Transcript
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Speaker: Hello from Hong Kong and a happy Lunar New Year.
Speaker: I'm Fred Newman, Chief Asia Economist at HSBC and you're listening to Under the Banyan Tree where we put Asian markets and economics in context.
Speaker: New Year's data is rolling out now that the Year of the Dragon celebrations have wrapped up in mainland China.
Speaker: The early data looks positive with travel and spending above pre-COVID levels.
Speaker: Could this be the turning point for an economy still plagued by weak property sales?
Speaker: I'll be talking through all of that with our chief China economist, Jing Liu, right here under the Banyan tree.
Speaker: A few stats from the Lunar New Year holiday in mainland China to kick things off.
Speaker: Nearly 500 million domestic tourism trips were made across the country over the week-long spring festival period.
Speaker: That's up more than 30% year-over-year.
Speaker: Tourists spent a total amount of 630 billion RMB, that's more than 87 billion US dollars, a year-over-year rise of 50%.
Speaker: According to China's Civil Aviation Authority, some 18 million passengers made trips by plane across the country, with a record high average of more than 2.2 million passengers per day.
Speaker: Let's bring in Jing Liu, our chief China economist, to help make sense of these numbers.
Speaker: Jing, welcome to the podcast.
Speaker: Thanks for having me, Fred.
Speaker: So, Jing, before we delve into what all of this means for the Chinese economy, give us a sense of what does the Chinese New Year, the Lunar New Year, really mean for the average Chinese family?
Speaker: How important is that holiday, really?
Speaker: Indeed, that's the most important holiday in China.
Speaker: This is a holiday where people usually go back home, visit their family.
Speaker: It's kind of like the combination of Thanksgiving and Christmas in the Western countries.
Speaker: And this year in China, because they had an eight-day holiday,
Speaker: Many people have this reunion with family plus travel.
Speaker: So that might be the reason behind the super strong data.
Speaker: On top of that, this is also the first fully normalized travel after the pandemic.
Speaker: So I think, you know, a lot of pent up demand, plus there might be some new spending habit.
Speaker: So that's interesting.
Speaker: So it's a big travel holiday.
Speaker: People go home to the villages or to other cities to see their family.
Speaker: Hence, we get very high travel numbers.
Speaker: It's the biggest migration, annual migration in the history of the world.
Speaker: One can name it that.
Speaker: The numbers are quite impressive.
Speaker: 30% year-over-year increase in domestic tourism trips.
Speaker: But that really comes off of a very weak base.
Speaker: Last year, we still grappled with COVID.
Speaker: The previous year as well, we had lockdown.
Speaker: So how strong are these numbers really when we compared, for example, in 2019, the last year when we didn't have these COVID-19 distortions?
Speaker: Actually, compared with 2019, we still see a 19% increase year on year.
Speaker: However, the per capita spending seemed to be not as strong.
Speaker: Compared to last year, it was 5% down, and compared to 2019, that was 9% down.
Speaker: So we have actually people traveling more than 2019, but are spending less.
Speaker: What does Italia as an economist, does that mean we should be optimistic about growth?
Speaker: There's these more trips than perhaps we thought would happen, but at the same time, people are spending less.
Speaker: So what's the bottom line here in terms of the signal we could take away from this Lunar New Year holiday data for the economy, for the recovery in 2024?
Speaker: So actually from the per capita spending, it seems to suggest that people favor the budget travel now.
Speaker: This is consistent with what the data suggests.
Speaker: For example, as of December 2023, we still see consumer confidence hovering around the historical low, probably way down by the housing market correction, as well as the still improving labor market.
Speaker: So that also speaks to maybe what we see the relatively lower income people.
Speaker: They benefit from the strong service sector, but the upper bracket seem to still suffer from the relatively weak recovery.
Speaker: So the message here is people are traveling, they're venturing out again, they're happy to see their family, first time maybe since 2019 in many cases, but they're being much more cautious in terms of spending.
Speaker: They're spending on cheaper goods, they're watching really the R&B that they're spending, they're spending less on luxury, for example.
Speaker: So there's some caution still among consumers.
Speaker: If you then look into 2024,
Speaker: Would you expect a further recovery in consumer spending?
Speaker: And what does it take?
Speaker: What would it take really to bring that confidence back when we can say, well, finally, the consumer is back in business?
Speaker: I think, you know, overall, we are cautiously optimistic about the whole thing.
Speaker: At least the total spending has hit a historical high.
Speaker: And we do see the recovery will continue to broaden out to other sectors beyond the services.
Speaker: So if there's more policy support to help with housing market stabilization, that could further boost the confidence.
Speaker: So how important is in the housing market for consumer confidence?
Speaker: Is that the key here?
Speaker: What's holding back consumers?
Speaker: I mean, we read all the headlines about the wobbly property market, property prices declining.
