On February 18, the Ministry of Culture and Tourism of the People’s Republic of China announced that domestic tourism revenue during the Spring Festival holiday was 13.3 trillion yen, a 47.3% increase year-on-year (after the adjustment for the number of days of vacation) and a 7.7% rise over 2019 before the COVID-19 pandemic. The number of travelers within China during the period of eight days from February 10 to 17 was 474 million, which is a 19% increase compared to 2019, and that of travelers to other countries was reported to have almost returned to the level before the pandemic, emphasizing the recovery in overall individual consumption.

On the other hand, the Consumer Price Index (CPI) in January announced by the National Bureau of Statistics of China fell 0.8% year-on-year. This was the fourth consecutive month the CPI fell below the previous year’s level, and the drop rate was the highest level in 14 years. The significant decline may be partly because the Spring Festival holiday last year was in January. However, tourism consumption during the holiday, exceeding that in the period before the coronavirus pandemic in total, was also slightly below 10% per person. It should be noted that households’ tendency to save money remains strong.

One of the reasons behind the economic downturn is the tremendous underlying depression in the real estate industry. On February 20, the People’s Bank of China announced a reduction in the benchmark mortgage rate to boost housing demand. However, it is unlikely that this measure will help the industry get out of hot water. What should be prioritized is the fundamental restructuring of the industry facing debt overhangs, but the financial circumstances of the local governments are also tight, making it difficult to take drastic measures. In addition, the situation of foreign investors fleeing Chinese markets has also been serious. The recent series of capital increases and direct investment reductions mean the loss of the resources that have underpinned the Chinese economy. In other words, China is now required to change its economic structure fundamentally, and if the choice is made just to avoid short-term pain, the stagnation will inevitably be prolonged.

Having said that, the dominating superiority in economic scale allows more time and capacity to bear the risks. Huawei, which has been severely affected by the economic sanctions imposed by the US, reported poor performance in FY2022. Although the executives stated at the press conference that they had no choice but to adapt to the challenging situation, they invested the greatest amount in research and development ever during the period. As a result, its business performance already started to recover in FY2023. How are the Chinese authorities going to respond to the current circumstances? In this country, where no election is held, policy decisions rely only on the will of the top management. This is why it is difficult to predict the future, and China must also expect and be prepared for a downturn situation. However, it is highly desirable to avoid “unforeseen circumstances” beyond the scope of economic policy.

This Week’s Focus, February 22

Takashi Mizukoshi, the President