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China has started its longest holiday break of the year with officials predicting record tourist travel that they hope will help to lift an economy struggling to emerge from its post-pandemic doldrums.
Economists will be watching in particular whether Chinese consumers will use the eight-day break, which combines the October 1 National Day and the mid-Autumn festival holidays, to spend not only on restaurants and outings but also on bigger ticket items, particularly property.
Most believe a stronger economic recovery will be difficult until the stricken real estate sector stabilises. Its woes were captured this week by news that authorities suspected tycoon Hui Ka Yan, of the heavily indebted Evergrande conglomerate, of being involved in criminal conduct.
“This holiday is going to be a test,” said Fred Neumann, chief Asia economist at HSBC. “It’s not just about going to the restaurant and enjoying a great meal with friends; it’s actually about whether there will be a bit more spending coming through on household appliances and cars, all the way through to apartments.”
Officials have predicted a surge in travel, with the state-run People’s Daily forecasting 800mn trips, including 21mn people travelling by air — more than the number of those who flew during all of October last year.
State-owned media have also projected 190mn passengers on China’s railways, up 37 per cent from the same period in 2019, while daily highway traffic volume is expected to rise 40 per cent.
President Xi Jinping opened the holiday on Thursday night with an address in which he pledged to “expand” domestic demand — a central focus for investors worried about China’s investment-led growth model.
Economists said a stronger Golden Week would follow signs of life in the economy, after the country fell into deflation in July and exports plunged.
Factory activity expanded in September for the first time in six months, according to a purchasing managers’ index published on Saturday by China’s national statistics bureau.
In August, consumer prices edged back into positive territory and industrial profits reversed earlier falls to rise 17.6 per cent year on year, the first positive reading since July 2022 and the highest since November 2021, according to Citi analysts. The rate of decline in exports also eased.
Most importantly, new home sales in China’s top 30 cities climbed in September though economists cautioned that the trend was fragile, with new home starts still falling. They also pointed out that property prices in China’s first-tier cities, which include Shanghai, Beijing and Guangzhou, could be benefiting at the expense of smaller municipalities where demand and spending power are lower.
“The moderate rise in home transactions in top-tier cities might further squeeze low-tier cities,” Nomura analysts wrote in a note, adding that the emergence from deflation could be due to higher commodity and energy prices and a weaker currency.
Previous festivals this year, including the May Day break and the Dragon Boat Festival, generated higher total tourist revenue than before the pandemic, said Dan Wang, chief economist at Hang Seng Bank China. But average consumption per person was down 10 per cent and 14 per cent during those holidays.
“This time the sentiment does look better — international flight bookings and domestic flight bookings have both exceeded 2019 levels,” said Wang. “I do think it might surprise on the upside.”
If Golden Week can deliver consumption growth, economists said, the positive spillover in the fourth quarter could help the economy meet or slightly exceed the government’s gross domestic product growth target of 5 per cent for this year. But real estate activity would also need to accelerate for a sustained recovery in consumer confidence.
“The Golden Week holiday looks like it might be one of the busiest holidays ever and . . . manufacturing is also beginning to stabilise but I think right now the major focus is still on the property sector,” said Tristan Zhuo, chief economist at China Citic Bank International, citing recent government easing of mortgage requirements.
One barometer of sentiment will be activity in Hong Kong and Macau, traditionally important destinations for mainland tourists.
Average luxury hotel room rates in Hong Kong’s biggest shopping districts were up to 35 per cent higher than in May, according to UBS analyst Mark Leung, reflecting greater spending appetite.
But per capita spending was forecast to remain weak because of the depreciation of the renminbi against the Hong Kong dollar as well as changing spending patterns with visitors pursuing non-shopping experiences.
In Macau, gambling revenue forecasts were “pretty upbeat”, with more than 90 per cent of the city’s casino hotel rooms booked as of this week, according to JPMorgan analyst DS Kim, who said the industry was expecting “the highest gross gaming revenue since the reopening” from Covid controls.
But for Tony Li and his family, who were visiting Hong Kong this week from Guangzhou, the macroeconomic implications of their spending could not be further from their minds. The holiday was their first to the territory since 2017, and they planned to take in Hong Kong’s Disneyland and its grand new museums.
“I am not visiting Hong Kong to splash money,” said Li. “I mainly came to have fun.”