Speaker: A lot of Chinese have a lot of wealth tied up in the property market.
Speaker: Is that the key kind of restraint on consumer spending, do you think?
Speaker: Or are there other kind of worries that consumers have that might explain why they're maybe spending less per person than they did in 2019?
Speaker: I think housing markets certainly matters a lot for homeowners.
Speaker: So that means middle income group and the upper middle income group, they probably have been weighed down in terms of their confidence and et cetera.
Speaker: On top of that, the exact same group might also own disproportionately more stocks and the Asia market performance might to some extent until recently.
Speaker: also weigh down their confidence.
Speaker: And overall, I think what needs to happen this year is, you know, for people to see a coordinated and a step up policy support such that they are more confident about the future and they might be more willing to spend.
Speaker: So it would take much more to really sustain that bump that we saw during the Lunar New Year.
Speaker: We shouldn't extrapolate too much.
Speaker: Maybe we need to see other policies still fall in place for a strong recovery in China.
Speaker: And that brings us then to the National People's Congress, which is sort of the next big event.
Speaker: We go from the Chinese
Speaker: Lunar New Year holidays that we just had.
Speaker: Now people come back to work.
Speaker: But really, the next event is in early March.
Speaker: The National People's Congress, really it's China's parliament, if you will, national parliament, convenes.
Speaker: And that will be a key thing to watch for investors, for businesses, for example.
Speaker: How important is that?
Speaker: And what would you hope to see during that Congress that happens every year in early March?
Speaker: Right.
Speaker: So actually now people are eyeing on whether we're going to see a very strong policy support this year.
Speaker: Fair to say last year, lots of people seem to be quite disappointed by the magnitude of the policy support, the
Speaker: on the front of the coordination.
Speaker: So this year we see the change about the policy makers stance and now it's time to see whether they deliver what they promise.
Speaker: And in particular we are expecting a strong fiscal policy to lead and when we look at the so-called broadly defined budget deficit which combine the
Speaker: general budget as well as a government managed fund.
Speaker: We expect the deficit to remain above 8% of the GDP more or less on par with last year and also last year was the second highest in history just trading the 2020 and if that is the case we see this strong signal of the policy support together with the monetary policy accommodation we do see the
Speaker: kind of a surprise RRR cut already, 50 basis point, and then people are looking for other evidence of the liquidity injection and the rates cut.
Speaker: So, of course, then coming out of the Lunar New Year, it's not enough to have strong travel numbers.
Speaker: We need those policy measures as well.
Speaker: You referenced a couple of things here.
Speaker: One was an 8% fiscal deficit.
Speaker: Of course, there are different definitions of the fiscal deficit.
Speaker: This is a wider definition.
Speaker: kind of interpretation of the fiscal deficit as going to be a bit more fiscal stimulus coming through.
Speaker: You also reference the triple R, which is a reserve requirement ratio, really, is the amount of liquidity banks have to hold and reserve as that requirement is being lowered and unleashes more liquidity.
Speaker: And that obviously would help growth as well.
Speaker: So two key macroeconomic drivers in fiscal policy and some tweaks to monetary policy.
Speaker: Lastly, Jing, it's the Year of the Dragon.
Speaker: What should we expect?
Speaker: A dragon is a feisty animal, comes roaring out of the gate, or do we need to take some precaution?
Speaker: How should one think then about the Year of the Dragon?
Speaker: So dragon is usually considered a powerful and promising animal in China.
Speaker: So Chinese usually have a high hope in the year of dragon for the transformation, for regain the strength.
Speaker: So we are cautiously optimistic about the year of dragon, and we forecast the GDP to grow by 4.9% this year.
Speaker: There's something else about the year of the dragon.
Speaker: I'm told that it's auspicious to have a baby, perhaps in the year of the dragon.
Speaker: And we saw famously the fertility rate decline in the last two years, much fewer babies being born in China past year.
Speaker: Would you expect a baby bump in 2024?
Speaker: And is that going to help consumption?
Speaker: Indeed.
Speaker: Actually, on average, the year of dragon, you really see the birth rate up by around 20% compared to other years.
Speaker: So lots of people are eyeing on this.
Speaker: So lots of little dragons running around in a year from now.
Speaker: So thank you very much, Jing.
Speaker: It's a pleasure to talk to you.
Speaker: And I think it's very enlightening to really see...
Speaker: that yes, there are positive numbers coming out of the Chinese New Year, which suggests the consumer is stirring, but we still have a long way to go, really, for that sustained recovery.
Speaker: So thank you very much, Jing, for coming to the studio.
Speaker: Nice chatting with you, Fred.
Speaker: Thanks.
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Speaker: That's a wrap for this week's podcast.
Speaker: My fellow host, Harold, makes his long-awaited return next week.
Speaker: Until then, bye-bye.
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