China's Lunar New Year travel surge is expected to boost the economy, but the real estate market and private companies remain a top priority

And economists said China needs to focus on resolving its ongoing housing market crisis and helping private companies ensure similar expansion in 2024 as pent-up demand eases.

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After a 2.3 percent decline in 2022 due to frequent lockdowns under China's zero-Covid policy, China's accommodation and catering industry grew 14.5 percent year-on-year in 2023, becoming a key driver of growth of gross domestic product (GDP), the National Bureau of Statistics said last week.

This represented the second largest year-on-year increase in three decades, following the 15.6 percent increase in 2021 as the industry recovered from a very low comparable base due to the unprecedented coronavirus pandemic.

China's transportation, warehousing and postal industries also rallied strongly last year with 8 percent growth after entering negative expansion in 2022.

This trend is expected to continue during the extended eight-day Lunar New Year holiday in February, with travel bookings across major agencies exceeding pre-pandemic levels.

The performance of 2024 [Lunar New Year] is expected to catalyze the market's optimistic expectations of service consumptionShanghai Securities

China had lifted its health control measures at the start of 2023, but the reopening saw a surge in coronavirus cases during the Lunar New Year travel period.

“It is clear that the enthusiasm for travel continues this year [Lunar New Year] This is also the most important peak season for the restaurant sector,” Shanghai Securities said on Sunday.

“The performance of 2024 [Lunar New Year] It is expected to catalyze the market’s optimistic expectations for service consumption.”

Hotel bookings for the 2024 vacation through Fliggy Travel were already 160 percent higher than the same period in 2019, with group travel increasing 34 percent, the company said last week.

Average prices for domestic flights also rose to their highest level since 2019, Tongcheng Travel said last week.

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China says the Covid outbreak has peaked as the Lunar New Year travel rush is back in full swing

China says the Covid outbreak has peaked as the Lunar New Year travel rush is back in full swing

Air China confirmed this week that it has organized nearly 1,700 flights per day during the 40-day Chun Yun travel period to meet exceptional demand, up 32 percent from 2019.

But while China's economic growth fell short of its target of “around 5 percent” last year, a similar target would not be so easy to achieve in 2024 as low base effects and pent-up demand fade, said director general Lian Ping of the China Chief Economists Forum .

“Consumption, which accounted for a rare peak of 82.5 percent of GDP growth last year, will fall back to normal levels this year, contributing about 60 percent,” he noted.

“Economic growth will depend primarily on how the private sector develops, whether market risks are mitigated and, above all, whether the real estate industry can stabilize.”

The real estate sector, whose value added fell by 1.3 percent in 2023 compared to the previous year, has hit not only the revenues of municipalities but also numerous related sectors, from furniture to textiles.

The success of 2024 will largely depend on how effectively the authorities turn the real estate market around Harry Murphy Cruise

Local authorities have introduced a number of supportive measures in recent months to boost home purchases, and these could bear fruit in the coming months, Lian added.

But Harry Murphy Cruise, an economist at Moody's Analytics, said last week that ongoing problems in the housing market would slow both private investment and consumer spending.

“The success of 2024 will largely depend on how effectively the authorities transform the real estate market,” he said.

“Without the huge spending boom of previous years, property investment, property prices and new home sales will decline over the course of 2024.”

China's traditional exports Also fell last year due to strong geopolitical and economic volatility and will not be a driving force this year as the global economic outlook remains weak, said Zhang Jun, dean of the School of Economics at Fudan University in Shanghai.

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“We should focus on the sectors that failed to fully recover in 2023,” he said, pointing to the millions of small and medium-sized enterprises (SMEs) in China that suffered major losses during the pandemic and have not yet returned to normality.

“Local governments are no longer financially able to build infrastructure as this often requires a lot of money and bank loans, which can put additional strain on the economy,” he added.

“Instead, they should make full use of available resources to support SMEs and individual businesses, which may bring more direct results for the economy.”

A trust deficit among private companies is also widely seen as a major challenge for China since its reopening last year, as most firms are SMEs, which contribute over 60 percent of China's GDP and provide 80 percent of jobs.