ExplainerExplained: The economic importance of China’s Lunar New Year as the Year of the Rat begins
- Known as the Spring Festival or Lunar New Year, the Year of the Rat began on Friday with family reunions across the world’s most populous nation
- The outbreak of the Wuhan coronavirus, though, has complicated one of the planet’s greatest migrations and could hit revenues for retail sales and at the box office
Families across China celebrated the beginning of its new year on Friday, which began with one of the planet’s greatest migrations, and will continue with a month of nationwide factory closures along with a spending spree that has the potential to have a big seasonal impact on the economy.
During chunyun, the 40-day travel period that runs from January 10 until February 18, workers return home, making it also the busiest period for rail and air travel.
Around 440 million passengers are expected to travel by rail this year, a year-on-year increase of 32.6 million, or 8 per cent, according to estimates by the National Railway Administration.
China’s aviation authority predicts that civil aviation passenger traffic will hit 79 million, up 8.4 per cent compared to last year, which would be a record high.
The pneumonia-like virus is expected to at least have some impact on travel and tourism, with operators offering free cancellations to those who had planed to visit Wuhan, the city of 11 million people at the heart of the outbreak. Some online ticket sales platforms have offered advanced ticket holders in Wuhan full refunds for films shown during Lunar New Year. At least seven films, which were expected to released during the Lunar New Year holiday, have also been withdrawn due to the virus.
Most people will still be off work, and practically all industries will be shut down for up to three to four weeks. According to estimates by research firm TS Lombard, the 2020 shutdown is likely to stretch from Wednesday to February 9, spreading the impact across two months.
The magnitude of seasonal impact from Lunar New Year is so huge that analysts consider it difficult to gauge the real status of trade and production data for the world’s second largest economy during the holiday period.
“The China shutdown and closures in [South] Korea and Taiwan mean that the East Asian export manufacturing complex is significantly weaker in the month in which Lunar New Year falls. Korean and Taiwanese exports are thus also likely to have strong February numbers that will fall away in March,” said TS Lombard.
For South Korea and Taiwan, exports to China account for 25 per cent and 29 per cent of their foreign sales respectively. They will also have their own, but shorter holidays for the Lunar New Year, with their export figures expected to drop in March following the Lunar New Year break in February in China, TS Lombard said.
For many years, China’s fast economic growth relied on migrant workers, the cheap labour force that took jobs far away from home. The National Bureau of Statistics said that China had 288.36 million migrant workers at the end of 2018, a rise of 0.6 per cent from 2017.
With many having been separated from their children, the family reunion aspect of the holiday is reinforced by a big family dinner which this year took place on Friday, similar to a Thanksgiving dinner, although instead of turkey, pork dumplings and other dishes including fish take centre stage.
The Lunar New Year is China’s peak pork consuming season, as it is seen as a symbol of wealth. Traditionally, rural residents would slaughter a pig to celebrate the new year.
China has been releasing its frozen pork reserves to keep prices and supply steady, and since early December, it has auctioned more than 200,000 tonnes, anticipating the rise in demand for pork during Lunar New Year holiday.
But pork prices, though, rebounded in January ahead of the Lunar New Year. China’s state planner, the National Development and Reform Commission, said that over Lunar New Year and the coming months, it will continue to organise the auction of pork reserves in a bid to “protect the basic consumption needs of urban and rural residents”.
Just like families in the US splashing out on Thanksgiving, China’s spending habits increase around the Lunar New Year, although growth has slowed with consumer confidence waning partly due to the trade war with the US and the sluggish domestic economy.
Last year, national retail and catering revenues rose just 8.5 per cent compared to 10.2 per cent in 2018.
The growth rate for tourism revenue also dropped to 8.2 per cent in 2019 from 12.1 per cent in 2018, with total spending last year hitting 513.9 billion yuan (US$74.4 billion) during the holiday period.
And even before the coronavirus outbreak, the growth of box office revenues also slowed for a second consecutive year in 2019, with the total of 64.2 billion yuan (US$9.3 billion) up just 5.4 per cent from a year earlier.