Chinese New Year Consumption Hype

Billions of Chinese on the move. But are they spending more money?

I am Qi Wang, CEO of MegaTrust Investment (HK), a boutique China fund manager based in Shanghai and Hong Kong. Total 25 years of experience in Chinese and global equities. This is my blog for MegaTrust clients and professional investors.

One more day to go in the 9-day Chinese New Year celebration! The holiday travel and spending data are often used to gauge the strength of consumption in China. Consumption growth is especially important to China at this point, as exports decelerate and face the risk of a global recession. Consumption is undoubtedly the focus of the Chinese government now.

“Right now, China is stepping up efforts to foster a new development paradigm with domestic circulation (demand) as the mainstay and domestic and international circulations reinforcing each other. The focus of domestic circulation is on expanding internal demand, promoting industrial upgrade, developing a consumption-led growth model, and re-balancing the economy.” Liu He, Vice Premier of China, World Economic Forum, January 2023

Please note:

• There is a lot of hype on Chinese New Year consumption currently, partly because of the low base from last year, and partly because it’s politically correct to paint a positive picture.

• Don’t get sucked into the hype. The holiday spending is just nine days, while there 337 days left in 2023. The all-important question is what’s next.

• I argued repeatedly that low consumer confidence is a major problem. This is difficult to fix in the short-term.

• Consumption-related stocks already had a pretty good run, and have priced in pretty optimistic scenarios. Pent-demand alone, however strong, is not enough to justify buying them. We need to think carefully about the long-term position and growth sustainability. Can this industry or company continue to grow beyond the short-term boost in demand?

Our findings: The hype on Chinese New Year spending is overrated. Given the low base in 2022, strong growth is expected, and anything below 20% growth could be disappointing. More people are travelling this year, but are they spending more money? The data are mixed. This year’s holiday spending seems to be concentrated in just a few areas: tourism, dining, jewelry and duty free shopping. Low end consumption appears to be struggling.