Chinese Consumer Spending Disappoints During Golden Week, Highlighting Weak Domestic Demand

Despite a recent surge in Chinese stock markets driven by hopes of a robust economic recovery, consumer spending during the Golden Week holiday, a seven-day period that ended on Monday, has disappointed analysts, underscoring lingering concerns about the strength of domestic demand in the world’s second-largest economy.

Tourism revenue per person during the holiday period was 2.1% lower than pre-pandemic levels, according to a recent report. This weak spending pattern suggests that consumer confidence remains fragile, despite the government’s recent efforts to stimulate economic growth.

“The subdued tourism spending and lackluster services prices highlight the persistent weakness in domestic demand and a trend toward more cautious spending habits,” explained a group of economists.

The lackluster consumer spending comes despite a surge in cross-border travel, which increased by 26% compared to last year’s Golden Week holiday. International flights also saw a significant increase, although this was partly due to a low base of comparison from the previous year when travel restrictions were still in place.

Following a series of disappointing economic data releases over the summer, China’s leadership announced a package of stimulus measures in late September, primarily focusing on monetary policy tools such as interest rate cuts. These measures sparked a rally in Chinese stock markets, as investors interpreted the moves as a signal of the government’s commitment to reviving economic growth.

However, economists argue that more aggressive fiscal stimulus measures, such as increased government spending, are needed to address the deep-rooted issues weighing on the Chinese economy, including a slump in the property market and subdued consumer confidence. Some economists are even urging the government to implement a massive stimulus package, potentially worth trillions of yuan, to jumpstart growth and restore confidence.

The recent pullback in Chinese stock markets, following initial enthusiasm for the stimulus measures, reflects growing doubts about the effectiveness of the current approach. Investors are now eagerly awaiting further details about potential fiscal stimulus plans, particularly from the Ministry of Finance, which is scheduled to hold a briefing on Saturday.

Key Takeaways:

• Consumer spending during China’s Golden Week holiday fell short of expectations, highlighting persistent weakness in domestic demand.
• Despite a recent rally in Chinese stock markets driven by stimulus hopes, investors are now expressing disappointment over the lack of details regarding fiscal spending plans.
• Economists argue that more aggressive fiscal stimulus is needed to address the underlying weakness in the Chinese economy.
• The upcoming briefing by the Ministry of Finance will be closely watched for clues about the government’s fiscal policy stance and its commitment to supporting economic growth.

The disappointing consumer spending during Golden Week serves as a reminder that China’s economic recovery faces significant challenges. The government’s ability to restore confidence among businesses and consumers, particularly through well-targeted fiscal stimulus measures, will be crucial for achieving its growth targets and ensuring a sustainable recovery.