Economic data released just before the country went on holidays showed China’s consumer prices fell last month at the fastest pace since 2009, piling pressure on the government to support the country’s stumbling economic revival.
Deflation is also weighing on corporate earnings, fuelling a sharemarket meltdown that prompted President Xi Jinping last week to sack his top markets regulator to try to halt the slide.
“The economic situation facing Chinese households has worsened as government support measures have failed to stabilise the economy. We think that households are less willing to consume and invest, giving rise to a self-sustaining downward spiral,” Barclays said.
Other data released by the government or reported by state media in the lead-up to the 10-day holiday also claimed trips between different regions of the country was slightly higher than 2019 levels.
The Financial Times cited transport ministry data that said travellers made 230 million “cross-regional trips” in the lead-up to the extended holiday, 5.8 per cent higher than in 2023 and up 1.1 per cent on 2019.
China’s largest travel agency Ctrip was also reported as saying that ticket orders more than doubled on last year to exceed pre-pandemic levels.
While China is officially on holidays for just over a week, the broader period where a lot of travel takes place runs from as long as late January to early March. The Chinese government forecasts people will make 9 billion trips in total, including journeys by car.
However, economists question the validity of the government data that counts each trip separately, and consumers are hoarding money and spending less than before because confidence in the economy has been smashed.
Plans to spend less
Anecdotal evidence on the ground in China backs that up. Chinese travellers interviewed by The Australian Financial Review said they would be spending less this year than before the pandemic, even as prices continue to fall.
Caixin, a Chinese business magazine known for being one of the few media organisations to criticise government policy, said in an article published on the weekend that the majority of China’s 31 provincial-level regions fell short of GDP targets.
A breakdown by region showed China’s developed coastal provinces accounted for most of the growth, which reached 5.1 per cent in the east, 4.6 per cent in the west and 3.7 per cent in the north-east. Growth in the poorer central regions was 3.3 per cent.
A stockmarket rout in the weeks leading up to the holiday also crushed hopes that Chinese consumers would engage in a wave of post-pandemic spending. Before the pandemic, Chinese consumers would spend heavily on lavish gifts and banquets.
Consumer spending data from this week’s holiday will not be made clear until March.
“The dominant worry is still that the economy is descending deeper into a disinflationary bust,” economists at Beijing-based research house Gavekal said in a note.
“The failure of the authorities to communicate coherently on their response to the decline in equity markets certainly has not helped. But macro policies are clearly shifting: efforts to deal with the property crisis are getting more constructive, and more fiscal stimulus is in train.”
“Still, there is little prospect of the economy delivering the kind of full-on inflationary boom that drove previous bull markets.”
China’s legislature meets in March where the government will announce a GDP growth target for 2024. Economists expect this to come in at around 5 per cent, similar to last year, despite the economic headwinds.