|10 October, 2019

Chinese consumers are on a worrying staycation

Beijing wants consumers to help revive a flagging economy, but a weak yuan and the fading impact of tax cuts will keep purse strings tight

People cross a street in a shopping area of the Central business district in Hong Kong, China August 22, 2019.

People cross a street in a shopping area of the Central business district in Hong Kong, China August 22, 2019.

Reuters/Thomas Peter

HONG KONG  - China is shopping, just not quite enough. Official numbers after a week-long National Day break showed revenue from domestic tourism climbed 8.5% compared to 2018, the slowest pace in at least 17 years. Retail and dining numbers also failed to dazzle.

Beijing wants consumers to help revive a flagging economy, but a weak yuan and the fading impact of tax cuts will keep purse strings tight. Golden Week, which began on Oct. 1, has long offered a snapshot of Chinese consumption.

This year, the picture is less than shiny. Spending on retail and dining was up 8.5% compared to a 9.5% increase last year according to Citi, and well below double-digit increases a decade ago. Growth in domestic travel cooled too. Some 7 million Chinese still ventured overseas, a measure of the country’s increasing wealth, but the number of outbound travellers in the first six days of October fell 15% compared to a year ago.

In part that was due to China’s anniversary celebrations, and Hong Kong hardly helped: anti-government protests there have prompted numbers coming over the border to fall precipitously. But it measures wider household concerns. Instead, it was the small luxuries that did well, like trips to the movies.

Patriotic flicks including ‘My People, My Country’ - stories inspired by China’s history – drew record box office revenue and over 100 million viewers during the holiday, according to Xinhua. Beijing, which usually leans on infrastructure to stimulate the economy, has increasingly turned to consumers too.

Stimulus measures, including a personal income tax unveiled late last year, did help lift disposable incomes by 8.8% in the first half. That would have been 7.2% without the boost, reckons analyst Ernan Cui of Gavekal Dragonomics. Unfortunately, that’s not feeding into shopping baskets fast enough, given it impacted wealthier households more. Add to that a depreciating currency, U.S. tariffs and worries over property prices, and a swift rebound looks unlikely.

CONTEXT NEWS

- Domestic tourism revenue grew 8.5% year-on-year to 650 billion yuan ($91.4 billion)during China’s week-long national holiday, which ran from National Day on Oct. 1 to Oct. 7. This compares with 9% growth last year, and marked the slowest growth in at least 17 years, according to data released by the Ministry of Culture and Tourism.

- The number of domestic trips rose 7.8% to 782 million during Golden Week, compared to 9.4% last year.

- Overall revenue from retail and dining during the period rose 8.5% from a year earlier to 1.52 trillion yuan, according to the Ministry of Commerce.

- The number of outbound travellers declined by 15% from the previous year for the first six days of the holiday, according to the National Immigration Administration.

($1 = 7.1127 Chinese yuan renminbi)

(Editing by Clara Ferreira Marques and Katrina Hamlin) ((sharon.lam@thomsonreuters.com; Reuters Messaging: sharon.lam.thomsonreuters.com@reuters.net))

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