China’s flagging economy gets a boost as holiday travel returns

Chinese tourists jammed popular sites as travel bounced back to pre-pandemic levels during a recent eight-day national holiday, giving a temporary boost to China’s flagging economy.

The government said that tourism revenues reached about 753 billion yuan ($103 billion) during the combined Mid-Autumn Festival and National Day holiday period that ended Friday, a rise of 1.5% over 2019 and 130% compared to last year when pandemic restrictions were still in place.

China maintained locked-downs and other restrictions much longer than most other countries, enforcing a “zero-COVID” policy until last December. But a hoped-for consumer spending boom after the lifting of restrictions hasn’t materialized, as many Chinese remain cautious with an unfolding real estate crisis weighing on the economy and youth unemployment topping 20%.

That didn’t stop tourists from flocking to the Great Wall and the teeming pedestrian-only shopping streets in Shanghai, Beijing and other cities. Few wore protective masks in shoulder-to-shoulder crowds in night markets and other popular destinations.

Planes and high-speed trains were heavily booked over the holiday. The tourism ministry said that 826 million domestic trips were made, up 4.1% from 2019 and 71.3% from last year.

Domestic tourism benefited somewhat from a slower recovery in international travel as people chose to travel at home. The number of flights to and from China remains below pre-pandemic levels, and reports of overseas crime and scams - including a recent mall shooting in Thailand - may be deterring some from venturing outside the country.

China’s border authorities processed 11.8 million entries and exits during the recent holiday, a nearly three-fold increase over last year when people entering China still faced mandatory quarantine, but only 85% of the total in 2019, the National Immigration Administration said.

Booking agency Trip.com said that outbound travel volume during the holiday was more than eight times higher than in 2022. Popular destinations included Thailand, Singapore, Malaysia and South Korea, and travel to more distant countries such as Switzerland, Spain, Turkey, the United Kingdom and France grew compared to the last major national holiday in May.

China’s economy has shown signs of a possible emergence from its post-pandemic malaise recently, recording its first expansion in factory activity in six months.

Meanwhile, China’s foreign exchange reserves fell more than expected in September, official data showed on Saturday, as the US dollar rose against other major currencies.

China’s reserves - the world’s largest - fell $45 billion to $3.115 trillion last month, compared with $3.13 trillion tipped by analysts in a Reuters poll, from $3.16 trillion in August.

The yuan fell 0.5% against the dollar in September, while the dollar rose 0.2% against a basket of other major currencies over the month.

China held 70.46 million fine troy ounces of gold at the end of September, up from 69.62 million ounces at the end of August.

The value of China’s gold reserves fell to $131.79 billion at the end of September from $135.22 billion at the end of August.

The World Bank (WB) has recently maintained its forecast for China’s 2023 economic growth at 5.1%, in line with its previous estimate in April, but trimmed its prediction for 2024 to 4.4% from 4.8%, citing the persistent weakness of its property sector.

For East Asia and the Pacific including China, the bank slightly trimmed its 2023 gross domestic product growth forecast to 5.0% from its prior 5.1% estimate, the World Bank said in its semi-annual regional update released on Sunday.

For 2024, the bank lowered its regional outlook to 4.5% growth from 4.8%, dragged down by external factors including a sluggish global economy, high interest rates and trade protectionism. “Almost 3,000 new restrictions were imposed on global trade in 2022, three times as large as those in 2019,” the World Bank said.

For China, the bounce back from the reopening of the economy following three years of ultra-stringent zero-COVID policies has faded, and elevated debt and weakness in its property sector are weighing on growth, the World Bank said in the report.

After months of mostly dismal data, the world’s second-largest economy has started to show signs of stabilisation.

China’s factory activity expanded for the first time in six months in September, an official survey showed on Saturday. Initial signs of improvement had emerged in August, with factory production and retail sales growth accelerating while declines of exports and imports narrowed and deflationary pressures eased. Profits at industrial firms posted a surprise 17.2% jump in August, reversing July’s 6.7% decline.

Analysts say more policy support will be needed to ensure China’s economy can hit the government’s growth target of about 5% this year.

Stronger structural reforms including further liberalisation of the “hukou” residence permit system, stronger social safety nets and greater regulatory predictability for investments in innovative and green products could help revive consumption and investment, creating the basis for sustainable growth, the World Bank said.