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Under the Banyan Tree - How Golden was China’s Week?
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Herald van der Linde is joined by Erin Xin, Charlene Liu and Parash Jain to discuss what spending over China's Golden Week holiday can tell us about the state of Asia's largest economy.
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Transcript
Podcast Introduction
00:00:01
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.
Platform Availability
00:00:24
Speaker
This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify. However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
'Under the Banyan Tree' Focus
00:00:45
Speaker
Hello and welcome to Under the Banyan Tree, where we put Asian markets and economics in context. I'm your host, Harold van der Linde in Hong Kong.
China's Post-Golden Week Economy
00:00:53
Speaker
We're all back in the office after Golden Week holiday, and it's a chance for us to catch up and put our heads together on how the economy is looking across the border in mainland China.
00:01:02
Speaker
is consumption bouncing back in Asia's biggest economy? And if so, is it sustainable or just a holiday spike?
Expert Panel Discussion
00:01:08
Speaker
My guests today are Greater China Economist Erin Zin and from our equities team are Transport Guru Parash Jain and Internet and Gaming Analyst Charling Liu.
00:01:18
Speaker
Let's get the conversation started right here, under the banyan tree.
00:01:33
Speaker
Well, Charlene, Parash, Erin, thanks for coming on to the podcast. Thank you for having us. Thanks, Harold. Good to be back. Thank you. Erin, I'm going to start off with you very quickly. So it was Golden Week in China ah last week. Actually, almost by accident, I went to Kathmandu out of all places.
00:01:48
Speaker
I didn't plan to go anywhere, but there are about 1.2 billion Chinese people that do a lot of travel in Golden Week, right? What is Golden Week? what What is so golden about it? What is so special about this?
00:02:00
Speaker
Well, Golden Week is it's just denoting a holiday period in China. It happens a few times during the year. In this one particular case, we're looking at Labor Day. So this is a five-day period covering May 1st to May 5th.
00:02:13
Speaker
And during this period, people are you know they have time off work. They're able to do a little bit more long-distance travel, um whether that's domestically, internationally. And so it's a good way to take stock of where consumption is right now in China.
00:02:28
Speaker
ah Particularly, we want to compare it with last year because we just came out of COVID and and and all sorts of economic issues that China had. And last year was the first sort of normal-ish golden week, right? So we're going to compare numbers later with Parash and with Charlene.
00:02:44
Speaker
And that makes this time a little bit more exciting to a certain extent as well, at least if you're an economist or a retail analyst, right? Yes, that's exactly right. Good. Now, let's let's talk with Parash. Parash, you look at travel and um and these sort of things in in China. So what are some the trends that you see in in Golden Week? what What has happened? Have people traveled?
Travel Trends Post-COVID
00:03:04
Speaker
Yes, indeed. And it's a continuation of the trend or revenge travel that began post-COVID. And that trend shifted from domestic to international. as While domestic travel is now almost 25%, 30% higher than level,
00:03:19
Speaker
Okay, 25 to 30% higher domestic travel. Domestic travel. But whereas international is concerned, we are still crouching towards 85, 90% of 2019 level. yeah So what we saw during labor holiday also is that domestic air travel in particular ah was up about 10%ish, whereas cross-border air travel, which means that you exclude Hong Kong and Macau, is up over 25%.
00:03:45
Speaker
Okay, so last year, most mainland Chinese traveled ah mostly within the country itself, but this year you see clear signs that they are starting to travel to different destinations. actually, last year was so-called first proper year of international travel. It's just that we haven't reached back to the pre-COVID level.
00:04:04
Speaker
And it largely also alluded to the lack of capacity by the international airlines into China. I mean, yeah China to U.S. used to be one of the key routes and the capacity is only 25 percent of pre-COVID level. Whereas Japan continues to remain one of the hot favorite destination where the travel is almost 20 percent higher than 2019 level.
00:04:28
Speaker
So a lot them go to Japan. Any other particular destinations that stand out? Thailand used to be a hot favorite. But given safety concerns in the past ah several occasions, and the recovery is pretty sluggish. It is still hovering around 60% of 2019 level.
00:04:43
Speaker
So where do they go? Malaysia, Vietnam. um the Europe is pretty much back to back to the pre-COVID level. So I think US s and Thailand probably would be a disappointment. And the rest of them are pretty much back to where they were.
00:04:56
Speaker
Another place they don't go to is Kathmandu. I was there and there's hardly any Chinese traveled there. And what in inside China? Is there any particular trend you see there as well?
