Down Angle Symbol A symbol in the form of an angle pointing downwards. Tourists in Chongqing, China. Costfoto/NurPhoto via Getty Images
- Chinese consumers return from the festive Chinese New Year next week.
- That doesn't mean the economy will pick up.
- Instead, spending is likely to decline, signaling more bad news for Beijing when the country actually needs a break.
China's economy and markets have been weak at the start of 2024, but investor sentiment could worsen after the prolonged Chinese New Year break.
This year marks China's second Chinese New Year after the end of COVID-19 restrictions.
The entire country is on a holiday break until the end of the week, which has boosted consumption and travel. Authorities expect people in China to take a record 9 billion domestic passenger trips this holiday season.
While consumer spending data for the season is not yet available, Chinese authorities are already hoping for a boom as China's Ministry of Commerce has declared 2024 the “Year of Consumption Promotion.”
However, analysts are less optimistic.
The economic outlook for the spring is bleak
Nomura analysts expect China's economy to deteriorate through the spring as Beijing has failed to revive the struggling real estate sector.
Consumer spending on services is also likely to decline, according to a statement on Tuesday.
“Services consumption growth is likely to slow sharply after the Chinese New Year holiday due to waning pent-up demand and weakening consumer confidence,” the economists wrote.
Ongoing geopolitical tensions amid the US election season are not improving the situation in China, Nomura economists added.
These challenges weigh on the world's second-largest economy as it must deliver a convincing recovery. China has been unable to sustain its growth spurt more than a year after lifting COVID-19 lockdowns, contributing to a collapse in investor confidence.
China must stop slowing growth, Rich Lesser, global chairman of the Boston Consulting Group, wrote in a note on Tuesday.
“The contracting real estate sector and weak stock markets remain headwinds, hurting the confidence and purchasing power of households whose consumption is needed to boost growth,” Lesser wrote.
The markets are not signaling a positive mood
Hong Kong's stock market was the first to open for trading after the holiday – but the picture was not pretty against the backdrop of a decline in US stock markets overnight after higher-than-expected January inflation figures in the US.
The Hang Seng China Enterprises Index fell as much as 2% before trading 1.1% higher as of 1:50 p.m. local time on Wednesday. The index is down 9% so far this year.
Hong Kong's benchmark Hang Seng Index also fell as much as 2% earlier and rose 0.4%. The index is down 8.5% so far this year.
The gains came after mainland and Hong Kong markets lost trillions of dollars since peaking in 2021.
Beijing is paying attention and trying to limit losses.
Authorities have taken more than a dozen steps since January to stabilize slumping stock markets and shore up weak housing demand amid the housing crisis.
Even Chinese leader Xi Jinping was willing to pay personal attention to the market collapse, raising traders' hopes for a vigorous market rescue plan. After all, there were earlier indications that the authorities were considering a stabilization fund to save the weakening stock market.
On February 7, Xi's government replaced the country's top market regulator. But analysts are skeptical that the move will solve fundamental problems in China's economy and markets.
Stock markets on the mainland are closed this week for a holiday.
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