The record surge in holiday spending is a positive omen for the Chinese economy
China's services sector has demonstrated a much-awaited resurgence in consumer spending during the celebrated "golden week" holiday, where domestic tourism revenue has exceeded pre-pandemic levels for the first time since the onset of the COVID-19 crisis.
The recent uptick in demand has further reinforced the roaring recovery of the Chinese economy in the first quarter that also surpassed the most optimistic calculations. Marking the first time in three years that the country's travelers have emerged from the Covid-related restrictions and are eager to indulge in post-pandemic extravagance, the skyrocketed surge in China's Golden Week holiday has also bettered all projections, for many, the five-day May Day period from April 29 to May 3 was the first opportunity to go on vacation in over three years, without having to worry about contracting Covid infection.
This fervor for travel and holidaying is a sign that pent-up demand has finally been unleashed, and people are eager to make up for lost time. This time the consumer behavior was quite different from the Chinese New Year holiday in January when a significant number of individuals chose to stay at home due to the fear of getting infected amid China's "exit wave". As China continues to recover from the pandemic, this trend signals a sustained economic revival.
The consumer spending data during the 5 days long holiday has bamboozled all the previous records. The Ministry of Culture and Tourism has reported that during the five-day break that began on Saturday, Chinese travelers made a staggering 274 million domestic trips, representing a 70.8% rise from the previous year and a 19% increase from 2019. These travelers spent 148 billion yuan ($21 billion), a remarkable 128.9% jump from the previous year and comparable to 2019 levels. As this is the first travel season since the pandemic without restrictions, the figures from this year's May Day holiday are being acutely monitored as a barometer of China's economic health. The recent surge in domestic travel by Chinese tourists during the May Day holiday period is definitely a promising sign for the country's economy.
There was a significant resurgence in services-related consumption, as dining and retail companies reported an almost 20% surge in revenues during this week. According to data from the Ministry of Commerce, this growth is particularly significant considering retail sales only saw a 10.6% increase in March. Alipay, the country's largest digital payment app, also noted a 200% surge in online holiday spending compared to the previous year, and a 70% increase compared to the 2019 level. According to a statement by Alipay, a leading digital payments app in China, travel-related purchases made by Chinese consumers surged by 70% in the first three days of the country's five-day national holiday, when compared to the same period in 2019. Meanwhile, average daily transactions for transportation-related spending nearly tripled at WeChat Pay during the first four days of this year's holiday compared to 2019, while hotel and tourist attraction spending jumped by 93%.
At the same time, in a stunning demonstration of China's post-pandemic economic resilience, the country's railway system has also recorded a new milestone by reporting a remarkable 120 million trips between April 27 and May 4, marking a 20% surge from the same period in 2019.
However, despite such astounding performance of China's domestic tourism industry, some economists are cautioning against the sustainability of this demand boom, suggesting that the road ahead for the economic recovery could be more challenging. According to Goldman Sachs, the sustainability of the consumption recovery will depend on higher income growth and improved consumer confidence in the coming days.
Despite a slight decline from 58.2 in March to 56.4 in April, the official non-manufacturing purchasing managers’ index remained at its second-highest reading this year, indicating a positive trend. “The strong holiday tourism data, together with the still-solid April services PMI, bode well for consumption and services recovery in coming months, despite the softening in manufacturing growth momentum. This also adds conviction to our above-consensus 2023 GDP growth forecast (6.0%)," noted Goldman Sachs. China's economy, thanks to Beijing's comprehensive recovery measures, surpassed expectations in the first quarter and expanded by 4.5 percent year on year. The surge in consumer spending has further corroborated the continuation of forward thrust of the Chinese economy.