During China’s Golden Week holiday, global investors eagerly bought into assets tied to the country, showing strong optimism about its economic potential. However, this confidence wasn’t mirrored by Chinese consumers, whose spending and travel activities fell short of expectations. Despite the upbeat sentiment from international markets, weak domestic demand continues to plague China, reflecting lingering concerns about consumer confidence in the world’s second-largest economy.
https://www.cpmrevenuegate.com/vt6hstxc?key=785582df3563a5011d6a42a72f53041eh
A research note from Goldman Sachs, published on Tuesday, revealed that per capita tourism revenue during the National Day Golden Week was 2.1% below pre-pandemic levels. The seven-day holiday, which concluded on Monday, highlighted a persistent issue: weak consumption and low consumer confidence. According to Goldman Sachs economists, the lackluster performance of tourism spending underscored ongoing challenges with domestic demand, which remains subdued despite the lifting of Covid-19 restrictions over a year ago.
“Low tourism spending per head and subdued service prices highlighted still weak domestic demand and continued consumption downgrading,” the report noted. Goldman Sachs also raised concerns about how the Chinese government might respond in the coming months. They questioned how much further stimulus could be introduced, especially in terms of fiscal measures, and whether such actions would effectively bolster domestic consumption, stabilize prices, and rebuild consumer confidence.
In light of China’s economic struggles, some economists are calling for the government to implement a significant stimulus package worth as much as 10 trillion yuan ($1.4 trillion). This would be aimed at restoring optimism and invigorating an economy weighed down by a host of issues, including deflationary pressures and sluggish demand.
https://www.cpmrevenuegate.com/vt6hstxc?key=785582df3563a5011d6a42a72f53041eh
One of the clearest signs of the economic challenges China faces is that hotel prices and airfares during the Golden Week holiday were reportedly lower than they were a year ago. Even 18 months after China reopened its borders following the Covid-19 pandemic, consumer confidence remains fragile, and spending has yet to return to pre-pandemic levels.
While overall domestic tourism was underwhelming, there were some positive indicators. Cross-border travel increased by about 26%, with 13 million trips taken during the holiday period, as compared to the same time last year. International flights also saw a 42% increase, though this came off a relatively low base in 2023, according to a report by Citi.
Despite these modest bright spots, China’s broader economic performance has been lackluster, with a series of weak data points emerging over the summer. This has led to concerns that the country may fall short of its 5% growth target, which was set in March. After months of uncertainty, China’s leader, Xi Jinping, finally approved a much-needed stimulus package at the end of September, primarily focusing on monetary measures. This decision was seen by many as a policy reversal, and share markets responded enthusiastically.
https://www.cpmrevenuegate.com/vt6hstxc?key=785582df3563a5011d6a42a72f53041eh
David Tepper, a billionaire hedge fund manager and the founder of Appaloosa Management, highlighted this shift in an interview with CNBC on September 26. He revealed that he was increasing his investments in “everything” tied to China, reflecting growing optimism in the country’s prospects following the government’s perceived pivot towards supporting the economy.
Nevertheless, experts warn that more needs to be done to truly restore consumer confidence, which hit near-historic lows over the summer. While the stimulus package provided a temporary boost to investor sentiment, the long-term impact on consumer behavior remains uncertain.
This week, stock markets in Shanghai and Shenzhen experienced a sharp downturn, reversing some of the gains made in the wake of the stimulus announcement. In Hong Kong, the Hang Seng Index, which had recently enjoyed its best two-week performance in nearly two decades, also tumbled. Investors were disappointed by the National Development and Reform Commission’s (NDRC) decision to hold back on announcing any major stimulus measures during a press conference on Tuesday. This dampened expectations that the government would take more decisive action to address the economic slowdown.
However, investors remain hopeful that additional measures may be forthcoming. All eyes are now on a highly anticipated press conference scheduled for Saturday, where China’s Ministry of Finance is expected to outline its plans for supporting the economy. Investors are looking for more direct fiscal stimulus measures, which could help to turn the tide for China’s struggling domestic consumption and restore confidence in the economy.
while global investors have shown enthusiasm for Chinese assets, optimism within China itself remains weak, as consumers continue to hold back on spending. Although there have been some encouraging signs, such as an increase in cross-border travel, broader domestic demand is still lagging. The Chinese government faces mounting pressure to introduce further stimulus measures to revive the economy, rebuild consumer confidence, and ensure that China meets its growth targets. Investors are now waiting for more decisive action, which could come as soon as this weekend, as the Ministry of Finance prepares to unveil its next steps.
