Spending Per Capita Is Down

During the recent Lunar New Year holiday, an unprecedented number of Chinese travellers embarked on journeys, setting a new record for domestic travel during this festive period. However, the enthusiasm for travel contrasted with a cautious approach to spending, as many opted for budget-friendly experiences. This trend sends mixed messages about the health of the world's second-largest economy, which is currently navigating through a challenging phase in its recovery efforts.

  • The latest statistics unveiled on Sunday reveal that there were 474 million domestic trips made by Chinese tourists over the eight-day holiday period, marking a 19% increase compared to the same timeframe in 2019, the year preceding the global disruption caused by Covid-19.
  • This surge in travel activity also resulted in a 7.7% increase in tourism revenue compared to 2019, with the nation's cinemas experiencing a record-breaking holiday week, generating approximately $1.1 billion in revenue from over 160 million moviegoers.

Decline In Real Terms

Despite these impressive figures, some economists view the surge in travel merely as a release of pent-up demand, a temporary boost that may be challenging to sustain. They also highlight that the holiday period was longer by one day compared to previous years, and note a decline in per-person spending to levels below those seen before the pandemic.

  • The initial optimism brought by the spike in travel and tourism activity is tempered by concerns about the broader economic landscape, especially in light of additional data indicating a further decline in home sales across major cities in the early weeks of the year.
  • The year also recorded a minimal increase in direct foreign investment, the lowest since 1998, signalling ongoing economic challenges and cautious investor sentiment towards China.

Nomura's chief China economist, Ting Lu, expressed concerns about the potential worsening of the economic downturn, particularly pointing to the struggling housing sector and tense geopolitical relations with Western countries. The quest for new growth drivers remains critical as the real estate sector, once a significant contributor to the GDP, continues to falter.

Low Consumer Confidence

There were hopes that consumer spending might become a new engine of growth following the lifting of Covid restrictions. However, consumer confidence remains low, and the government has been reluctant to provide direct financial support to stimulate spending.

  • The recent holiday travel data, however, offers some insights into changing consumer behaviours, with a notable increase in domestic travel and tourism revenue compared to previous holidays. This includes a significant jump in online hotel sales and record-breaking tourism revenues in cities like Harbin.
  • Yet, the overall picture remains one of cautious consumer spending, as evidenced by reduced per-person expenditure and lower foot traffic in shopping malls.

The housing market's ongoing struggles and the tepid growth in foreign direct investment further underscore the challenges facing China's economy. With these factors in mind, the path to a robust and sustained economic recovery appears fraught with obstacles, necessitating strategic interventions to stimulate growth and rebuild confidence among both domestic and international investors.

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