have been unprecedented, and residents’ awareness of prevention and control has significantly improved. Therefore, the duration of the damage to consumption may be even shorter than SARS. Neither the 2003 SARS outbreak nor the 2008 earthquake resulted in a level-1 public health response. In 2020, however, all provinces, municipalities and autonomous regions on the Chinese mainland launched a level-1 public health response, taking the most comprehensive and stringent prevention and control measures against the coronavirus outbreak.

Many measures even far exceeded international health standards. Some cities suspended intercity passenger coaches. In the Yangtze River Delta and the Beijing-Tianjin region, some high-speed trains were canceled. Many urban communities and rural villages have taken specific measures to prevent and control the epidemic. Public awareness of epidemic prevention and control is unprecedented. Avoiding the crowds, isolation at home, wearing masks and washing hands frequently have become routine for many Chinese during the outbreak.

At the same time, China has been open, transparent and responsible in its efforts to share epidemic information and the gene sequence of the virus with the international community. China’s prevention and control measures were not only highly praised by the World Health Organization (WHO), but also effectively improved outcomes. For example, it was until March 31, 2003 that the pathogenic source of SARS was successfully isolated, more than four months after the first SARS diagnosis in China in November 2002. However, it took only a month and five days from the first case of pneumonia confirmed in Wuhan on December 12, 2019 to successful isolation of the novel coronavirus strain on January 27, 2020 by Guangdong Provincial Center for Disease Control and Prevention. The SARS epidemic lasted for nearly eight months from its onset to June 24, 2003, when the WHO declared Beijing to be free of SARS and lifted its travel warning on the Chinese capital. Considering that extremely strict prevention and control measures have been taken, the length of the current coronavirus epidemic is expected to be greatly shortened. Therefore, the damage to consumption will be far less than it was with SARS.

One percentage point of consumption growth could be gained by transformation of overseas consumption into domestic demand.

The epidemic may change huge overseas consumption into domestic demand, which will effectively drive the growth of domestic consumption. During the SARS epidemic in 2003, the size of China’s outbound tourism was small. However, over the past more than 10 years, the scale of outbound tourism of Chinese residents has rocketed to the top of the world. In 2018, the volume of outbound Chinese tourists hit nearly 150 million, an increase of 14.7 percent over the previous year. According to statistics released by China Tourism Research Institute, the total spending of China’s outbound tourists in 2018 reached US$120 billion, equivalent to 2.2 percent of the country’s total retail sales of consumer goods in 2018.

To prevent the spread of the epidemic, the Ministry of Culture and Tourism of China issued a notice on January 24, requiring all regions to suspend business activities of tourism enterprises. Travel agencies and online tourism enterprises across China immediately suspended sales of group travel programs and other bundled tourism products. On January 28, China’s State Administration of Immigration announced that to enhance the prevention and control of the novel coronavirus, the entry-exit administration departments nationwide would suspend the issuance of entry permits for both group and individual travelers from the Chinese mainland seeking to visit Hong Kong and Macao. In addition, some countries adopted measures to suspend entry and visa issuance for foreign citizens. The huge overseas consumption of China’s outbound tourists is expected to transform into domestic demand. With the gradual emergence of domestic prevention and control effects, shopping and catering will be the first sectors to return to normal, and tourism will be gradually restored. If half of the overseas tourism consumption returns to China, it will drive the growth rate of the total retail sales of consumer goods to increase by one percentage point.

The epidemic outbreak has motivated a change in consumption structure and stimulated three major consumption demands.

The epidemic has created and strengthened three major consumer needs. First, the epidemic highlights the dependence of Chinese residents on online consumption. The penetration rate of online shopping in China has been increasing year by year, and the growth rate has remained at a high level. In 2019, the ratio of the online retail sales of physical goods to the total retail sales of consumer goods rose to 20.7 percent, 2.3 percentage points higher than that of the previous year. During the epidemic, people who are accustomed to online shopping continue purchasing necessities of life such as food, grain and cooking oil. Some convenience stores and vegetable stores begin to provide delivery services. E-commerce platforms such as Meituan, Tmall and JD have created “non-contact” distribution modes which not only further improve the shopping habits of internet users, but also attract new buyers to online shopping. During the fight against the epidemic, Weibo, WeChat, Toutiao, Tik Tok and other social media providers have become essential reading to track the epidemic and engage in social interaction. The epidemic has increased people’s dependence on the internet, which is conducive to the further growth of online shopping even after the epidemic.

