- Chinese consumers are back from the festive Chinese New Year season next week.
- That doesn’t mean the economy will pick up.
- Instead, spending is likely to slow, signaling more bad news for Beijing when what it really needs is a break.
China’s economy and markets were weak coming into 2024, but investor sentiment could worsen after the ongoing Chinese New Year break.
This year marks China’s second Chinese New Year after COVID-19 restrictions ended.
The entire country is on a public holiday break until the end of the week, which has boosted consumption and travel. Authorities expect people in China to make a record 9 billion domestic passenger trips over the festive season.
While data on consumer spending for the season is not available yet, Chinese authorities are already hopeful for a boom, with the Chinese Ministry of Commerce branding 2024 the “Year of Consumption Promotion.”
Analysts, however, are less optimistic.
A gloomy economic outlook for spring
Nomura analysts expect China’s economy to worsen into the spring, as Beijing has not been able to revive the battered property sector.
Consumer spending on services is also likely to taper off, they wrote in a note on Tuesday.
“Service consumption growth will likely slow sharply after the Chinese New Year holiday on fading pent-up demand and weakening consumer confidence,” the economists wrote.
Ongoing geopolitical tensions amid the US election season do not help the picture in China, the Nomura economists added.
These challenges hang over the world’s second-largest economy just as it needs to engineer a convincing recovery. China has been unable to sustain a growth spurt more than a year after lifting COVID-19 lockdowns, contributing to a collapse in investor confidence.
China needs to stop the drag on growth, Rich Lesser, the global chair of Boston Consulting Group, wrote in a note on Tuesday.
“The shrinking real estate sector and weak equity markets remain headwinds as they impair the confidence and spending power of households whose consumption is needed to drive growth,” Lesser wrote.
The markets aren’t signaling positivity
Hong Kong’s stock market was the first to open for trade after the festive holiday — but the picture wasn’t pretty against the backdrop of a decline in US stock markets overnight after a hotter-than-expected January inflation reading in the US.
Hang Seng China Enterprises Index fell as much as 2% before trading 1.1% higher at at 1:50 pm local time on Wednesday. The index is down 9% so far this year.
Hong Kong’s benchmark Hang Seng Index also fell as much as 2% before and was up 0.4%. The index is down 8.5% this year to date.
The gains came after trillions of dollars lost in the mainland and Hong Kong markets since they hit their peaks in 2021.
Beijing is paying attention and trying to put a floor under losses.
Authorities have pulled more than a dozen moves since January to try to stabilize the stock market rout and support downbeat property market demand amid its real-estate crisis.
Even Chinese leader Xi Jinping was set to pay personal attention to the market slump, stoking traders’ hopes of a forceful market rescue plan. After all, there were suggestions earlier that authorities are considering a stabilization fund to rescue the flailing stock market.
On February 7, Xi’s administration replaced the country’s top markets regulator. Analysts, however, are skeptical if the move will solve fundamental problems in China’s economy and markets.
Mainland stock markets are closed this week for public holidays.
