High-frequency data around Lunar New Year (LNY) holidays showed that economic activity was much better than it was in 2022, but some indicators were still well below pre-Covid 2019 levels.
As China removed most of its Covid restrictions and infections have likely already peaked, economic activity (especially consumption and services) recovered significantly in early January after a subdued December.
During the LNY holidays in 2023, the movement of people, outbound travel and domestic tourism revenue rebounded notably from 2022 on a comparable basis, though the numbers remained well below pre-Covid levels in 2019. The cinema box office for LNY recorded its second-highest level since records began thanks to pent-up demand. On the other hand, property sales, auto sales and the truck freight traffic index weakened in January — the latter partly due to the expiration of auto purchase incentives and LNY holiday distortions.
Passenger volumes during the LNY travel rush picked up notably year-on-year, but still remain far below the 2019 level. Thanks to the removal of virus restrictions and the rapid fading of Covid infections, traveling during the LNY travel peak (chunyun) this year picked up notably compared with 2022, with passenger turnover in the first 22 days of “chunyun” (Jan. 7 to Jan. 28) in 2023 increasing by 56% year-on-year compared with the comparable period of Jan. 18 to Feb. 8 in 2022. Still, the figure was only 53% of the pre-Covid level in 2019.
In particular, roadway traffic experienced the fastest year-on-year growth (64% year-on-year, 48% of the 2019 level), while railway traffic growth (34% year-on-year, 79% of the 2019 level) and civil aviation traffic growth (43% year-on-year, 71% of the 2019 level) recorded the narrowest gap with 2019 levels.
During the holiday, property sales in 30 major cities fell sharply on a seasonal pattern by 79% year-on-year, or 34% of the 2019 level. Given the seasonally very low absolute levels, property sales during LNY holidays usually don’t represent the underlying strength very well, although property sales in the past three weeks were still quite subdued at 24% lower than the previous LNY period. Meanwhile, the Full-Truck-Load traffic index weakened more during the LNY holidays, 26% lower than in 2022, while that in the past three weeks was still 16% lower than the last LNY.
January activity growth was distorted by the earlier timing of the LNY. January and February real activity data will be released together in March. The limited January data release may be distorted by the earlier timing of the LNY — Jan. 22, compared to with Feb. 2 in 2022. Our high-frequency UBS China Activity Index showed a significant rebound in the first 10 days of January, as most Chinese cities likely passed the peak of Covid infections at the end of December or in early January. That said, as the LNY holidays approached, UBS’s China Activity Index dropped notably in the second and third 10-day periods of January, mainly due to the distortion of the earlier timing of LNY.
For the first four weeks of January, property sales declined by 40% year-on-year in 30 major cities, compared with a 21% year-on-year drop in December. The subway passenger turnover in 18 major cities narrowed its decline of 23% year-on-year from a 46% drop previously, while the 100-city transport congestion index also turned less negative, to -6% year-on-year from -13% year-on-year previously. However, the Full-Truck-Load traffic index weakened to -42% year-on-year from -33% year-on-year, largely due to the earlier timing of LNY. On the other hand, auto retail sales in the first 15 days of January slid sharply to -21% year-on-year from +15% year-on-year in December, while auto wholesales also slid to -20% year-on-year from -4% year-on-year previously, given the LNY distortion and expiration of auto purchase incentives.
China’s reopening will lead to a rebound in business activity and consumption. We expect economic activity to resume and rebound after this wave of Covid infections, more notably after the LNY holidays and especially from the second quarter of 2023 onward. Excess savings from the pandemic period will likely be released and the resumption of services (especially SME activities) can help support employment and household income; both should underpin a further recovery in consumption down the road. Potential future wave(s) of Covid infections could be a downside risk to sentiment and activity, while the recovery of household income, balance sheets and consumption confidence may take much longer than the removal of Covid restrictions. Overall, we continue to expect consumption to grow 6.6% in real terms in 2023, while nominal retail sales growth may pick up to 8% to 10%.
Wang Tao is the head of Asia economics and chief China economist at UBS Investment Bank.
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