16 BARRON’S August 3, 2020
some cases no lower than pre-Covid.
In Chengdu, the capital of southwest-
ern Sichuan province, small shops are
being built where just two months ago
others had closed. Retail sales were
down only 1.8% in June, compared
with a steeper drop earlier in the year,
with product categories such as
household appliances and cosmetics
posting growth.
China is the only major economy
forecasting growth this year. While
differences with the U.S. abound in its
political system and handling of the
virus, China’s recovery offers reason
for optimism as the U.S. strives to get
its health and financial crises under
control. “The recovery is derived from
the fact that people feel safe again,”
says Danton Goei, portfolio manager
for the Davis Large Cap, Global, and
International funds.
China’s recovery has sent its shares
on a tear, with initial encouragement
from Chinese officials and, more re-
cently, moves that allows insurers to
own more equity. The CSI 300 index,
which includes the largest stocks on
the Shenzhen and Shanghai stock ex-
changes, is up 14.2% this year. Money
managers have sought out companies
that will benefit as Chinese consumers
recover and adjust their preferences to
a post-Covid world, largely undaunted
so far by U.S.-China tensions.
Some trends have been super-
charged: Consumers continue to shift
more spending online, for groceries
and electronics and also education.
The pandemic has bolstered their
spending on health and wellness. And
despite the economic shock, fund
managers see continued demand for
premium products.
But things aren’t exactly normal.
Household consumption in the sec-
ond quarter was weak, and average
rents in large and midsize cities
slipped more than 2% from a year
earlier. A UBS consumer survey con-
ducted across China found that fewer
respondents than last year expected
incomes to rise from year-ago levels,
feeding economists’ expectations that
consumption will rebound sharply
from depressed first-quarter levels
but end this year flat compared with
2019. They see spending growing
nearly 9% in 2021, however.
Still, there are signs of a recovery
HowtoInvest
InChina’s
Consumer
Comeback
Travel is out, but e-commerce,
luxury-goods shopping, and home
improvement are in. What the U.S.
can learn from China’s revival.
“Purchasing
in certain
sectors is
looking
relatively
robust.”
Leon Eidelman,
manager of J.P.
Morgan Emerging
Markets Equities
fund.
C
hina’s consumers have pow-
ered the growth of global
companies, and the global
economy, for many years.
After suffering a blow from
Covid-19, which shuttered
much of the Chinese econ-
omy this past winter, China’s consumer
is back in action, although shopping
differently than before.
As the first country to grapple with
the virus and get it under relative con-
trol, China has had the longest time to
adjust to the pandemic era. It also im-
plemented one of the most aggressive
lockdowns in the world, and suffered
one of the sharpest economic hits as a
result. Economic activity contracted
6.8% in the first quarter, the first drop
in at least 28 years, compared with
declines of 5% in U.S. gross domestic
product and 3.6% in euro zone GDP.
Consumer retail sales in China for the
first two months of the year slid 20.5%.
The economy now is beginning to
perk up, as China has been extin-
guishing Covid-19 flare-ups with ag-
gressive testing and contract tracing.
In a note to clients on Wednesday,
Capital Economics said China’s ability
to contain Covid-19 and implement
policy support put its economy on
course to return to a previrus path by
year end, much earlier than expected
for any major economy.
Traffic—and pollution—are back
near pre-Covid levels. Lines are form-
ing at restaurants, and people are
snapping up real estate, with prices in
By RESHMA KAPADIA
under way. Early in the pandemic, an
estimated 70 million to 80 million
people weren’t working or had lost
their jobs; now more than three-
quarters of those are back at work,
according to UBS economists’ esti-
mates. Consumers are also saving
more, which means that improved
household balance sheets should pave
the way for a stronger recovery once
consumer confidence returns.
Travel intentions and spending are
down roughly 30%, but consumers
are redirecting some of that money to
splurges, whether for skin care or
home improvement. At the same time,
brand preferences are shifting, with
consumers favoring larger companies
they see as reliable and safe, and more
domestic brands. “Services aren’t back
100%, but purchasing in certain sec-
tors is looking relatively robust,” says
Leon Eidelman, manager of the J.P.
Morgan Emerging Markets Equity
fund. “They are coming out of this
pandemic.”
Barron’scanvassed money manag-
ers and analysts to learn what Chinese
consumers are spending on, how their
preferences have changed, and which Getty Images
Although malls like this one in Wuhan are open, Chinese consumers increasingly are turning to e-commerce for everything from groceries to education.