China’s Lunar New Year travel surge to boost economy, but property market and private firms remain top priority

And economists said China needs to focus on solving its ongoing housing market crisis and helping private businesses to ensure a similar expansion in 2024, as pent-up demand fades.

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After a drop of 2.3 percent in 2022 due to frequent lockdowns under China’s zero-Covid policy, China’s accommodation and catering industry grew by 14.5% year on year the year in 2023, becoming a major driver of growth of the gross domestic product (GDP), the National Bureau of Statistics said last week.

It represents the second-biggest annual increase in three decades, after the 15.6 percent increase in 2021, when the industry rebounded from a very low comparison base due to the unprecedented coronavirus pandemic.

China’s transport, warehousing and postal industry also combined to post a strong rally last year, with growth of 8 percent, after falling into negative expansion in 2022.

The trend is set to continue during the eight-day Lunar New Year holiday in February, with travel bookings through major agencies surpassing pre-pandemic levels.

China had lifted its health control measures at the start of 2023, but the Lunar New Year travel period was hit by a surge in coronavirus cases triggered by the reopening.

“There is some certainty in the continued enthusiasm for travel during this year [Lunar New Year] The period, which is also the most important season for the catering sector,” said Shanghai Securities on Sunday.

“The performance of 2024 [Lunar New Year] is expected to catalyze the market’s optimistic expectations for service consumption.”

Hotel bookings for the 2024 holiday via Fliggy Travel were already 160 per cent up on the same period in 2019, with group tours up 34 per cent, the firm said last week.

Average prices for domestic flights were also pushed to the highest since 2019, Tongcheng Travel said last week.

Air China confirmed this week that it had arranged almost 1,700 flights per day during the 40 days. Chun Yun The travel period to meet the extraordinary demand, which represents an increase of 32 percent from 2019.

But while China’s economic growth last year fell short of its “around 5 percent” target, a similar target in 2024 would not be as easy to achieve as base effects low and the demand recovery is fading, said Lian Ping, the general manager. of the China Chief Economists Forum.

“Consumption, which was responsible for a rare high of 82.5 percent of GDP growth last year, will return to normal levels to contribute about 60 percent this year,” he noted.

“Economic growth will depend mainly on how the private sector behaves, if market risks are eased, and more importantly, if the real estate industry can stabilize.”

The real estate sector, which saw its added value fall by 1.3 percent in 2023 compared to a year earlier, dragged down not only local government revenues, but also numerous related sectors ranging from furniture to textiles.

Local authorities have launched a series of support measures to stimulate home buying in the past months, and they may bear fruit in the coming months, Lian added.

But Moody’s Analytics economist Harry Murphy Cruise said last week that ongoing problems in the housing market are holding back private investment and consumer spending.

“The success of 2024 will be largely driven by the effectiveness of officials in turning around the real estate market,” he said.

“Absent the spending monster of past years, real estate investment, home prices and new home sales are poised to decline throughout 2024.”

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“Local governments are no longer financially able to build infrastructure, as it often involves large sums of money and bank loans, which can further weigh on the economy,” he added.

“Instead, it would be better to fully use the resources at hand to help SMEs and individual businesses, which can bring more direct results to the economy.”

A confidence deficit among private businesses​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ has been widely seen as a major challenge for China since its reopening last year, with most companies and SMEs contributing more than 60 percent to China’s GDP and contribute to 80 percent of employment.