Year of the Rabbit Signals Rebound in Chinese Markets

On January 8, 2023, in what was seen as an unexpected policy reversal, China reopened its borders with Hong Kong and Macau and dropped its COVID-19 testing requirements and daily quotas. Over the past three years, Hong Kong had been largely sealed off. Its government sought to follow Beijing’s pandemic policies with the mandatory quarantine of up to three weeks for arrivals, as well as intensive testing and screening. In 2022, Hong Kong received just over 605,000 visitors as the city slowly undid some of its COVID restrictions, up from 91,000 in 2021, according to the local tourism board. However, that compares with almost 56 million in 2019 before the pandemic hit.  

Impact on Travel and Tourism

With the removal of many restrictions, especially ahead of the Lunar New Year holiday, travel surged across the mainland and its territories. This was especially true in Macau, which is known as the “Las Vegas of Asia.” About 451,000 visitors arrived in Macau during the week-long holiday, an almost 300% increase from a year earlier. Most arrivals came from mainland China, according to provisional statistics from Macau Tourism Data. Casinos saw gaming revenue surge in January, fuelling hope that consumption will rebound quickly. 

The recovery follows 10 consecutive months of double-digit declines as COVID policies and a crackdown on cross-border gambling kept casinos mostly empty for much of 2022. Last year’s annual takings in Macau were the lowest since 2004, which was hard to believe because in 2019 they reported gaming revenue six times that of Las Vegas. The IMF now projects the Chinese economy will expand 5.2% this year, up from 3% in 2022, driven by the rebound in consumption. 

Impact on Consumer Spending

Chinese households save mainly in the form of housing and financial investment, but last year they delayed home purchases and pulled out of the stock market and other underperforming financial assets in favour of keeping their money in bank deposits. According to several estimates, housing purchases declined in 2022, mostly owing to investors’ expectations of a sustained economic downturn.  

The increase in Chinese household savings last year was unusual and reflected consumers’ inability to spend as a result of China’s strict COVID lockdowns, which forced millions to remain indoors, sometimes for months at a time. Now that China has abandoned the policy, the floodgates have opened, and it stands to reason that much of these forced savings will spill out, lifting consumption higher. During a recent State Council meeting, China’s premier Li Keqiang reinforced this by stating, “The greatest potential of the Chinese economy lies in the consumption by the 1.4 billion people.” But while China is expected to experience a recovery in consumption this year, Chinese households are likely to maintain a higher level of precautionary savings until they see a sustained recovery.