Three issues are preventing Chinese consumers from spending as much this year, according to Morgan Stanley analysts.
People are not only more cautious, but they now have collateral choices.
First, China has not handed out incitement checks to consumers as the U.S. and other parts of the world did in the wake of COVID.
Second, pandemic restrictions and regulatory changes have knocked off 30 million service sector jobs that would have previously existed before COVID, the Morgan Stanley analyst estimated.
However, about 20 million of those jobs are likely to return in the second half of this year, the report stated. Moreover, the analysts also expect the remaining 10 million will take a substantial period to recoup since they were affected by Beijing’s crackdown on education, property, and internet technology.
Third, despite government efforts to restrain misconceptions, the real estate market has remained consistently flat.
Property sales have previously led the rebound, as recently as the first half of 2021, as the Morgan Stanley analysts pointed out.
COVID-19 and measures to control it from 2020 to 2022 have inadequately downshifted China’s economy. However, growth has only rebounded virtuously following the abrupt termination of those constraints earlier in December.
Morgan Stanley analysts estimate a boost of 4.8% in the upcoming year, which is 0.5 percentage points lower than before the pandemic, after an anticipation of a 9% rebound in Chinese consumers’ spending this year.
Furthermore, analysts also predict that Starbucks’ industry statistics of same-store sales in China will surge by around 7% this year. That’s still “down roughly low teens” in comparison with 2019 levels, the report said.
Local market gets competitive.
Making things harder for international brands, can result in growing local competition.
In fact, the U.S.-based coffee giant, Starbucks is “least favoured to lever China’s recovery,” among the Morgan Stanley analysts’ U.S. “restaurants” stock picks.
In April, China saw a 16% increase each year in the number of coffee stores, which were mostly local brands, the Morgan Stanley report said.
“As a result, MNCs like SBUX have been losing market share (though still growing stores at a robust pace),” the analysts said.
“The brand has more competition from relatively nascent but rapidly growing concepts like Luckin, Cotti, and Tim Hortons,” they added.
Meanwhile, according to their data, China-based Luckin Coffee already has more than 9,000 stores, while Tim Hortons has more than 600 sites after entering the nation in 2019.
Although the latest coffee brand, Cotti Coffee, is so popular that its website warns of people trying to impersonate the brand.
However, Starbucks launched its 6,000th store in mainland China, earlier in September 2022.
- Published By Team Genuine Reporter