New Travel Demographics
00:05:07
Speaker
I mean, some of the interesting trends, right? ah We are seeing the first-time traveler. So the young young kids are growing at much faster pace than the underlying growth. They grew up about 30-odd percent.
00:05:19
Speaker
The silver generation, um the people age group between 50 to 64, who have made money in the past three decades of the boom. yeah They are now coming out to travel. And they are not only traveling, but they are traveling at a much nicer hotel.
00:05:33
Speaker
And their spending probably is is higher than the average spending level that we are witnessing. yeah Yeah, there's a growing silver economy in China, right? Absolutely. This is a big market, actually. Yeah. Yeah.
00:05:44
Speaker
They're traveling into the niche areas. But in fact, one of the point I wanted to mention with respect to international travel, while the outbound is growing at 20%, inbound into China, off a very low base, is growing at triple digit.
00:05:58
Speaker
Wow. And that is pretty so that's foreigners coming in. Foreigners coming in off a very, very low base. But this is a concentrat concentrated effort with respect to on arrival visas, giving a visa free travel.
00:06:09
Speaker
In fact, China is also working hard to ensure that when the foreigners visits in China, making the duty free refund seamless. and So that trends are playing out. Okay, so we see ah more mainland Chinese traveling outside of China and more foreigners coming in as well.
00:06:24
Speaker
ah Where do they come from? Is this regional? As I said, there are about fifty over 50 countries where China has given them the visa for travel. A lot of European countries are there. lot of ASEAN, Singapore is there. Malaysia is there.
00:06:36
Speaker
So many of those countries, are the travelers from those countries are making their way. and i presume it would be the kind of good news or interesting news for Charlene.
Golden Week Consumption Patterns
00:06:45
Speaker
Charlene, you look at domestic companies, the internet companies that sell products online, but you also look at the gaming companies, right? The casinos, et cetera.
00:06:53
Speaker
um Any observations on your part? Have people been spending? We know they've traveled, but have they spent as well? Absolutely. I think, you know, we did have a pretty decent May Golden Week. So Macau, more specifically, ah the gaming revenue is actually up good 12% versus in the first quarter of this, the first three months of this year.
00:07:15
Speaker
And that was underpinned ah by very strong visitors' arrival in Macau. ah We saw 40% growth ah during that five-day Golden Week period. Yeah. So you say 40% more people that are going to Macau.
00:07:30
Speaker
But only 12% has been going up in revenues. Does that mean that people are betting less? ah You could kind of point to that. But, you know, in Macau, there is an 80-20 rule, meaning, you know, 80% of the gaming revenue on your iPhone, 20% of the people.
00:07:45
Speaker
You know, a lot of the visitors are not gamblers themselves. So it is not a direct direct translation, but obviously it plays a good role in in supporting that growth in gaming demand. um And I guess, you know, to put on my other hat, on my internet head, we're also seeing, you know very good consumption from a tier-film standpoint based on government release data.
00:08:05
Speaker
So during that period, total consumption is up 8% year on year. And um sales of key retail and catering also recorded growth acceleration. And both data points suggests that growth has accelerated versus the Chinese New Year period earlier this year, as well as ah the golden week in 2024.
00:08:26
Speaker
I also saw that delivery was quite
JD.com's Market Entry
00:08:29
Speaker
strong. People travel to a more niche location in in China. Let's say they go to Changsha. In Changsha, certain milk tea is famous.
00:08:38
Speaker
But if you line up there, there will be like thousands of people that try to get into this milk tea shop. So what they do while they're at the hotel, They just order it on delivery, on WeChat, and get it delivered to the hotel. That's much faster. You don't have to line up, but you want to eat that local food.
00:08:54
Speaker
That seems to be taking place to certain extent, correct? That's probably true. But at the same time, I think one key new development within the food delivery space within China is that JD, which is an e-commerce platform historically, has newly entered into the food delivery scene.
00:09:13
Speaker
And in order to kind of ramp up their market share within the space, they have been subsidizing users very, very heavily. So they're running deep discounts. um In some cases, they might even waive the delivery fees.
00:09:26
Speaker
So that might have a role to play um in this, you know, stronger growth. Okay, so what we basically see is more travel, more outbound travel as well. Finally, also a lot of kind of foreigners coming into China.
00:09:41
Speaker
And within that, we see that they've actually been spending quite well, doing a lot of delivery. And on the back of that, companies have used that as a tool to start to offer new products and and and make their way in
Economic Challenges and Consumer Confidence
00:09:51
Speaker
the market as well, right? but But we should not forget that the spending is still below 2019 level.
