China’s Lockdowns Trigger a Surprise Surge in ‘Revenge Saving’
SHANGHAI — As Shanghai emerged from lockdown in late May, many of the city’s wealthiest residents headed straight for the same store: the Hermès outlet at the exclusive Plaza 66 mall. Long lines formed outside the entrance, as people indulged in their first shopping spree in two months.
Mary Men’s experience was nothing like that.
The 34-year-old spent her first post-lockdown trip in a local supermarket — making some painful choices. For the first time in her life, she found herself studying the price tag of every item before adding it to her basket. She ended up spending just 15 yuan ($2.25) on a box of blueberries, whereas she used to like buying a whole selection of different fruits.
Like much of Shanghai’s middle class, Men struggled financially during the citywide lockdown in April and May. A marketing executive at an import-export firm, her 6,000 yuan after-tax monthly salary already barely covered her mortgage payments and other bills. Then, the shutdown sent food prices skyrocketing — and pushed her into the red.
The experience has forced Men to cut back. She no longer uses her credit card to shop online. Instead, she’s laser-focused on building up her savings, in case the city’s virus controls ramp up again.
“During crunch times, having money in your hands is the most important thing,” says Men. “You had to directly use money from your savings to buy pricey food (during the lockdown).”
Men is far from alone. As China tries to move on from a wave of spring lockdowns, there were hopes that consumers would kick-start the economy by indulging in the kind of “revenge spending” seen at Shanghai’s Hermès store. In reality, the opposite has happened.
Many consumers have emerged from lockdown in a pessimistic mood. Anxious about their personal finances, the precarious state of the economy, and the prospect of further lockdowns, they’re following Men’s example: making deep cuts to their household budgets and saving as much as they can.
That’s because — as has happened elsewhere — China’s lockdowns haven’t affected everyone equally. While wealthy Chinese have ridden out the pandemic with relative ease, a large number of working- and middle-class families have faced job losses and steep drops in income.
A recent survey offers a stark picture of rising inequality. China’s poorest households have seen their wealth decline every quarter since the pandemic began, according to the April report by the Southwestern University of Finance and Economics and Ant Group Research. The country’s wealthiest households, meanwhile, have gotten richer and richer during the crisis.
China’s consumption data reflects this trend. Sales of luxury goods have grown at double-digit levels year-over-year since 2020, according to consultants Bain & Company, putting China on track to become the world’s largest luxury market by 2025.
“The high-income group go for luxury goods partly with the aim of preserving and increasing their assets,” says Ye Min, an executive partner at consultancy PwC in China. “Their consumption is often for the purpose of investment.”
But from a wider perspective, things look very different. During the first five months of 2022, consumers spent more on daily necessities like food and beverages compared with last year, according to official data. But they cut back spending in many other areas, including cosmetics, jewelry, clothing, furniture, cars, and dining out. Total retail sales were down 1.5%.
Consumers’ reluctance to spend is a major headache for Chinese policymakers, threatening to drag down economic growth and fuel unemployment. But it’s also a tough problem to fix — especially as cases of the highly-infectious Omicron subvariant BA.5.2 have emerged in some Chinese cities, bringing the risk of more lockdowns.
Mu Cong, a Shanghai-based piano tutor, is one of many middle-class Chinese who have radically altered their spending habits this year.
After he was locked down at home in late March, Mu’s monthly income fell by 70%. Online piano classes were a tough sell, and he barely earned any class fees to supplement his 4,000 yuan basic salary.
“When I had a stable income, I preferred to enjoy myself,” says Mu, who spoke with Sixth Tone using a pseudonym for privacy reasons. “But as I spent more than I earned during the lockdown … I started to feel nervous, and felt the urgency to save more.”
The 22-year-old is now cutting down on non-essentials like coffee, home decorations, and new clothes. When he wants to buy something online, he first adds it to his shopping cart for a while — to allow himself to think twice before hitting buy.
“If you are thinking about whether you need it or not, it’s not essential,” says Mu. “For example, you wouldn’t hesitate to buy toilet paper. I’m giving up things I don’t actually need. It gives me a feeling of control over my life.”
Men, the marketing manager, has embraced a similar austerity drive. In late May, she took a higher-paying job and told herself she should save at least 30% of her salary each month.
“I didn’t worry much about money before,” says Men. “But now that I’m spending the money I have saved, every penny spent is a penny less.”
Adjusting to a new lifestyle hasn’t been easy, Men says. She has halved her living expenses to less than 1,000 yuan per month. She now rarely eats out or orders takeout, buys very little online, and commutes by subway instead of driving to the office.
