The recovery in China’s domestic tourism alone will add at least 0.5 percentage point to 2023 growth

There has been increasing optimism about the Chinese economy thanks to the recently economic reopening away from zero Covid policies. The improvement in economic activity is well reflected in our calculation of intercity mobility (Chart 1), which shows a significant increase in the run-up and during the just finalized Chinese New Year. Among all the encouraging signals, the rapid rebound in domestic tourism is the most obvious one.

In the first twenty-five days following the beginning of the Spring Festival Travel (2023.1.7-2023.1.31), the total number of passengers increased by 56% comparing to that of 2022 and reached 63% of the level in 2019 (Chart 2). While it still lags behind full recovery (if we define getting back to 2019 as full recovery), the pace of the rebound is already compelling given the massive Covid-19 outbreak that has followed the reopening. Assuming the same pace of recovery for the rest of the year, China’s tourism will bounce back to 80% of the tourism revenue in 2023.

In addition to the travel recovery, other related local service activities also exhibited strong momentum. For example, the box office revenue has risen back to 6.8 trillion RMB during the Chinese New Year in 2022, which is the second highest level for the Chinese New Year period only next to 2021 (7.8 trillion RMB) (Chart 3).

Against the backdrop, what will this tourism recovery imply for China’s macroeconomy?

Before the pandemic, domestic tourism was an important driving force for the Chinese economy. Its revenue reached 5.7 trillion RMB (5.8% of GDP) in 2019, but it dropped only 2.2 trillion RMB (2.2% of GDP) in 2020 following the Covid-19 outbreak. There was a short-term improvement thanks to the initial success of the zero-Covid policy, but the tourism revenue declined again to only 2 trillion RMB in 2022 (1.7% of GDP) as the restrictions to contain Covid-19 increased as the virus became more infectious (Chart 4).

To quantitatively gauge the impact of the increase in tourism on the Chinese economy. We used a regression-based analysis to unveil the quantitative relationship between tourism revenue and China’s GDP based on the data sample from 2011 Q1 from 2021 Q3. The result indicates that an 1% increase in tourism revenue raised China’s nominal GDP by 0.2%. Our counter-factual analysis shows that the tourism sector reduced China’s nominal GDP in 2022 by around 0.6 percentage points comparing to 2019.?

Based on the estimations, we can further gauge the growth impact in 2023 after the reopening of the economy. If we assume China’s domestic tourism revenue in 2023 to go back to 80% of the level in 2019, the improvement in the sector will contribute about 0.5 percentage point in China’s GDP. If the domestic tourism revenue can go further to 100% of its level in 2019, the contribution will increase to 0.6 percentage point in China’ GDP.

As such, we believe tourism recovery will be a very important prologue to China’s economic performance. Obviously, for China to reach 5.5% growth in 2023, which is our current projection, more needs to happen than only domestic tourism, but we are starting to see it. According to the total consumer expenditure data released for the Chinese New Year based on the value added tax information, the consumption of tradable goods has increased by 13% even compared to 2019. Specially, fruit & vegetable, meat, egg & milk and furniture have gained an increase of 17.2%, 13.2%, and 9.9%, respectively, than the same period in 2019 (Chart 5). Given the continued consumption momentum and likely gradual rebound in investment confidence, we keep our forecast of 5.5% GDP growth for China in 2023.

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