Checking in for a travel boom
The number of mainland tourists heading abroad has roughly doubled in five years, despite what may be the slowest year of growth in over a decade
Soaring numbers of Chinese tourists packed onto flights out of the country is a sure sign that a fast-growing consumer class of about 130 million is not worried that the likely slowest year of economic growth since 1999 will sap their spending power.
Nearly 39 million mainlanders left China on overseas trips in the first half of this year, roughly double the number five years ago and evidence that a powerful consumer force - envisaged by the top leadership as the engine of economic expansion in a generation to come - may be bulking up faster than thought.
The question for investors is whether a burgeoning bourgeoisie is now big enough to fully offset the economic impact of faltering foreign demand evident in data last week, when undershoots in July new bank lending, export, import and industrial output growth prompted analysts to start slicing into gross domestic growth forecasts.
Paul French, Shanghai-based chief China strategist at market intelligence consultancy Mintel, said the purest view of the health of the domestic economy always came from the consumer.
"If consumers feel good about things, they'll spend. If they don't feel good, they'll stop," he said. "Travel is a good indicator because people are travelling more and they are consuming a lot when they travel abroad."
Investors, facing world growth slowing to levels that economists define as marking a global recession, are anxious for any sign that critical consumer mass may have arrived in China.
Consumer spending in China has comfortably enjoyed double-digit growth for a decade, while exports have slowed to become a net drag on the economy last year and in the first half of this year.
Retail sales rose 13.1 per cent year on year last month. Adjust for inflation and it was the second best month of the year.
But that has not been enough to arrest six straight quarters of slowdown, with the latest Reuters poll forecasting economic growth to slide to 8 per cent this year from 9.2 per cent last year.
While well below the 10 per cent average of the last 30 years and a level that has previously prompted urgent action to create jobs, 8 per cent remains above Beijing's 7.5 per cent target.
Meanwhile the labour market appears tight, with data showing the ratio of vacancies to workers near its highest in 10 years.
Evidence that consumers are rapidly getting stronger comes from the Geneva-based Digital Luxury Group, which reckons China's travel market is already worth some US$232 billion.
It said in its new World Luxury Index China Hotels report that Chinese travellers made 70 million outbound trips last year to be pampered at spa resorts in Bali, to shop in Dubai, Paris and London, and to spend in Singapore and Hong Kong.
Tony Tyler, chief executive of the International Air Travel Association, says airlines will see an extra one billion travellers in a decade if average annual incomes in China hit US$15,000.
Part of the proof is in the construction going on. China, Iata says, plans to build 56 new airports across the mainland before the end of 2016, with a further 16 relocated and 91 to be expanded.
Chinese carriers made about half of the US$7.9 billion in profits earned by the global airline industry last year, said Iata, which expected international traffic growth of 8 to 9 per cent from China in the five years to 2015.
A Beijing-backed World Bank report envisages per capita income rising to US$16,000 by 2030 from about US$5,000 now, with two-thirds of economic activity forecast to come from domestic consumption, against less than 50 per cent now.
But while workers in the world's second-largest economy are earning more, they lag well behind those of the United States.
Average annual wages in state-owned companies, which dominate economic output, were 42,452 yuan (HK$51,966), or US$6,700, last year and just 24,556 yuan in the private sector, which creates some 75 per cent of the mainland's jobs. The US average wage was US$39,959 in 2010, the latest data available showed.
China's wealthy elite, however, have generated a whole new market for the world's luxury personal goods makers, estimated to be worth US$25 billion a year now and likely to leapfrog Japan and America to the US$28 billion top spot by 2015.
It indicates a consumer market polarised between the super rich and a middle class with modest discretionary spending strength, but growing rapidly in size and affluence.
It is one reason why Yolanda Fernandez Lommen, head of the economics unit at the Asian Development Bank's China mission, says a self-sustaining consumer class is some way off.
"We consider that 10 to 15 per cent of the [Chinese] population shows a consumption pattern that is consistent with the type that would be regarded as a solid domestic driver of growth," she said. "In general, economies where consumption plays a meaningful role as a driver of growth entail a wide middle class that on average comprises about 70 to 80 per cent of the population."