During China's major celebration, investor enthusiasm soared. However, Chinese consumers displayed minimal signs of the same optimism.
Economists from Goldman Sachs reported in a Tuesday report that the revenue generated from tourism per person was 2.1% less than pre-pandemic levels during the National Day Golden Week, which concluded on Monday. This seven-day event underlined a persistent problem with consumer confidence and spending.
The economists stated, "Weak tourism spending and soft service prices underscored the lingering weakness in domestic demand and ongoing consumer downgrade." They further noted, "It remains to be seen if more loosening, particularly fiscal stimulus, will be announced in the coming months and to what extent it can boost domestic demand (mainly consumption), normalize prices, and rebuild confidence."
The situation is grim enough for some experts to advocate for a substantial stimulus package worth up to 10 trillion yuan ($1.4 trillion) to revive optimism in China's second-largest economy, which is grappling with various economic issues, such as falling prices.
Goldman Sachs also pointed out anecdotal evidence indicating lower hotel prices and airfare rates during the holiday period compared to the previous year. Despite China reopening its borders over a year and a half ago, consumer confidence has yet to fully recover from the pandemic.
However, there were some positive signs. According to official statistics, cross-border travel increased by approximately 26% to 13 million trips, compared to the same period last year. International flights also saw a 42% increase over a weak 2023 base, as per Citi.
Following a series of underwhelming economic data during the summer, which raised concerns about China missing its 5% growth target announced in March, the leadership finally decided to implement a stimulus package, primarily focusing on monetary measures, in the last week of September.
As a result, stock markets witnessed significant gains. Billionaire investor David Tepper, CEO of American hedge fund Appaloosa Management, expressed his enthusiasm for buying more China-related stocks during an interview on September 26.
However, experts argue that more action is needed to restore confidence, which was close to record lows during the summer.
On Wednesday, Chinese stock markets in Shanghai and Shenzhen experienced a significant correction of recent gains, while Hong Kong's Hang Seng Index suffered a drop after an excellent two-week period. However, China-related stocks experienced positive returns on Thursday.
The reversal in stock prices occurred after the National Development and Reform Commission, China's top planning agency, refrained from announcing a substantial stimulus package during a press conference on Tuesday, disappointing investors.
Currently, investors are eagerly anticipating another press conference scheduled for Saturday with the Ministry of Finance, where they still hope for more direct stimulus measures to be announced.
The economists at Goldman Sachs suggested that additional fiscal stimulus could boost domestic demand and help rebuild consumer confidence, which is critical for various businesses in China's second-largest economy. With consumer confidence still low, many businesses are struggling to maintain their pre-pandemic revenue levels.
