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Under the Banyan Tree – How to read a record-breaking CNY
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Back from the Chinese New Year break, Fred welcomes Chief China Economist Jing Liu and Head of A-share Consumer Research Kathy Song to the podcast to talk holiday spending in Asia's top economy.
Click here for appropriate Disclosures, including analyst certifications, and Disclaimers that must be viewed with this podcast:https://www.research.hsbc.com/R/20/wT2k7f6
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Transcript
Introduction to HSBC Global Viewpoint Podcast
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
Economic Data Post-Lunar New Year
00:00:33
Speaker
Hello and welcome to Under the Banyan Tree with me Fred Newman, chief Asia economist here at HSBC. A very happy year of the horse to our listeners here in Asia and around the world.
00:00:44
Speaker
We're back after an extended Lunar New Year break and the early economic data from mainland China looks actually pretty encouraging.
Chinese New Year Spending Trends
00:00:51
Speaker
Spending over the nine-day spring festival as it's called shows record consumption numbers on several fronts but consumer confidence actually still needs a bit of a boost. Chief China Economist Jing Liu is with me in the studio and we're also joined by Cathy Song, our China consumer analyst based in Shanghai. It's our first podcast here in the year of the fire horse. Let's get the conversation started under the banyan tree.
00:01:22
Speaker
Before I bring in our guests, let's start with some key data points from the Spring Festival holiday, which ran from the 15th through the 23rd of February in mainland China. Get this, nearly 600 million domestic trips were made by Chinese citizens over this period. That's almost 100 million trips higher than there were trips in 2025. And total spending was more than $800 billion. Remden B, that's about 160 billion US dollars. That's also a substantial rise from 2025. But if we crunch the numbers, average trip spending actually fell from last year.
Cultural and Economic Significance of Chinese New Year
00:01:59
Speaker
So with that said, ah Jing, let's start with you. ah Paint us a picture generally about how important is the Chinese New Year Festival for the Chinese culture, for um what it means for the economy. How important is that actually?
00:02:15
Speaker
Yeah. Happy Year of the Horse, Fred and Kathy. Actually, ah the Chinese New Year is the most important holiday for Chinese families. It's kind of like the Thanksgiving and Christmas holidays together um in the Western culture. So a lot of people actually travel during the period of time. We um have a so-called 40 Day of Chuan Yun, the largest ah population migration. usually $8 billion, $9 billion altogether. So you're saying in in in sort of the 40 days around the Chinese New Year Festival, it's the largest migration on earth because the Chinese are going home to see their parents ah back in their hometown. They're going maybe on holiday nowadays, so just traveling around. So it's not a time really you want to jump on a train or could book your ticket at the last minute, I suspect.
00:03:09
Speaker
That's probably true. Every year people are fighting to get a high-speed rail ticket back home. And this year, interestingly, we see that the car rental increased by more than 50% year on year.
00:03:20
Speaker
So meaning people go to another town, they drive around, they they visit family, but they rent a car. And so 50% increase suggests much more travel activity than over the past year. um But put in little bit of economic context here because, of course,
00:03:35
Speaker
It's a period when Chinese consumers spend a lot, and and so we're watching very carefully what the spending trends are. But how has Chinese spending been generally over the past year?
Post-Pandemic Consumption Recovery
00:03:45
Speaker
And why why is it so important to watch the Chinese New Year Festival two or three weeks? The consumption recovery post-pandemic has been, i would say, more gradual than people had anticipated. And Chinese government has set the priority to stimulate the domestic consumption. And they also pledge to increase a share of domestic consumption during the next five-year plan. So from that perspective, um it's a matter of what kind of consumption they want to stimulate. And they put a lot of emphasis on service consumption. That is why the spring festival spending
00:04:22
Speaker
actually is a good metric to see how things are going. so it's really a test of of how how strong, resilient consumer spending is, what is coming out of its rut over the last two or three years. Cathy, let me turn to you, and you are consumer analyst for China. You're based in in Shanghai, but before we delve into the numbers, I wanted to ask you, based in Shanghai, did you join one of those 600 million Chinese on the road? Did you jump on a train or rent a car, or did you stay in Shanghai over the holidays?
