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The hoped-for Chinese economic rebound is a good contender for this year's biggest disappointment. After China’s abrupt reopening last December, analysts and economists expected a huge rebound as Chinese consumers rushed back to spend and shop. Yet the post-opening rally quickly fizzled out–and now China’s economy is, in some respects, doing worse than last year, when officials confined millions of people in their homes.
So why has China's economic recovery proved so sluggish? People are still underestimating just how large an effect China’s COVID experience had on the ordinary consumer, Joey Wat, CEO of Yum China, suggested Tuesday at Fortune’s Global Forum in Abu Dhabi.
The pandemic had a large “psychological” effect on consumers, said Wat, whose firm manages outlets including KFC, Pizza Hut and Taco Bell in China, licensing the names from the U.S.-based Yum Brands. The company’s presence in the world's second-largest economy is massive: Yum China operates 14,100 stores in China, including 9,900 KFC outlets and 3,200 Pizza Huts. Wat, who has served as the company’s CEO since 2018, following the company's spin off from Yum Brands in 2016, noted that Beijing did not offer the stimulus money offered by Western governments: “We can understand why people became rather cautious and rational with their spending.”
The meaning of Nov. 14 to China
Wat cautioned that China’s consumers were still in a post-COVID recovery phase, even as the rest of the world has moved on. “For people outside China, the opening up happened much earlier. Nov. 14 [2022] means nothing to most people, it means the world to people in China: That’s the first day China opened up.”
In November 2022, Chinese officials announced an easing of COVID controls, including shortening quarantine for international arrivals and ending daily testing. It was one of the first easings of the country’s strict COVID-zero controls, which imposed daily testing regimes, snap lockdowns, and lengthy quarantines on international arrivals.
Beijing ended its COVID-zero controls just a few weeks later, following widespread protests against pandemic control measures across the country.
Despite the end of China's COVID policy, the country's consumption has been slow to recover. Headwinds including China's real-estate crisis are suppressing the willingness to spend on travel, luxuries and other big ticket items.
And companies are feeling the pressure. E-commerce giants Alibaba and JD.com declined to give firm sales figures for this year’s Singles Day shopping festival, traditionally a major barometer for Chinese consumption. Western brands too, like Estee Lauder and LVMH, are also blaming falling China sales for their poor earnings.