Chinese holiday makers gave a big boost to the domestic tourism industry during the three-day Dragon Boat Festival (June 22-24), but market worries persist about how to lift broader consumption to drive the country’s economic recovery.
Lingering worries about a balance-sheet recession affecting Chinese households – a key cause of weak consumer spending so far this year – prompted a key think tank in Beijing to call for CNY1.5 trillion in direct subsidies for cash-strapped households. Domestic trips increased by 32.3% year-on-year to 106 million during the festival and tourism revenue increased 44.5% from a year earlier to CNY37.3 billion, according to the Ministry of Culture and Tourism.
The number of trips was about 112.8% that of the same period in 2019, and the revenue was 94.9% of the total recorded four years earlier, before the start of the Covid-19 pandemic. China's box office revenue reached CNY900 million – the second-highest for the holiday ever. The Ministry of Commerce also reported other kinds of “vigorous spending” during the holiday, with jewelry sales up 13.6% year-on-year and an 18.5% rise in entertainment and leisure spending. Despite the bright picture painted by the government data, analysts have expressed concerns about the uneven recovery, with expenditures on durable consumer goods lower than expected and consumer confidence taking a hit from income and job uncertainties.
To boost spending, China should consider issuing CNY1.5 trillion annually in special treasury bonds in the form of digital yuan to extend around CNY1,000 in subsidies to each person in the country, according to China Macro-economy Forum, a think tank affiliated with Renmin University in Beijing. “It’s the most effective way to increase the proportion of household disposable revenue and improve income distribution,” Liu Xiaoguang, Renmin University Professor and co-author of the think tank’s mid-year research report, told a forum. “Also, it can help boost the development of the digital yuan.” The think tank said growth in average disposable income was about 0.2 percentage points lower than the GDP expansion in the past five years – a gap that expanded to 0.7 percentage points in the first quarter. A bigger dose of policy support would be needed in the second half of this year, Liu said, warning that insufficient support could undermine the country’s post-Covid recovery.
China’s retail sales growth slowed to 12.7% in May from an 18.4% increase in April, according to the National Bureau of Statistics (NBS). The growth in consumer goods spending, which accounts for around 90% of retail sales, moderated to 10.5% from 15.9% in the same period. Major e-commerce companies, including JD.com and Alibaba, did not reveal sales figures for this month’s 618 online shopping festival, a key indicator to gauge consumer appetite and spending trends.
Consumption contributed two-thirds of China’s growth in the first quarter, as policymakers looked to the domestic market to prop up growth. The reluctance of households to loosen their purse strings has already raised speculation that the national recovery is losing steam.
Major Wall Street banks, including JPMorgan and Citi, have slashed their 2023 China growth forecasts in the past two weeks to levels slightly higher than Beijing’s growth target of around 5%. Earlier this month, Zhang Ming, Deputy Director of the Chinese Academy of Social Sciences’ Institute of Finance and Banking, also called for special treasury bond to subsidize Chinese households. In the past, Beijing has sought to boost growth by doubling down on infrastructure investment and – unlike Western countries – has only given subsidies to low-income families and the unemployed. It issued CNY1 trillion in special treasury bonds in early 2020, when the first wave of the coronavirus pandemic plunged China’s economic growth into negative territory, the South China Morning Post reports.
