Chinese consumers spent lavishly through the Labor Day holidays during the first week of this month, a traditional barometer of the consumer economy’s future strength.
Travelers made 274 million domestic trips over the five-day holiday, 71 percent more than last year and 19 percent more than in 2019, the culture and tourism ministry reported.
Tourism revenue for the period totaled the equivalent of $21.5 billion, also up sharply from last year and 1 percent higher than in 2019.
However, per-capita spending fell 10 percent below pre-COVID levels, with major tourist attractions cutting ticket prices to lure visitors. Travel outside of China also fell below 2019’s numbers.
“The data is positive,” Ting Lu, Nomura’s chief China economist, told the Financial Times, touting in-person services as the engine of this year’s recovery. China’s economy grew by 4.5 percent in this year’s first quarter.
However, “if other parts of the economy are not doing well, this pent-up demand may not be sustainable,” he added.
Factory orders for export have remained muted because of the global economic slowdown and the property industry—which has accounted for as much as 30 percent of China’s GDP in the past—has yet to fully recover from its crash 18 months ago. (See “China’s Economic Recovery Is Uneven, New Data Shows” 2 May 2023).
Beijing has set a growth goal of 5 percent this year after the economy expanded by just 3.5 percent last year, falling far short of 2022’s 5.5-percent target.
TREND FORECAST: As we noted in the article cited above, China’s economy depends heavily on manufacturing for export. As the world economy drags along, China’s factory sector will also slump.
That lack of economic input will ripple out into the consumer economy, hobbling the success of China’s “dual circulation” economic strategy of building a robust consumer economy alongside a thriving export industry.
As a result, China will continue to depend on its long-standing habit of creating jobs and growing the economy through government spending on infrastructure, biding its time until the global economy comes knocking at its factories’ doors again.
However, reshoring or “friend-shoring” will make a permanent dent in China’s export revenue from the West. That loss will be offset somewhat, but not entirely, from growth in demand among China’s Asian trading partners.
Until the United States and the European Union come up with more cheap money-pumping schemes, China’s exports to the West will continue to weaken.