00:04:51
Speaker
Yeah, yeah. So basically, normally it took me like one hour to go back to my hometown. But during Chinese New Year, I need to spend four to five hours just to go back to my hometown.
00:05:04
Speaker
That's how crowded it is. Did you take a train or did you take a bus or how did you travel? ah Take a bus. So it's ah it's it's just a driving distance. Yeah. Yeah.
00:05:15
Speaker
So it reminds me a little bit of the Thanksgiving holidays, I think, in the U.S. when you want to avoid airports as much as you can. But obviously, and no you have to travel. You have to see family. um but But let me now ask you on ah on the sector that you cover in particular. You're a consumer analyst, but you focus particularly on food and beverage. And I imagine that's ah an important sector to watch because as the holidays approach, there's obviously much more spending on hospitality, on drinks, on on bringing food gifts to loved ones, to have big meals famously around the Chinese New Year evening. What what did you pick up from from the latest releases that came out in that sector?
00:05:54
Speaker
Yeah, sure. You are right. So the the holiday season actually is the most important for these food and the beverage of manufacturers because there are a lot of ah gathering occasions.
00:06:06
Speaker
So people tended to to have a little bit more like snacks, dairy, and beverage included. So we see during the holidays, so restaurant sales actually also went up by 9%.
00:06:19
Speaker
So this almost ah doubled compared to last year's 4% growth. So this actually showing a good recovery as since last December hit the lowest of only 1% growth rate.
00:06:32
Speaker
So, and you know, relating to that, a lot of downstream of the restaurant channels actually also benefited, including like condiments and also including like baijou and a beer and beverages as well.
00:06:47
Speaker
That's very interesting.
Baijiu Sales and Consumer Confidence
00:06:48
Speaker
And of course, we should mention that Baijiu is the liquor that is very popular in China. um I would call it a schnapps with my German background. I'm not sure it qualifies as a schnapps, but certainly everybody who's taken a sip of this will remember that. Vodka. It's vodka. Maybe vodka is is a good comparison. um What did you see with those sales in particular? Because often Baijiu is kind of seen as ah as a nice measure of confidence, consumer confidence. What have whatever you seen there?
00:07:17
Speaker
So we see the price segment lower than 300 yuan per bottle showed resilience. ah However, the mid to high end segment actually was under the biggest of pressure during the holiday.
00:07:31
Speaker
ah Pressure as in the sales fell for the higher end stuff. So people, does that then mean that consumers are still very price conscious in China? Yes, sales are up, but they're still kind of watching where they spend their marginal kind of renminbi?
00:07:44
Speaker
Yeah, so basically, if you look at the sector, the overall volume actually going down in the past few years, while people, you know, prefer to have high quality Baizhou products, while like mass market also have a little bit of resilience.
00:08:02
Speaker
But, you know, between the price like $300 to $800 actually declined during the That's interesting. So s still some caution in there. Let me turn back to you, Jing. um It's kind of impressive. Some of the numbers we mentioned, you mentioned car rental up 51%. We hear that some of the liquor sales obviously doing better, even though there are kind of price points that suggest people are still a bit cautious about how much they spend.
00:08:29
Speaker
But isn't it also true that this holiday was longer than in the past? And so if you do an annual comparison, it's a bit unfair because we really have a longer holiday period now than we had in the past. How how do you bring that into your analysis? Yeah, indeed. I think um overall, my impression is the data suggests that the consumption is fine, but I won't say this is a gospel of consumption rebound very strongly. um The per capita consumption, even we don't care about the length of the holiday, is still down 8%.
00:09:06
Speaker
0.6% ish from 2019 level. So I think there's still way to go. That's interesting. you're saying the spending overall per person ah is not even back to where we were before the pandemic. So yes, it's up on the year. It's flattered by maybe a longer holiday, but it's not even in level terms quite back where we want it to be. Kathy, I think you mentioned also ah in the prior conversation we had that um actually the government is doing a lot to try to say stimulate more consumption beyond the Chinese New Year. And and they're adding extra holidays there. Is that right?
00:09:42
Speaker
Yes, right. ah Like Jean just ah mentioned, the government wanted ah to boost the consumption and service consumption actually is one of the priorities.
00:09:53
Speaker
So this year, if we adding the total, we will have five more days vacation compared to last year. So this is definitely good for the tourism, hotels, and also other entertainment to related the consumption.
