2023: Domestic demand ushers in a new chapter; consumption seeks new opportunities.

From December 15 to 16, 2022, the Central Economic Work Conference also emphasized that “we must make concerted efforts to expand domestic demand” and “placing the restoration and expansion of consumption in a priority position,” further underscoring the crucial role of consumption recovery in sustaining China’s economic recovery.

On the one hand, the central government has introduced relevant measures to increase urban and rural residents’ incomes through multiple channels, placing restoration and expansion of consumption as a top priority. Various provinces have also rolled out corresponding initiatives to stimulate consumption. On the other hand, industries ranging from real estate and elderly care to automobiles and tourism are all working to improve consumption conditions and innovate consumption scenarios.

Where lies the direction for a consumption recovery that’s poised to take off? And where are the opportunities? Once the consumer-driven locomotive starts rolling, who will be the first to surge ahead?

On New Year’s Day 2023, key commercial districts across many parts of China saw a surge in consumer recovery.

In Beijing, young people flocked to Sanlitun, making New Year’s resolutions as the countdown clock struck midnight. In Shanghai, bustling commercial districts such as the Bund, Huaihai Road, and Jing’an Temple were teeming with activity. In cities like Changsha, Wuhan, Chengdu, and Zhengzhou, joyful crowds released festive balloons into the sky, praying for good fortune and welcoming the new year.

As the 2023 Spring Festival approaches, the country is entering its traditional peak consumption season. The government and businesses have already begun adopting a variety of measures to boost market vitality—offering real financial subsidies to encourage consumption, making every effort to stimulate domestic demand and spur spending.

Citing forecasts by Citibank analysts, the UK’s Financial Times reported that China’s total retail sales of consumer goods in 2023 will grow by 11%, reaching 50 trillion yuan, signaling that “China’s new year will be brighter.”

Consumer confidence—more valuable than gold—is back.

The Central Economic Work Conference held from December 15 to 16, 2022, proposed “organically combining the implementation of the strategy to expand domestic demand with the deepening of supply-side structural reform.” This indicates that expanding domestic demand will be the main guiding principle for economic work in 2023.

Immediately afterward, two landmark documents—the “Outline of the Strategic Plan for Expanding Domestic Demand (2022–2035)” and the “Implementation Plan for the 14th Five-Year Plan on Expanding Domestic Demand”—were released one after another, elevating the importance attached to expanding domestic demand to a new height and providing a meticulously detailed roadmap for implementation over the coming period.

The greatest source of confidence for China’s economy lies in its domestic demand market. Stabilizing the economy and boosting consumption are crucial approaches to achieving this goal.

“Looking ahead to 2023, despite the complex and ever-changing overall market environment, China’s fast-moving consumer goods market may continue to experience fluctuations. However, as epidemic prevention policies are optimized, consumer confidence will gradually recover, and China’s fast-moving consumer goods market will still demonstrate strong resilience. The outlook for the coming months and even years remains promising,” said Zhang Jing, Global Partner at Bain & Company and Chair of Digital Business in Greater China, to China Economic Weekly.

According to the “2022 China Shopper Report” jointly released by Bain & Co. and Kantar Worldpanel, in the first three quarters of 2022, China’s fast-moving consumer goods market demonstrated strong resilience, with total sales increasing by 3.6% year-on-year—a reversal of the trend that had been evident since 2020—and outperforming the country’s GDP growth rate for both the second and third quarters.

“We welcomed 60,000 visitors on New Year’s Day alone! Seeing everyone back to their shopping spree feels just like before the pandemic!” said Zhang Min, a sales associate at Florence Town, the outlet mall in Wuqing, Tianjin, visibly delighted.

“All the rooms for the Spring Festival have been fully booked—Sanya is simply too popular right now!” said Sunny, the lobby manager at a Sanya hotel.

In 2023, China’s economy has adopted a clearer tone of “stability,” while the call for “progress” has become even more proactive. All over the land of Shenzhou, new developments are surging forth, and consumer confidence—more precious than gold—is making its comeback.

Consumers are becoming more pragmatic and rational, pursuing a “value-for-money” ratio.