00:09:55
Speaker
i mean, it has grown marginally versus last year. but And that pretty much kind of reflects some of the challenges that economy is facing. but Exactly. Now, that's exactly what I want to do. We're going to take a break now and then we're going to go back to Erin and talk about the bigger macro picture and some of the conclusions that she's going to draw out of this.
00:10:22
Speaker
So we're back here. And Erin, you've been listening to Parash and Charlene as well. and You look at the Chinese economy. How do you read this? What what does this tell you? Yeah, so I would say from aggregate level, um we're hitting new records. So that's positive.
00:10:38
Speaker
But, you know, as Parash mentioned, if we look at it at a per person trip basis, we're still not quite at, you know, the pre-pandemic level. So 2019 levels. So we're recovering, but we're not really there yet. We're not quite there yet. yeah And i think it's reflective of some of the other data around consumption. So consumer confidence is fairly weak. We also got the Caixin services ah indicator showing that growth in the services sector not being quite as strong as it was previously.
00:11:08
Speaker
So I think all these things show that the economy still needs more strength, especially on the consumption side, because we still have trade tensions that are going to be a drag on growth for this year. Yeah. So it's maybe fair to say we are in a recovery mode, but it's very early stages. It's fragile.
00:11:29
Speaker
And we're not really there where we want to be in terms of 2019 numbers. Now, if you then put on your sort of hat or as an economist, what do policymakers
Monetary Easing and Recovery Measures
00:11:37
Speaker
do? And I believe they've just made some announcements in this regard as well, right?
00:11:41
Speaker
Yeah, so it's coming from a pretty multifaceted way. ah Just on Wednesday morning, we had a joint meeting with the central bank and financial regulators, and they came out with a series of monetary easing. So they have- Lower interest rates. Lower interest rates, liquidity injections. making credit available. Yes, more credit for new categories such as consumption, elderly care.
00:12:04
Speaker
So this is really trying to instill more confidence, um trying to boost market sentiment as well. But I think we still need to go back to the real economy, right? so consumption takes the crux of where policy will need to be concentrated.
00:12:19
Speaker
And so far this year, there's been a lot of near-term measures. They have these trade-in programs. So you get a subsidy. Vouchers and stuff. Yeah, you get a subsidy for buying certain large consumer durable products.
00:12:30
Speaker
We're thinking that that's going to be expanded, especially in the services sector. So China's services still relatively lower compared to other developed economies. So there's obviously space for that to grow.
00:12:42
Speaker
ah But it's not just near term measures, right? You also need the structural things because near term measures, maybe it only boosts consumption for a little bit, right? You need to think about it how to grow it sustainably in the longer term. So there's a mix of things like increased social safety net coverage, pension reforms, ah probably more stabilization measures for the housing market. These things are going to help to support consumption in an all-rounded way.
00:13:07
Speaker
Basically, there's a lot they can do just to boost consumption near term, but also to make sure that they get some sort of sustainable recovery over the next couple of years. ah that That must be good news for you, Parash, because that means people are going to travel more, right? Any final thoughts
Sustainability of Economic Growth
00:13:23
Speaker
here? I mean, that's that's the one thing that we are very closely clothes they looking at because we have seen a decent recovery during this holiday period.
00:13:32
Speaker
But what will be crucial to see if there is a follow through on a like for like basis because we have seen the similar thing during the Chinese Lunar New Year. But subsequent to that, actually things slowed down quite significantly.
00:13:44
Speaker
So with all of these measures, if the consumer confidence comes back, we probably would see more sustainable travel during the off peak period. yeah And I guess for Charlene, would be a little bit the same for you, right?
00:13:57
Speaker
We've got to see if have they spend now and they're going to curtail spending over the next couple of months, or is this something that's going to continue to grow? Absolutely. I would second what Parash had said because Macau gaming revenue hasn't really seen much growth year to date.
00:14:12
Speaker
And we have a pretty soft patch during Chinese New Year. So better than expected numbers in April and the May golden week period so far is indeed very encouraging.
00:14:22
Speaker
But we definitely need to monitor more closely to gauge sustainability of this better demand. Fantastic. So we'll we'll be back to try to assess over the next couple of months if this is really happening.
Conclusion and Subscription Reminder
00:14:34
Speaker
Charlene, Paras, Erin, thanks a lot for coming on to the podcast. Thank you, Haran. Thank you again for having We're going to have to leave it there, everybody. Thanks very much for joining us on this week's podcast.
00:14:44
Speaker
And remember to listen, like, and subscribe to our sister podcast, The Macro Brief, as well. Under the Banyan Tree is an HSBC Global Research production. We'll be back again same time next week.
00:14:56
Speaker
Take care till then.
00:15:19
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.