China's Tourism Data Paints Bleak Picture for Its Economy

The Chinese economy remains in the doldrums despite a relative uptick in domestic travel during the eight-day Golden Week holiday.

Experts were closely watching Golden Week this year to get the pulse of the Chinese economy, which failed to surprise observers as domestic travel witnessed slight improvement from pre-pandemic levels.

China's spending during the Golden Week missed the government's estimated target published before the holiday began.

Over 826 million Chinese tourists made domestic trips, marking an increase of 71.3 percent and generating over $103.95 billion, according to the Ministry of Culture and Tourism data.

The data reveals that revenue generated missed the target the Ministry of Culture and Tourism set as the tourism data only etched slightly above the 2019 levels at 4.1 percent.

The government had estimated 896 million trips this year and revenue of 782.5 billion yuan ($107 billion), which failed to materialize during the Golden Week.

The tourism-related activities were restricted to the domestic market, unlike in the recent past when Chinese tourists flocked to foreign destinations during the 8-day holiday.

The Chinese state media has presented a relatively positive picture of revenue generated from domestic travel, but more careful analysis paints a bleak picture.

Most Chinese state media outlets have skipped mentioning international travel by citizens, which has been seen as a major topic of discussion in the pre-pandemic era.

This Statista chart shows the quarterly real GDP growth of China (compared to the previous quarter seasonally adjusted).

In 2016, Chinese tourists spent more in the U.K. on shopping than all other international destinations, based on the data compiled from Alipay transactions.

The somewhat positive domestic travel data, though, masks the structural slowdown being witnessed as the troubles posed by the domestic real estate market haven't gone away.

The Golden Week has traditionally been when real estate sales witness an uptick as home buyers rush to close deals. But this year, despite expectations of recovery, new home sales were down by 20 percent in 35 cities as measured by floor space, according to state media outlet Securities Times.

Between January and August, commercial property sales were down by 7.1 percent year-on-year, according to data published by the National Bureau of Statistics (NBS). The investment into new real estate development was down by 8.8 percent year-on-year, according to NBS.

Earlier, the NBS had reported a slight improvement in the purchasing managers' index from 50.2 in September to 49.7 in August. However, the PMI data may need to write a positive trend over the next few quarters to hint at a healthy shape of the economy.

Chinese state media isn't hiding the weak real estate demand, which continues to drive down economic activity.

"The August survey showed that residents' willingness to buy houses and market confidence has weakened, despite the continued relaxation of policies," reported Chinese state-owned business outlet Yicai, citing the UBS China Housing Survey.

China has so far given no assurance to the stock market as the shock from the rut created by default of some real estate companies continues to bear down.

On Thursday, Bloomberg News reported that Beijing was considering setting up a state-backed stabilization fund to induce confidence in China's $9.5 trillion stock market. China's financial regulator, the China Securities Regulatory Commission, submitted the proposal to China's top leadership to set up a stabilization fund.

Beijing's strategy to salvage the Chinese real estate market from falling off the cliff has been a "muddling through strategy." Investment in real estate and infrastructure was the primary growth strategy for the Chinese economy over the last two decades.

Critics believe a stimulus-like package or similar measures to revive the economy could also lead to speculative trades on the Chinese stock market.

"In a worst-case scenario, the intervention could trigger speculative trades. So it's not really a good timing for such a vehicle," Shen Meng, a director for Beijing-based investment bank Chanson & Co, told Bloomberg.

Experts have highlighted that Beijing has so far bet on increasing domestic consumption as a way to kick-start the economy's engine.

"According to the Politburo, the solution lies in restoring confidence, promoting domestic demand, stimulating innovation, speeding up construction of a modern industrial system, increasing 'high quality' growth, and focusing on emerging industries such as electric cars," wrote Bert Hofman, Honorary Senior Fellow on Chinese Economy, Center for China Analysis, Asia Society Policy Institute.

Hofman laid out a series of painful reforms that Chinese politicians may have to undergo to return to the days of high-growth gross domestic product—which appears allusive at the moment. Hofman highlighted reforms to the financial sector and the pension system to boost the confidence of the domestic audience in a quest to shore up spending.

"None of these reforms would be easy, and each one would negatively impact the interests of various groups, some of which have managed to block serious reform," Hofman added.