“When I’m greedy for takeout, I scroll through several online food delivery platforms and look at different options many times, but don’t order anything,” says Men. “It is a bit painful at first to control yourself, and not spend the money you have.”
China’s migrant workers — who represent around one-third of the country’s workforce — have been hit even harder, as many of them fall outside the country’s welfare system.
A survey of migrant worker households by the nonprofit Beijing Social Work Development Center for Facilitators in April found that 73% had experienced salary cuts due to the recent outbreaks. Around 45% said their work had been affected even more than during China’s initial COVID-19 outbreak in 2020.
Li Tao, the founder of the Beijing-based nonprofit that published the survey, says many migrant worker households are having to cut back even on essentials, such as by adding fewer vegetables to their meals.
“They’ve largely run out of savings after the repeated outbreaks of the past two years,” says Li. “Plus, while the majority of respondents were optimistic about the COVID-19 situation in early 2020, now over 70% are anxious that the pandemic will continue to impact their household income.”
An uncertain future
Many middle-class Chinese share these concerns. The widespread expectation of more COVID-19 outbreaks — and lockdown restrictions — in the future is casting a longer shadow over consumer confidence than two years ago.
Mo Na, a self-employed headhunter, says that Shanghai’s monthslong lockdown has taken a heavy toll on her business — and her mental health. She used to spend thousands of yuan a year on cosmetics, but now she has stopped buying them completely.
“Being confined at home for months traumatized me psychologically and made me lose interest in cosmetic products,” says Mo, who also used a pseudonym for privacy reasons. “It’s meaningless consumption. It makes more sense to save money and invest it.”
Fearful of another lockdown, Mo also plans to shut down her business and apply for an in-house human resources job at a larger company. Although the salary would be far lower than what she earned as a headhunter, she feels she needs some stability.
“Since the outbreak, I’ve lacked a sense of security,” she says. “I don’t know if something worse will happen in the future. I don’t have the confidence to spend money — who knows if you’ll be locked up again for a few months?”
Mo is far from alone. Chinese financial authorities are witnessing record surges in household savings, as consumers adopt a defensive crouch.
A June survey of urban Chinese bank depositors by China’s central bank found that people’s confidence in their future earning potential was at its lowest level since early 2020. And a record number of respondents — 58.3% — said they intended to increase their savings, rather than their spending or investments.
The central bank’s financial data shows the same trend. During the first half of the year, China’s household savings rose by 10.3 trillion yuan — also a record — while new household loans fell to a seven-year low.
Gu Yue, a Shanghai-based new media editor, was planning to buy an apartment last year. But she has now ditched the plan, after the lockdown made her fear tying up her money in a mortgage.
“It could easily cost over 1,000 yuan to buy just a few things (during the lockdown) … It was like having your money flushed away every day,” Gu says. “Buying a house is not necessary. Having money in your hands is.”
Fixing the problem
For Chinese policymakers, stimulating sluggish consumer spending is an urgent priority. However, it’s also proving challenging as the country continues to implement tough virus-control measures.
So far, China’s stimulus policies have been relatively restrained. Unlike some major economies, it has avoided giving cash directly to consumers. Instead, it has focused on supporting embattled businesses and boosting the economy through massive investment in infrastructure projects, and hoping this trickles down to the consumption sector.
Some local governments, including the capital Beijing, have issued “consumption vouchers” to residents to fuel spending. But experts say handing out cash subsidies to ordinary consumers — especially those in low-income groups — will have a greater effect.
Economists, however, stress that much will also depend on the government’s COVID-19 policies. Dan Wang, chief economist at Hang Seng Bank (China), says consumption in Shanghai is likely to rebound to similar levels seen in 2021 by the end of the year — as long as the city can avoid further lockdowns.
“The key to ensuring income sources for low-income people is to find a targeted and long-term mechanism to cope with COVID-19 outbreaks,” says Wang. “A citywide lockdown must not happen again.”
“The recovery of the consumption sector depends on how the epidemic evolves … and when residents’ future expectations for job security, income, and the ease of travel improve,” says Tommy Xie, head of Greater China research at OCBC Bank.
Men, the marketing professional, agrees. For now, she feels she has no choice but to save as aggressively as she can. Her employer is already showing signs of financial strain. And she has a mortgage, health care costs, and aging parents to think about.
“I need to give myself some security,” she says. “No one knows what will happen tomorrow. Things can change at any time.”
Editor: Dominic Morgan.
Update: The article has been updated to add additional comment from an expert source.
(Header image: A man sits by the Bund in Shanghai, June 1, 2022. Zhou Pinglang for Sixth Tone)