The Impact of Chinese New Year on the Economy: A Concerning Outlook

Chinese Consumers Return, But Economic Recovery Remains Elusive

The end of the Chinese New Year holiday season marks the return of Chinese consumers to their daily routines. However, this is not necessarily good news for the economy. Instead of a boost in economic activity, experts predict that spending is likely to slow down, signaling more challenges for Beijing. Despite the need for a break, the Chinese economy and markets were already weak at the beginning of 2024, and investor sentiment could worsen after the ongoing Chinese New Year break.

Record Travel and Consumption, But Analysts Remain Cautious

During the Chinese New Year holiday, the entire country enjoys a public holiday break, leading to increased consumption and travel. Chinese authorities anticipate a record-breaking 9 billion domestic passenger trips during the festive season. While data on consumer spending is not yet available, the Chinese Ministry of Commerce has labeled 2024 as the "Year of Consumption Promotion," expressing optimism for an economic boom. However, analysts hold a more pessimistic view.

Gloomy Economic Outlook for Spring

Nomura analysts project a worsening Chinese economy in the coming spring. Beijing's attempts to revive the struggling property sector have fallen short, and consumer spending on services is expected to decline. According to economists, service consumption growth will likely slow down significantly after the Chinese New Year holiday due to fading pent-up demand and weakening consumer confidence. Ongoing geopolitical tensions, particularly in light of the US election season, further complicate the economic picture in China.

Challenges for Growth and Recovery

The world's second-largest economy is grappling with multiple challenges that hinder a convincing recovery. China has struggled to sustain growth more than a year after lifting COVID-19 lockdowns, resulting in a decline in investor confidence. Rich Lesser, the global chair of Boston Consulting Group, emphasized the need for China to address the drag on growth caused by the shrinking real estate sector and weak equity markets. The confidence and spending power of households, essential for driving growth, have been impaired.

Market Volatility and Stabilization Efforts

As markets opened after the Chinese New Year holiday, Hong Kong's stock market faced a decline following a drop in US stock markets due to higher-than-expected January inflation. The Hang Seng China Enterprises Index fell initially but later rebounded, while the Hang Seng Index also experienced fluctuations. These market movements reflect the trillions of dollars lost in mainland and Hong Kong markets since their peaks in 2021.

In response to the market turmoil, Chinese authorities have implemented various measures to stabilize the stock market and support the struggling property market. There were even discussions about the possibility of a stabilization fund to rescue the flailing stock market. Chinese leader Xi Jinping has personally shown interest in addressing the market slump, raising hopes for a forceful market rescue plan. However, analysts question whether these efforts will solve the fundamental problems plaguing China's economy and markets.

Mainland stock markets are closed this week due to public holidays, providing a temporary respite from market volatility.

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By: htan@insider.com (Huileng Tan)
Title: The Impact of Chinese New Year on the Economy: A Concerning Outlook
Sourced From: www.businessinsider.com/china-hong-kong-shares-economy-markets-festive-holidays-consumer-spending-2024-2
Published Date: Wed, 14 Feb 2024 06:43:37 +0000