After faith and hope are rekindled, many regions across the country have successively launched various consumer-boosting initiatives, offering people a rich and diverse “consumer feast” for the New Year.

According to statistics from China Economic Weekly, since December 2022, more than 40 cities—including Shenzhen, Changsha, and Beijing—have announced plans to issue consumption vouchers, covering multiple sectors such as automobiles, catering, and tourism.

However, on the other hand, the underwhelming consumer results of traditional shopping festivals such as “Double 11” and “Double 12” in 2022 have prompted merchants to reflect on how to boost New Year’s economic consumption in 2023.

During the interviews, managers from several shopping malls all said they’re planning to use new promotional strategies to attract consumers: “We noticed that last year’s ‘Double 11’ no longer had much of a buzz, and ‘Double 12’ was even quieter—of course, the pandemic played a role too. But now that the Spring Festival is approaching, we’ve been racking our brains lately to carefully plan our offerings for the Lunar New Year goods, hoping that consumers will love them and be willing to spend money on them.”

In the view of Zhang Jing, Global Partner at Bain & Company and Chair of Digital (Vector) Business for Greater China, Chinese consumers are undergoing an unprecedented transformation.

“From the early days of pursuing cost-effectiveness—seeking high quality at low prices—to the previous wave of consumption upgrading focused on ‘value for money,’ the future will see a return to ‘heart-based value,’ meaning that the overall environment will become more rational and aligned with genuine needs,” Zhang Jing told China Economic Weekly.

“Many people claim that their consumption has ‘downgraded,’ but the reality is that no consumer would willingly accept a decline in product quality. Therefore, a genuine consumption downgrade hasn’t actually taken place. Today, consumers are becoming more discerning when it comes to purchasing goods and choosing distribution channels—and there are now far more channels available than ever before. Consumers are no longer limited to traditional brick-and-mortar supermarkets or just a few major e-commerce platforms; instead, they’re broadening their horizons and actively seeking out channels with more competitive prices to buy the brands they desire,” said Hong Yin Yi, founding partner of Dr. Strategic Consulting. He added that after the pandemic, consumers have become more pragmatic and are acutely aware of their need for a healthy, high-quality lifestyle, which in turn is placing new demands on businesses.

Zhao Wei, Chief Economist at Guojin Securities and a member of the Board of Directors of the China Chief Economist Forum, stated that it is possible to create high-quality consumption scenarios to boost household consumption. “For example, the government could introduce policies to ease vehicle purchase restrictions, launch a new round of ‘cars to the countryside’ initiatives, promote trade-in programs for old cars and the adoption of new-energy vehicles, thereby stimulating rural residents’ demand for automobiles. Local governments could also be encouraged to engage in livestreaming sales to boost the sales of local agricultural products and specialty goods. Furthermore, local governments should be incentivized to support large shopping malls and help the offline catering industry recover by providing subsidies to catering businesses in areas such as leasing, financing, and fee reductions, thus facilitating the revival of the catering sector and night markets. Additionally, government officials could be encouraged to take the lead in dining out at restaurants at their own expense, thereby boosting consumer confidence among catering enterprises.”

Who will stand out in 2023?

Chinese consumers are becoming increasingly savvy. Just as more and more straight men on social media are sharing their research on the technical specifications of their favorite electronic products, and beautiful young women are teaching everyone about the ingredients in everyday skincare products and comparing the warmth and down content of down jackets, it’s becoming crucial to win consumers’ favor.

Currently, which consumer sectors will recover first? And which consumer brands will fare better and thrive in the turbulent year of 2023?

On January 6, 2023, Shu Jueting, spokesperson for the Ministry of Commerce, stated at a press conference that during the New Year’s Day holiday, sales of grain and oil products, food, beverages, and daily necessities at retail enterprises closely monitored by the Ministry of Commerce increased year-on-year by 11.3%, 10.2%, and 2.6%, respectively. According to big data monitoring by the Ministry of Commerce, online retail sales across China reached 208 billion yuan in the five days leading up to the “New Year Goods Festival,” representing a 4.7% increase compared to the same period last year. In addition, demand for inter-provincial and long-distance travel saw a significant rise, with hotel occupancy and booking rates continuing to climb at popular tourist destinations. Furthermore, according to industry data, box office receipts for movies during the three-day New Year’s Day holiday exceeded 550 million yuan, and the nationwide cinema operating rate reached 85%, hitting a new high in the past 10 months.

