Travel in China surged over the Labor Day holidays as consumers emerged from three years of pandemic restrictions and Covid waves, boosting the economy’s recovery.
(Bloomberg) — Travel in China surged over the Labor Day holidays as consumers emerged from three years of pandemic restrictions and Covid waves, boosting the economy’s recovery.
The number of domestic trips made over the five-day break reached 274 million, up 19% from the pre-pandemic level in 2019 and almost 71% higher than last year, the Ministry of Culture and Tourism said in a statement on Wednesday. The rebound in tourism spending was much more subdued, with the 148 billion yuan ($21.4 billion) spent only 0.7% higher than the pre-pandemic level, although it was more than double the amount in 2022 when many large cities such as Shanghai were in lockdown.
Social media have been flooded with images of throngs of crowds at tourist hotspots, shopping malls and train stations as many people traveled during the break for the first time in years. State media reported double-digit sales growth at retailers and restaurants and millions flocking to the cinema.
The holiday spending boom will provide some support to the economy’s recovery and if this rebound in consumption continues it should bolster the prospects for growth this year. Economists say the data shows a rapid rebound in the services sector is on track, which has been a major driver behind the economy’s stronger-than-expected recovery so far this year.
However, there are growing worries about the manufacturing outlook after factory activity unexpectedly contracted in April. Unemployment, especially among young people, remains high and households are still boosting savings.
Read more: China’s Factories Struggle in Further Sign of Economic Imbalance
“The easy part of China’s post-reopening recovery — which includes the full recovery of mobility and the release of pent-up demand in select sectors — is done,” Goldman Sachs Group Inc. economists including Wang Lisheng wrote in a report Thursday. “The next leg of consumption recovery will rely on higher income growth and improved consumer confidence which will make the recovery model more sustainable.”
Citigroup Inc. economists led by Yu Xiangrong said employers in the services sector could start to expand hiring to increase capacity following the travel boom, which may alleviate youth unemployment and boost consumption. It’s also worth watching whether inflation pressure will start to pick up driven by price increases in the services sector, they said.
However, the faster recovery in travel compared to spending suggests consumers have become more frugal and cautious, they wrote in a report on Wednesday.
State media has trumpeted the travel spree as evidence of the economy’s strong rebound. Consumer spending growth will accelerate in the second quarter due to the holiday and a low base last year, leading to faster economic growth compared with the first quarter, China Securities Journal reported Thursday, citing analysts.
Economists surveyed by Bloomberg predict the economy will expand 5.6% this year, driven by strong consumer spending and higher government investment in infrastructure. Several major banks, like Goldman Sachs Group Inc. and JPMorgan Chase & Co., expect it could be even higher at 6% or more — well above the Beijing’s official target for the year of about 5%.
–With assistance from Tom Hancock.
(Updates with chart, economist comments and state media report.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.