00:10:08
Speaker
I wanted to add that to although, you know, per capita spending, we haven't go back to the 2019 level. But ah it's sequentially getting better. So this ah Chinese New Year holiday, it's down like by 0.2 percent, so almost a flatish.
00:10:26
Speaker
But compared to last national holiday, which was down by 0.6 percent, we are slightly getting better. So marginal improvement, even though, of course, not quite yet to back to the boom period we're used to in China, but ah certainly yeah encouraging. um Maybe this is a great place to take a quick break. and And when we come back, I want to delve a little bit deeper into some of the broader consumer trends and what it means for the economy.
Consumer Interest in Luxury Goods
00:11:03
Speaker
Jing, let let me ask you, you've looked a lot at this data, obviously very important as a gauge for where the Chinese consumer is going. What number surprised you the most when you look at also the details of the consumer spending number?
00:11:16
Speaker
Well, actually the Hainan Island duty-free sales um during this holiday is up more than 30%. That's quite surprising. We know that in late December, actually Hainan, the whole island, ah was basically established as the ah free trade zone and duty-free.
00:11:37
Speaker
But that alone should not be enough to explain the sudden spike in the spending during the holiday. So That might mean something interesting is happening. So that that certainly suggests that some consumers are opening their wallets again. they spending maybe on luxury a little bit more. Now, last big picture question.
Domestic Consumption and Market Trends
00:11:57
Speaker
um Jing, how important is a consumption recovery overall to get sustained growth in China? And what is the one thing do you think is needed to get the Chinese consumer to spend again?
00:12:11
Speaker
Yeah. So last year, as you said, net export actually contributed to more than a quarter of the GDP growth. ah But we also observed that ah the tensions with trading partners are on the rise, which means um Chinese government this year will be very careful in navigating the landscape and try to rebalance. um So that means ah domestic consumption is of paramount importance for this year and the year's growth.
00:12:38
Speaker
going forward. um I think despite the, you know, five statistics during the spring festival, the consumers are still cautious, which means we need to see material change down the road. Policy support to stabilize housing market, I would say, is still the most important for wealth effect and many other things. So it comes down to housing. We need to see stabilization in house prices, for example. Household helps with wealth. Cathy, let me ask you one somewhat unrelated question to what we just discussed, and that's the idea that Chinese brands are becoming more attractive compared to Western trends. We see a lot of brands. We see a lot of in the past, um you know, Chinese consumers aspire to some Western brands. Of course, If you look at luxury, that's very obvious. But even in in the food and beverage sector, we had the you know Western food brands being sort the brand to aspire to. But um there's a sense that actually Chinese brands are becoming much more attractive, have branding power. and Is that something you see in the food and beverage sector? And is there a sense that actually um Chinese consumers are looking to their own brands sort of as being aspirational rather than just everyday items?
00:13:56
Speaker
Yes, yes, I think that's true. So, ah for example, in the baby milk formula segment, actually we see domestic brands have been gaining market share. Also cosmetics, we also see domestic brands actually are also gaining market share from a foreign brands.
00:14:16
Speaker
One thing is because R&D actually also improving and younger generations, they have more confidence or proud of the domestic brand.
00:14:27
Speaker
That's very
Conclusion: Positive Start to the Year
00:14:28
Speaker
interesting. And um I think this discussion gives us a good sense of where we are with the Chinese consumer just after the the after the holidays, which are chris key to setting Chinese consumption trends for the year. We had a fairly good start to the year of the horse when it comes to Chinese consumer, even though So maybe at the margin, part of this was lifted by a longer holiday. and But it's a long road ahead. And so I'm sure we'll check in with you two very soon again. So thanks for joining us here under the banyan tree.
00:14:59
Speaker
Thank you, Fred. Thank you. And we're going to leave it here, folks. Thanks as ever for joining us under the Banyan Tree. And do give our sister podcast, The Macrobrief, a listen if you haven't already. Under the Banyan Tree is an HSBC Global Investment Research production from all of us here in Hong Kong. Take care. Till next week.
00:15:28
Speaker
Welcome to HSBC Global Viewpoint. the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:15:39
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening. And now onto to today's show.