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China reports robust holiday spending numbers. But is it too early to rejoice?

Zhai Shaohui, Zhang Ruixue, Li Congxun, Kelsey Cheng

Despite the strong consumer spending numbers for tourism, restaurants and cinemas from over the Lunar New Year holiday this year, some analysts are cautioning against reading too much into the data.

It remains to be seen whether a handful of strong data points from the holiday herald a sustained rebound in household spending that can buoy the overall economy, they said, as many people remain unwilling to open their wallets too wide given lingering concerns over the job market and economic growth.

“Households have been dealt repeated economic blows through the pandemic. Between lockdowns, rising unemployment, and a falling property market, families have had little go their way,” said analysts at Moody’s Analytics Inc. in a Feb. 6 commentary. “While the removal of pandemic restrictions will give many households cause for celebration, it’ll likely take time for consumer sentiment to shake the Covid-19 blues.”

The government is pushing for a pickup in household spending to help the world’s second-largest economy recover from one of its worst showings in decades, with the State Council in January emphasizing the need to make consumption a main driving force of the economy.

A series of promising data from the Lunar New Year holiday in late January helped buoy optimism for an economic rebound this year. During those seven days, the number of domestic trips rose 23% from last year’s holiday period, tourism ministry data show. Meanwhile, movie box office revenue jumped nearly 12%, according to the China Film Administration. Dine-in spending grew 15%, according to the Ministry of Commerce.

Despite this so-called “revenge spending” from pent-up demand, household consumption hasn’t returned to 2019 levels, laying bare the damage that three years of pandemic controls have done to consumers’ spending power, said Zhou Mingqi, founder of the T-identifier Think Tank, a tourism industry consultancy.

While spending on in-person services was up during the holiday, other areas of household spending were weak, particularly big-ticket items, whose growth rate was lower than the average of the same periods in the past three years, according to a late January note by Ping An Securities Co. Ltd. analysts led by Zhong Zhengsheng.

Passenger car sales plunged 38% year-on-year by volume in January, according to the China Passenger Car Association, partly because the end of government subsidies for new-energy vehicles (NEVs) spurred a rush of purchases at the end of last year that sapped demand in the new year. Meanwhile, property sales by the 100 largest Chinese developers in January fell 32.5% by value from a year earlier, according to consultancy China Real Estate Information Corp.

Although such spending is typically subdued during and around the holiday, analysts said consumers’ reluctance partly highlights other factors weighing on their willingness to spend. “The recovery of household income, balance sheets and consumption confidence may take much longer than the removal of Covid restriction,” said Wang Tao, chief China economist at UBS Investment Bank AG in a recent report.

New household savings jumped to a record 17.8 trillion yuan in 2022, almost double the level in 2019, according to data from the People’s Bank of China, as families cut back on spending during Covid-19 lockdowns and parked their money at the bank. The preference was similarly reflected in a central bank survey in the fourth quarter in 2022, where nearly 62% of 20,000 depositors said they preferred to save more of their money rather than to spend or invest.


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