Tourism data promising

Year of the Dragon kicks off deftly

• Preliminary data around travel and consumption spending during this year’s New Year holiday looks promising, with suitable New Year celebrations for the first time since the pandemic in 2020. An eye-popping 474 million domestic trips were made, marking a 34% spike from the previous year, and even beating pre-pandemic numbers. Yet, even with more people traveling, less cash is being spent per person, implying tighter budgeting, and potentially a change in the profile of travellers. Also, more travel spend is still likely to result in relatively less spending elsewhere as prospects for jobs and incomes remain unchanged.
• When base effects are omitted, consumption growth is considerably slower than growth rates before the pandemic. Of course, when comparing the data to that of 2022, there is a notable improvement, but consumption barely contributed to GDP growth in 2022. Thus, although retail sales, for example, increased by approximately 7.2% in 2023, nearly matching the growth rates of 2019, growth in retail sales in fact was only half of what it was before the pandemic.
• Recent years have seen a shift in discretionary spending towards certain areas, such as automobiles, which has resulted in a redistribution of spending rather than an overall increase in consumption. Meanwhile, demand for daily necessities and the like has remained subdued, as have those sectors linked to real estate, including furniture, decor, and household appliances. And, the notable interest in gold implies a preference for value-retaining purchases. All the while, just like the improving domestic tourism picture reflects, consumer preferences have shifted away from material things towards experiences, benefiting sales of sports and recreational goods, and catering services, all of which have seen a significant uptick in demand.
• Still, this robust tourism data is important. This is a sector directly contributing around 4% to GDP and supporting 28 million jobs. When incorporating related sectors, tourisms contribution to GDP doubles and employs 10% of the workforce. The improvement in travel and tourism prospects is particularly welcomed as it has faced the brunt of the pandemic, battling since 2020. Promisingly, the latest data implies that China is on track to hit 6bn domestic trips in 2024, up from 4.8bn last year, and equalling the all-time high reached in 2019.
• However, households will likely remain cautious in 2024, lacking full confidence in the current economic climate and its prognosis. Many hurdles remain; consumers remain wary, wage growth is sluggish, youth unemployment is high, house prices are sliding, and financial markets are shaky.
• We expect household consumption in 2024 to mirror that of 2023, albeit devoid of the beneficial base effects observed last year. Consequently, growth in retail sales for Q1:24 is projected at around 5.3%, down from 5.9% in Q1:23.
• Should consumer spending maintain its current trajectory, it could contribute approximately 2 percentage points to GDP growth in 2024. Therefore, should consumer spending remain a pivotal force in China’s broader economy, we might see a further deceleration in overall economic growth.