China's reopening generates mirage of normality

IMAX China Holding

27/01/2023 03:33

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Yawen Chen
       HONG KONG, Jan 27 (Reuters Breakingviews) - China’s
first big vacation of 2023 offers shallow relief to investors.
Movie sales during the lunar new year holiday week surpassed
last year's to top nearly $900 million, per ticket provider
Maoyan Entertainment  1896.HK . Travel is rebounding too.
    The return of moviegoers and vacationers eased some concerns
about the lingering economic impact of Covid-19. Officials
dropped restrictions abruptly in December, and a massive
outbreak duly ensued, but they now say hospitalisation rates for
Covid peaked on Jan. 5. Government data logged 35 million
passenger trips on Wednesday alone, 73% higher than in 2022.
Cinema operators were top beneficiaries. IMAX’s China subsidiary
 1970.HK , for example, grossed 42% more from the same period
last year in the first four days of the holiday. Pleased
investors pushed up Hong Kong’s Hang Seng Index  .HSI  to its
highest level in 10 months on Thursday, the first day of trading
in the Year of the Rabbit.
    But three years of intermittent Covid lockdowns left scars,
damaging household balance sheets, weakening confidence in the
safety net and cultivating risk aversion. Median disposable
income growth for Chinese urbanites has dropped to just 2% last
year from 7% in 2021, and while the wealthy have been largely
unscathed, there are also signs they are mulling emigration.
Retail sales, a key measure of consumption strength, remain
depressed, falling to a 1.8% contraction in December, and
average growth rates have fallen back after a robust recovery in
2021, a year when life inside China had largely returned to
normal.
    Travel is still 40% down from 2019 levels, and consumers
have gotten more frugal. Passenger car sales dropped 21% from
the same festive period last year, per Nomura analysts, and real
estate keeps plunging. Many movie theaters resorted to price
cuts to boost traffic, per Maoyan.
    Anecdotally, some mainland visitors in Hong Kong complained
luxury good prices there aren’t competitive compared to the
domestic duty-free shopping mecca Hainan province – bad news for
other destinations like Tokyo and Paris.
    Multinationals hoping for a dramatic recovery in Chinese
spending are likely to be disappointed. Central bankers
terrified that China’s reopening will fuel more global inflation
will be relieved. Chinese consumers enjoyed their holiday but
there was little sign of dramatic “revenge consumption.” Scarred
consumers have too many reasons to avoid splurging for the
foreseeable future.
    Follow @ywchen1 on Twitter
    CONTEXT NEWS
    Mainland China’s Lunar New Year holiday runs from Jan. 21 to
Jan. 27 in 2023.
    Hong Kong’s benchmark Hang Seng Index surged 2.37% to close
at 22,566.78 on Jan. 26, the highest since March 2. Mainland
China markets are closed until Jan. 30.
 (Editing by Pete Sweeney, Thomas Shum and Pranav Kiran)
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