Lunar New Year: China’s consumers splash out

But beyond the Lunar New Year spending flurry there’s still little reason to be ‘over the moon’ about China’s economic outlook.

05 February 2025

China’s Lunar New Year break came to an end this week, with plenty of tea leaves being read by analysts looking for signs that consumers are regaining their lost confidence. The signalling in this regard is fairly positive. Records were broken for travel and cinema bookings over the holiday. A massive USD 1.3 billion was spent on the box office while spending on air travel broke a record for a single day on 3 February. Rail and road trips also increased, as did tourism revenue when compared with the same holiday period a year ago. For China, the consumer is critically important as the economy shifts from exports and investment to a more US-style consumption model. After all, its population and economy are big enough to support such a model. Over-reliance on exports clearly leaves the economy vulnerable to tariffs, although official media appeared to be relieved that a) US President Trump’s tariffs on China were limited to just a 10% increase, and b) DeepSeek demonstrated that the economy could still innovate despite them.

As for investments and infrastructure, the real estate meltdown remains a pressing problem. Consumption must therefore play a larger role in driving economic growth from now on. While the seasonal holiday’s initial data bodes well, it may be something of a one-off. The Caixin China services purchasing managers’ index, while still just in expansionary territory, fell to a four-month low according to a data release today. This suggested on-going, year-round consumer caution even if it does leave room for selected splurges such as the Lunar New Year. The bond market (generally known for its sober assessments) was even less equivocal. As of today the 10-year Chinese government bond yield stood at 1.6%, suggesting both growth and inflation on the floor for the foreseeable future. The inflation point is particularly pressing. By some estimates it is outright negative, which could delay spending decisions by consumers waiting (logically) for prices to fall further.

The possible good news from all of this is that pressure will rise to do something more radical than the stimulus measures announced since last autumn. Central bank governor Pan Gongsheng’s acknowledgement of the inflation issue this week was at least a step in the right direction. Chinese market participants, fresh from their break, will be looking for even more in the coming days.

Having none of it – Chinese bond market displays no optimism in growth outlook despite strong Lunar New Year data:

China govt. bond yields from 30 Nov 2006 to 5 Feb 2025