Second, supermarkets, vegetable markets and other physical stores have managed to enjoy a boost. During the outbreak, people have significantly reduced dining out. Instead, they are buying necessities of life at physical stores and cooking at home. Queuing has appeared in some stores. Consumer demand for supermarkets and vegetable markets is still very strong, and many physical businesses such as supermarkets and other food sellers are getting a boost.

Third, many people are now isolated at home. Their demand for daily consumer goods has increased dramatically, especially for masks, protective clothing and disinfecting products. Due to the continuous improvement of health awareness, demand for public health products will remain high even after the situation improves. Public health products will become a new growth point for consumption.

Currently restrained service consumption will recover and rebound rapidly.

Service consumption accounts for half of China’s total consumption. Current demand has been curbed but recovery will be faster than thought. China’s current consumption structure features a pattern driven by two wheels: service consumption and commodity consumption. In 2019, service consumption accounted for 45.9 percent of China’s per capita consumption expenditures, 1.7 percentage points higher than that of the previous year. In terms of supply, the prosperity index China’s service industry is significantly higher than that of the manufacturing industry. In December 2019, the non-manufacturing business activity index was at 53.5 percent, which has continued rising. After the end of the epidemic, the service industry will resume stable operation, which will effectively expand the scale of service consumption

During the outbreak, vast consumer demand is restrained, but it hasn’t vanished. Instead, the time of realization changed. Tourism and catering consumption present solid examples because traveling and dining out have become such regular activities for so many people. In 2019, catering revenue increased by 9.4 percent over the previous year, 1.5 percentage points higher than the retail sales of commodities in the same period. The growth rates of spending on education, culture, entertainment, transportation and communications all measure more than 10 percent. Since people are staying home due to epidemic prevention and control needs, current consumption demand for tourism and catering cannot be realized. However, this will further stimulate consumption desire. After the epidemic ends, consumer demand will bounce back in a big way. Analysts expect that within about two months after the end of the epidemic, catering consumption will enjoy a small peak before returning to normal growth. This year’s Labor Day holiday, Dragon Boat Festival holiday and summer vacation will be the key periods for the release of tourism consumption. By the week-long National Day holiday in October, tourism consumption will return to the normal growth range. Double-digit growth will remain in consumption demand for education, culture, entertainment, transportation and communications.

When consumption returns to normal growth three to six months after the end of the epidemic, we should supplement supply shortages.

Due to the unprecedented control measures of the novel coronavirus-infected pneumonia, the duration of the epidemic will likely be shorter than that of SARS. The epidemic has restrained overseas consumption, which is expected to transform into domestic demand, becoming a new driving force for consumption growth. The epidemic has restrained consumption behavior but stimulated consumption desire. The possibility of a big rebound is very high, and service consumption will resume growth rapidly. The epidemic has raised public health awareness, strengthened online shopping habits and created new growth points for consumption. Moreover, from the perspective of consumption during the SARS period, the growth rate decreased significantly in 2003, but rebounded to 13.3 percent the following year, 4.3 percentage points higher than in 2003. If the economic policy to address the novel coronavirus outbreak is appropriate, consumption is expected to return to normal growth within three to six months after the end of the epidemic.

Several strategies will help minimize the impact of the epidemic on consumption: First, China should ensure a steady increase of income of its residents. We should continue to accelerate the reform of the income distribution system. By raising minimum wage standards, ensuring the full funding of social insurance and housing fund, and lowering the top rate of personal income tax, we can facilitate better primary income distribution and ensure the stable growth of residents’ income to lay a substantial foundation for consumption growth. Second, we need to increase investment in public health. The frequency of global epidemics is increasing. The United States has endured serious influenza epidemics in recent years that have resulted in many deaths. Demand for public health products has changed from occasional to a long-term, strategic demand of a country. We need to increase investment in the public health industry and cover any shortages of public health products. Third, we should vigorously support the development of logistics and express delivery and accelerate the recovery of the daily life services industry. Through targeted tax reductions and special loans for small and medium-sized enterprises, we can strengthen businesses, promote fast recovery of production capacity in logistics and other service industries and help these industries embrace better supply conditions to prepare for the release of potential consumer demand.

The author is director and researcher of the International Trade Research Department of the Academy of China Council for the Promotion of International Trade.