China’s New Year Travel Slump Likely to Slow Consumer Spending Recovery

(Bloomberg) -- China expects a sharp downturn in travel over the Lunar New Year period compared with pre-pandemic levels following new restrictions to control coronavirus outbreaks, threatening a nascent-recovery in consumer spending.

Hundreds of millions of people usually journey from workplaces back to their hometowns around the seven-day holiday to see family and spend in shops and restaurants, making it a peak period for Chinese consumption. In recent weeks dozens of local governments have asked people to stay near their workplaces or to get virus tests and isolate for up to 14 days before returning home in order to prevent the spread of Covid-19.

With the new restrictions, China expects its citizens to take 1.7 billion trips during this year’s Lunar New Year period. That is up more than 10% from 2020 when China imposed its first coronavirus lockdowns, but 40% lower than in 2019, Wang Xiuchun, a Transport Ministry official, told a briefing in Beijing Wednesday.

China has locked down areas of northern China, home to tens of millions of people, in recent weeks after daily confirmed cases spiked to more than 100, with most cases in Hebei province, which borders China’s capital.

That threatens a recovery in consumer confidence just as it showed signs of picking up. Spending in restaurants and on accommodation increased in the final three months of last year, following three successive quarters of declines. Retail sales rose 4.6% in December from a year earlier.

“A resurgence of Covid-19 infections in Hebei and Heilongjiang provinces has prompted tighter social distancing steps and official warnings against inter-provincial travel, which may dampen a hoped-for consumer spending boom around the Lunar New Year festival in January and February,” Bloomberg Intelligence analyst Catherine Lim wrote in a report this week.

Beijing has said it will gradually withdraw fiscal stimulus this year, but the impact from the renewed travel restrictions could slow the pace of that process. Chinese Premier Li Keqiang said support for the economy should be “continuous and sustainable” as there are a number of uncertainties for the outlook, state media reported Wednesday.

The virus restrictions could also hurt factory output, with analysts at Nomura Holdings Inc. forecasting a drop in the manufacturing PMI to 51 in January from 51.9 in December.

“However, the fall should be much smaller than the plunge in February 2020 when Beijing first introduced nationwide lockdown measures in response to the Covid-19 outbreak,” they wrote in a note.