Oct 18, 2013 05:34 PM

Those 'Golden Weeks' Don't Produce Much Actual Gold


Tourists at a beach in Qingdao, in the eastern province of Shandong

A conservative estimate of the economic losses caused by the long holidays China takes is 200 billion yuan a year. Here is how I come to this figure.

There are two long "golden week" holidays every year: for Spring Festival, also known as the Lunar New Year, at the begging of the year and for National Day in October.

Accounting for unenthusiastic work attitudes and inefficiency in the days just before and just after a long holiday, there is an annual loss of 10 working days for these two long holidays. Most of the travelers are young people, who make up a labor force of about 200 million people. According to 2012 urban per capita GDP data, labor productivity is 100 yuan a day. So 200 million people missing 10 days of work each worth 100 yuan adds up to a cost of 200 billion yuan.

Losses can hit 2 trillion under if upper-limit estimates are considered. Much of this is due to excessive wear and tear on infrastructure and low-quality investments in tourist attractions. Other factors include consumption of lower-grade products, pollution and other costs.

An aging population and rapidly rising worker wages, stemming from advances in technology, firms' value-added upgrades, educational reforms and innovation, can make the opportunity costs of long holidays rise rapidly.

For this reason, I suggest that holidays of more than three days be eliminated and replaced with a flexible vacation policy in two years.

In terms of consumption, Keynesian economics has been in vogue. From this perspective, the multiplier effect dictates that 1 yuan of consumption will generate 3 yuan in demand. The purpose of Keynesian economics when it was invented was to address the unemployment problems of the time, mostly involuntary unemployment. Therefore, the key to government policy was to reduce overcapacity and increase employment. It was a viable solution for Britain back then.

China's problems are almost entirely difficult from the issues Britain faced. First off, many of China's unemployed youth are voluntarily unemployed, not involuntarily unemployed. There are employment opportunities, but young people are not taking them because wages or working conditions do not meet their expectations. We must remember that the majority of the workforce in China is comprised of the generation born after 1985. Many of these workers live off parental support in various forms. This generation of parents is also unique. Their incomes have grown rapidly but they find it difficult to change entrenched spendthrift habits. They then allow their children to live off them as a result. Keeping the money in the bank is not really a more attractive option given low interest rates.

In addition, China's problem is not one of excess capacity, despite appearances. Economists mostly agree that the issues are structural: input is high and so is output, but efficiency is low. Therefore, the multiplier effect is largely ineffective in solving this country's problems.

Third, let us hypothetically go along with Keynes' multiplier effect principle that spending during a long holiday will increase demand. When I ask friends working at tourist attractions about his they say that the spending of "golden week" tourists is lower than that of local visitors. How is that possible? If you watch tourists visiting West Lake, in Hangzhou, Zhejiang Province, you'll see them eat food and drink water they brought themselves.

At the Hyatt Regency's restaurant, the fanciest restaurant by the lake, I saw a group of tourists from Shanghai. They walked in and stubbornly insisted on only getting dishes of cheap noodles. Even as tourists crowd the streets, the restaurant manager said average daily revenue was unimpressive.

This type of thing is common in the popular tourist area around West Lake. Chinese people are much more willing to save their money than Westerners. Visitors feel these tourist areas are very expensive, relative to where they are from. Thrift is not a virtue in the Keynesian model. Thus, holiday spending by tourists is ineffective in driving total demand.

The author is a professor of economics at Peking University

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