According to research by Bank of China, as epidemic prevention and control measures are likely to become further optimized, favorable conditions will be created for the recovery of service consumption and offline consumption in 2023. Contact-based consumption sectors such as accommodation and catering, cultural tourism, and transportation will become the primary drivers of this consumption recovery. In addition, as the real estate market gradually bottoms out and begins to rebound, it will also stimulate a full recovery in housing-related consumption, including furniture, home appliances, and construction and interior decoration.

Xiong Yi, Chief Economist for China at Deutsche Bank, also believes that real estate policies across various regions have significantly eased recently. As China accelerates its opening-up efforts in the second half of 2023, the property market is expected to stage a strong recovery.

The U.S. Wall Street Journal published a report titled “Chinese ‘Revenge Travel’ to Boost Tourism in 2023,” stating that China’s reopening of its borders signifies the return of Chinese tourists, which will not only benefit several neighboring countries but also bring good news to Chinese airlines and travel agencies—and these benefits will spread to an even wider range of sectors.

“If we’re looking at which sectors will see the earliest recovery in consumption, we need to consider the full-year perspective. First and foremost, short-distance travel will rebound faster than long-distance travel—this is determined by the scope of consumers’ activity. As a result, last year’s popular new consumption trends such as outdoor camping and frisbee playing will continue to remain hot. Second, domestic tourism will certainly recover faster than cross-border tourism. Third, first-tier and new first-tier cities will see faster growth in consumer spending compared to other cities,” said Hong Yin Yi, founding partner of Dr. Strategic Consulting.

The New Task of New Consumption

“All of us are on business trips, visiting clients—we need to quickly make up for the three years we’ve lost!” said the founder of a snack food consumer goods company to China Economic Weekly.

Since 2019, new internet-famous brands in consumer categories such as lipsticks, coffee, tea, and noodles have emerged one after another, and various types of capital have also flocked into the new consumption sector. However, starting from 2022, many of these new consumer brands have performed less than ideally, prompting new institutions to become increasingly cautious when entering subsequent funding rounds.

According to the website of the National Bureau of Statistics, from January to November 2022, total retail sales of consumer goods amounted to 39,919 billion yuan, down 0.1% year-on-year. Among these, retail sales of consumer goods excluding automobiles totaled 35,849 billion yuan, declining by 0.2%. Additionally, in November alone, total retail sales of consumer goods reached 3,861.5 billion yuan, down 5.9% year-on-year. Of this figure, retail sales of consumer goods excluding automobiles came to 3,482.8 billion yuan, falling by 6.1%.

Three years ago, the consumer goods sector once had a foolproof formula for creating hit products: “20,000 Xiaohongshu posts + 8,000 Douyin videos + 3,000 Bilibili videos + 150 Zhihu Q&A entries + livestreamed sales = a new brand.” But over the past three years, this formula has long since stopped working—and some investors have even expressed pessimism, stating bluntly: “Capital is falling, hit products are crashing, and new consumer brands can’t survive more than three years.”

Zhang Jing, Global Partner at Bain & Company and Chair of Digital Business for Greater China, analyzed for China Economic Weekly that the reasons lie in five key areas: First, Growth capability—historically, growth often stemmed from seizing quick, short-term opportunities for rapid expansion. Today, however, this crude approach no longer works; brands must return to their original intentions, focus on meticulous cultivation, and adopt a strategy of “harvesting in autumn and storing in winter” to achieve sustainable growth. Second, Product capability—this means identifying core flagship products that can drive sustained, long-term growth. Third, Marketing capability—while past marketing strategies focused heavily on leveraging traffic dividends from various platforms, going forward, brands need to embrace a long-term mindset, concentrate their media efforts, and fundamentally change consumer behavior. Fourth, Channel capability—previously, the Chinese market relied on “large-scale distribution channels,” but the “one-wave-increase” approach has become unsustainable. Brands now need “omnichannel growth” and must integrate online and offline channels seamlessly. Only by carefully defining the role and function of each channel and cultivating them with precision can brands build a solid foundation. Fifth, Organization capability—historically, organizations placed greater emphasis on stability and control. However, as the market environment becomes increasingly complex, brands will need to build more agile and self-driven organizational structures to effectively respond to external changes.

