Analysis: Record Lunar New Year Travel Boosts Consumer Spending

During China's recent Lunar New Year holiday, domestic consumption saw notable growth, indicating a potential rebound. Tourism spending increased by 7% year-on-year to 677 billion yuan ($93 billion), with 501 million trips taken, marking record highs in both areas. However, the average spending per trip was slightly below pre-pandemic levels, highlighting potential ongoing challenges for the sector's recovery [para. 1].

Additionally, the holiday period brought significant gains in China's entertainment sector, with box office sales reaching 9.51 billion yuan and cinema attendance hitting 187 million. The consumption industries experienced a 10.8% rise in average daily sales compared to the previous year, spurred by increases in both goods and services spending. Programs aimed at boosting consumer spending, such as the government’s trade-in initiative for home appliances and household goods, contributed to this growth [para. 2][para. 4].

The hospitality sector also showed improvement, fueled by heightened spending during the holiday. However, analysts from Goldman Sachs noted that tourism revenue remains below pre-pandemic levels and that low service prices still suggest deflationary pressures. These issues underscore the need for further government intervention to boost income and consumption in order to stabilize growth amidst challenges such as high U.S. tariffs and a depressed property market [para. 6][para. 8].

China's domestic spending effort is part of a broader strategy to stimulate its economy. The country's services sector, especially areas like retail and tourism, is facing deceleration, which raises concerns given its substantial contribution to the nation's GDP. Notably, falling prices for hotels and flights have made travel more attractive, leading to a 40% spike in bookings for upscale hotels. Despite the 1.8% reduction in domestic flight prices, the average number of daily flights rose by 5.5%, further stimulated by a 13% drop in international flight prices [para. 9][para. 11].

This extended period of low flight prices and increased flight availability encouraged more people to travel frequently, with outbound flights during the holiday nearly reaching 2019 levels. Experts predict that China’s outbound tourism will likely recover fully to 2019 levels this year [para. 12][para. 13].

Moreover, cross-border travel experienced a surge, largely driven by expanded visa-free policies and the recent recognition of China's Spring Festival as a UNESCO intangible cultural heritage. During the holiday, 3.8 million Chinese citizens traveled overseas, while inbound travel reached 3.4 million, with both figures marking year-on-year growth. Top source countries for inbound tourism included South Korea, Japan, and the U.S., contributing significantly to the inbound travel figures [para. 15][para. 18].

Cross-border bookings also increased by 30%, with a notable growth in inbound travel-related ticket orders and hotel bookings, underscoring a strong interest in visiting China. This trend lends momentum to the recovery of cross-border tourism, positioning it for continued growth as travel conditions normalize further [para. 19].

Overall, while China's tourism and consumer sectors have shown promising signs of recovery during the Lunar New Year holiday, the sustainability of this growth remains uncertain due to lingering economic challenges and structural issues that the government needs to address to ensure long-term stability [para. 20].