The Chinese lunar new year holiday is over and government and corporate activities are slowly resuming in China. As discussed in a newsletter prior to the holiday, the Spring Festival is not only the most important holiday and family gathering in China, but it is also a good opportunity to assess the status of the Chinese economy, especially when it comes to consumer demand and confidence. The first set of data on consumer spending over the lunar new year holiday is coming in now, so let’s assess what this can tell us about the status of consumer spending and confidence in China.
At first sight, the data coming out of China looks very positive. According to Chinese newspaper Global Times, there were in total 2.8 billion cross-regional trips, including 596 million domestic tourist trips and 17.796 million international trips over the holiday. All of these numbers exceed last year’s number of travels undertaken. In addition to this, touristic spending amounted to roughly US$116 billion, also breaking a record over last year’s spending according to the Global Times.
Does that now mean that the status of the Chinese economy is great and the Chinese government’s mission of encouraging more consumer spending as a driver of economic growth is successful? Looking at the data in greater detail presents a more complicated picture than that.
First, when comparing absolute spending data and number of travellers of this year with those of previous years, we need to remember that this year’s spring festival holiday was longer than it has been prior. This year’s holiday period amounted to nine days whereas in the past, holidays usually lasted for seven, sometimes eight, days. That a longer holiday period results in higher spending in absolute numbers is a no-brainer.
Second, when judging consumer spending, we need to keep in mind that prior to the holidays, the Ministry of Commerce launched a nationwide consumption campaign that included shopping vouchers and cash incentives for consumers to spend money over the holidays. As we saw last year in the subsidised program to replace whitegoods, consumption campaigns like this do have an immediate effect on consumer spending, but they do not create a lasting change in the pattern of how Chinese consumers spend money or the way that economic growth in China is generated. This is at least somewhat visible in the fact already that box office performance in China over the holidays significantly trailed behind expectations, so that we cannot assume a generally more consumption-friendly mood in China independent of government consumption campaigns.
Third, if we break down tourism and travel spending in terms of how much money travellers spent per trip (rather than the absolute amount of money spent), we can see that the average spending per trip actually dropped slightly compared to last year. This means that more people travelled over the longer holiday, but it did not necessarily translate in more enthusiastic and generous consumer spending.
To summarise, the data on consumer spending over the holidays presents a mixed picture and thus a mixed message for the status of the Chinese economy. On the surface, consumer confidence appears positive and large amounts of money are still being spent. However, as always, the devil is in the detail. Taking the points made above together, there is no indication that domestic consumption in China is genuinely picking up in its own right, let alone provide a decent alternative to exports for powering Chinese economic growth. This means that the growth model change that the Chinese government is aiming for is still waiting to materialise. It also means that for businesses in consumer-facing industries, they still need to make the extra effort and do their detailed market research and due diligence in relation to their customer target groups rather than just assuming that consumption in China generally is on the upswing.
Comments
Nothing yet. Say the first thing.
Sign in to join the conversation.