“Capital can only play a supporting role. The new consumer products that once surged ahead were inherently fragile to begin with. When confronted with the most unpredictable factor—the pandemic—they instantly lost their external growth drivers: the demographic dividend, the traffic dividend, the category dividend, and the aesthetic dividend that had fueled their market success. If new consumer brands want to move from fleeting popularity to sustained success in 2023, they’ll have to shift their previous strategies, finding differentiated opportunities amid an increasingly segmented market and capturing the brand dividend that’s uniquely theirs,” argues Hong Yin Yi, founding partner of Dr. Strategic Consulting.

New youth join hands with the new national trend to ignite domestic demand.

In late December 2022, McKinsey released a report identifying five major consumer trends in China for 2023, one of which is that Chinese domestic companies are gaining ground in the market.

McKinsey believes that the notion of Chinese consumers being willing to pay a premium for foreign brands is becoming a thing of the past. Today, Chinese brands can offer high-quality products that rival—or even surpass—their foreign counterparts. Although this isn’t a new phenomenon, in recent years Chinese consumers’ preference for domestic brands has indeed been accelerating. Surprisingly, national pride is not the only driving factor. Nowadays, domestic companies are responding more quickly to fashion trends, staying closer to consumers, and making investments with greater boldness.

On January 6, the Ministry of Commerce held its first regular press conference of 2023. Spokesperson Shu Jueting stated that as “guochao” (national trend) consumption continues to heat up, time-honored brands are gaining increasing popularity among consumers. During the recently concluded New Year’s Day holiday, online sales of these time-honored brands rose by 30% year-on-year.

Li Zhiqi, Vice Chairman of the Beijing Federation of Industry and Commerce, told China Economic Weekly that “guochao”—the trend created by Chinese brands—has successfully won the hearts of the post-90s and post-00s younger consumer generation. Under the globalized intellectual currents of today, young Chinese people are embracing guochao as a new form of self-expression, reflecting the ongoing journey of China’s culture toward greater confidence. Cultural strength is precisely the most enduring driving force behind the development of any nation and any ethnic group. The new generation of young consumers naturally possesses an international perspective; they are increasingly aware that the gap between domestic and global standards has narrowed. Coupled with their strong sense of cultural identity and self-confidence, it is only natural that a new wave of guochao and innovative manufacturing will surge forth in the consumption era they are leading.

Several companies, including Quanjude, Daoxiangcun, Anta, and Baixiang, have all emphasized that for time-honored brands, businesses must dare to create new markets. By thoroughly assessing market and consumer trends, they should carefully plan and deploy reliable growth strategies, open up new sales channels, and engage with consumers through innovative touchpoints. It is essential to join forces with the new generation of young consumers, leveraging technological advancements and evolving consumer demands to jointly drive product innovation.

Currently, many new Chinese brands are continuously introducing innovative technologies—self-heating technology, freeze-drying technology, freshness-locking technology, AR/VR, virtual humans... Behind each of these tech buzzwords lies a cycle of product iteration.

In response, outside observers believe that in the 2023 consumption boom, Chinese consumer brands will further leverage the new “Guochao” (national trend) label to continue deepening their involvement in global competition. The new generation of consumers has grown up witnessing China’s culture, technology, brands, and trends making their way onto the global stage. They will feel an unprecedented sense of affinity toward anything bearing the “Chinese” mark, and as a result, their consumption patterns will become thoroughly oriented toward the Chinese market. From automobiles and mobile phones to cosmetics, local cultural and creative IPs, and cutting-edge technologies—Chinese brands and consumers are reconnecting in a whole new way.