And economists said China needs to focus on solving its ongoing property market crisis and helping private firms to ensure similar expansion in 2024 as pent-up demand fades.
After a fall of 2.3 per cent in 2022 due to frequent lockdowns under China’s zero-Covid policy, China’s accommodation and catering industry surged by 14.5 year on year in 2023, becoming a major gross domestic product growth (GDP) driver, the National Bureau of Statistics said last week.
It represented the second biggest year-on-year increase in three decades, after the 15.6 per cent rise in 2021, when the industry rebounded from a very low comparison base due to the unprecedented coronavirus pandemic.
China’s transport, warehousing and postal industries also combined to post a strong rally last year, with 8 per cent growth, having fallen into negative expansion in 2022.
The trend is set to continue during the extended eight-day Lunar New Year holiday in February, with travel bookings through major agencies exceeding pre-pandemic levels.
China had lifted its health control measures at the start of 2023, but the Lunar New Year travel period was hit by a surge in coronavirus cases triggered by the reopening.
“There is clear certainty in continuous enthusiasm in travelling during this year’s [Lunar New Year] period, which is also the most important busy season for the catering sector,” Shanghai Securities said on Sunday.
“The performance of the 2024 [Lunar New Year] is expected to catalyse the market’s optimistic expectations for service consumption.”
Hotel bookings for the 2024 holiday via Fliggy Travel were already 160 per cent above the same period in 2019, with group tours up by 34 per cent, the firm said last week.
Average prices for domestic flight have also been pushed to the highest since 2019, Tongcheng Travel said last week.
Air China confirmed this week that it had arranged nearly 1,700 flights per day during the 40-day chun yun travel period to meet the extraordinary demand, representing a 32 per cent increase from 2019.
But while China’s economic growth last year fell in line with its “around 5 per cent” target, a similar goal in 2024 would not be as easy to obtain as low base effects and pent-up demand fade, said Lian Ping, the director general of the China Chief Economists Forum.
“Consumption, which was responsible for a rare high of 82.5 per cent of GDP growth last year, will drop back to normal levels of contributing around 60 per cent this year,” he noted.
“Economic growth will mostly depend on how the private sector performs, whether market risks are eased, and most importantly, if the real estate industry can stabilise.”
The property sector, which saw its added value fall by 1.3 per cent in 2023 compared to a year earlier, has dragged down not only local government revenues, but also numerous related sectors ranging from furniture to textiles.
Local authorities have rolled out a series of supportive measures to stimulate home purchases in the past months, and they may bear fruit in the coming months, Lian added.
But Moody’s Analytics economist Harry Murphy Cruise said last week that ongoing trouble in the property market would hold back private investment as well as consumer spending.
“The success of 2024 will largely be driven by how effective officials are in turning the property market around,” he said.
“Absent the monster spending splurge of years gone by, real estate investment, dwelling prices and new dwelling sales are set to fall throughout 2024.”
“Local governments are no more financially capable of building infrastructure, as they often involve big money and bank loans, which may further weigh on the economy,” he added.
“Instead, they’d better make full use of the resources at hand to help SMEs and individually-owned businesses, which may bring more direct results to the economy.”
A confidence deficit among private businesses has also been widely regarded as a major challenge for China since its reopening last year, with most of the firms the SMEs which contribute over 60 per cent to China’s GDP and account for 80 per cent of jobs.