Holiday tourism rebounding in China to pre-Covid levels boosts the outlook

Government data showed on Wednesday that tourism in China rebounded to pre-COVID-19 levels over the Labor Day holiday with the number of domestic trips rising by more than two-thirds from a year earlier, a welcome boost for the world’s second-largest economy.

If sustained, the recovery in the services sector could ease concerns that China’s post-pandemic economic recovery could soon lose momentum as the real estate market remains weak, the broad manufacturing sector weakens, and exports face persistent headwinds.

Travel-hungry Chinese made 274 million domestic trips during the five-day rest period that began on Saturday, the Ministry of Culture and Tourism said on its website, an increase of 70.8% over the previous year, and 19% more than in 2019.

During these trips, Chinese tourists spent 148 billion yuan ($21 billion), up 128.9% from the previous year, and on par with 2019 levels.

The numbers from this year’s Labor Day weekend — the first travel season since the pandemic without restrictions — are being watched as a measure of China’s economic health.

Official data on Sunday showed that activity in China’s non-manufacturing sector grew in April, albeit at a slower pace than in March.

“Strong holiday tourism data, combined with a still-strong April services PMI, bodes well for a recovery in consumption and services in the coming months, although manufacturing growth momentum weakens,” Goldman Sachs wrote in a note.

“This also adds conviction to our above forecast for 2023 GDP growth (6.0%).”

Goldman Sachs added that the next phase of consumption recovery will depend on higher income growth and improved consumer confidence, which will make the recovery model more sustainable.

Asset manager Vontobel said he believes China’s recovery should accelerate, benefiting companies that cater to domestic consumers via entertainment and e-commerce, as well as companies focused on travel in China and across Asia.

State television reported Thursday that the total box office collections of May Day films exceeded 1.5 billion yuan by the end of the holiday period, ranking the third in May Day box office revenues in Chinese cinema history.

China’s state news agency Xinhua said on Wednesday that the May holiday travel boom “can be regarded as a turning point in China’s tourism sector.”

The China Tourism Academy estimates that about 4.55 billion domestic tourist trips will take place this year, up 73% from 2022, Xinhua reported.