China's Golden Week ends with a take-off in consumerism

China's Golden Week ends with a take-off in consumerism

Posted by Mike Shiao, Chief Investment Officer, Asia ex Japan, Invesco

China’s eight-day “Golden Week” holiday ended on an upbeat note with Chinese consumption showing signs of recovery. With the pandemic in the country largely under control, recent market data suggests that the tourism boom during Golden Week has translated into solid consumption demand in various areas, including retail, entertainment and dining. 

The “golden week” holiday is a traditional tourism and consumer season celebrating China’s National Day and often viewed as an indicator to gauge recovery of Chinese consumption. 

Asian consumption shows signs of recovery 

Chinese consumption has been making a strong comeback with a rebound in domestic tourism. Domestic tourist visits and industry revenue reached 637 million and RMB467 billion respectively during the eight-day “Golden Week” holiday, according to Ministry of Culture and Tourism, representing 79% and 70% of the level achieved during the same period last year. *1 Domestic travel accelerated significantly in October compared with the Labor Day holiday in May. *2

Source: Ministry of Culture Tourism, WIND, as of 12 October 2020

Improving domestic travel (i.e. booking of air tickets and hotels) have so far implied positive normalization trends *3, which is a key driving force of Chinese consumer activities including dining, shopping and entertainment in the post-pandemic era. China has made progress to contain the pandemic, leading the recovery of the region. That said, we also observe positive trends in Korea, Taiwan, and India signalling domestic consumer recovery at different pace. 

Consumer companies in Asia are quick to offer discounts and incentives aiming to capture every dollar of the pent-up spending and customer loyalty by offering elevated customer experience. We believe key trends in Asia consumerism may present interesting investment opportunities.

Key Trends Highlights
China consumption activities resumed • Advance online travel booking for Golden Week two weeks before the holiday season in China reiterated China’s V-shape rebound of consumer retail activities.
• According to a leading Chinese online travel agency, air ticket booking volume has exceeded 90% of the same period last year. *4
• Hotel bookings also saw rising demand, as overall average daily rate per room nights (ADR) grew by 20-30% YoY. *5 • For example, an online travel platform owned by one of China’s largest ecommerce company, indicated ADR increases by 65% compared to August this year. *6
Consumers are trading up, demanding better quality and experience • Consumers’ “trade-up” pattern in China - higher quality accommodation, private transportation, and more customized travel experience post COVID-19. 
• Over 80% of orders on a leading online travel agent in China go to high-end products (4-star & 5-star) for better service and experience. *7  Search engine in China shows that self-driving is the most popular domestic travel activity, which has pushed up car rentals. 
• One of China’s leading ecommerce platform published a 2020 version of its “Must List Series”, helping consumers select restaurants according to hygiene factors. 
• Companies are innovative providing elevated customer experience.
Asian economies are on the path of recovery at different pace • While China is leading the recovery, other economies in Asia are on their own path of recovery.
• In Taiwan, consumer confidence improved for the third consecutive month, coming in at 71.3 in August, vs. 69.4 in July. Meanwhile, retail sales picked up to +3.3% YoY in July vs. +0.1% YoY in June. *8
• In Korea, we see encouraging signs of domestic travel bottoming out from recent lows. *9 • In India, google mobility indicators show recovery path after different phases of country lockdown, as seen in pickup in retail and recreation as well as grocery and pharmacy. *10
Nationwide consumption in China

Key sub sectors are also benefitting from a revival in Chinese retail consumption including entertainment, shopping and dining. Movie box office reached RMB3.9 billion, with 100 million tickets sold, the 2nd highest in history. The rebound is surprisingly strong as theaters are only allowed to operate at 75% capacities. *11  Daily average retail sales at major retailers and restaurants monitored by the Ministry of Commerce grew +4.9% yoy, up from the 0.5% YoY in August. Duty-free shopping in Hainan was particularly strong - sales at 4 major shops was up +167% YoY. *12  Online restaurant bookings via one of China’s leading ecommerce platform were up +37% YoY and restaurant orders during the first 7 days of October were 15% higher than the level seen in early 2020. *13  For high-end consumption, an online travel platform owned by one of China’s largest ecommerce platform saw 50% YoY growth on order volume of accommodation with 100% yoy increase in high-end hotels as of October 6th. *14

Investment implications

Domestic consumption plays an important role in driving economic recovery post COVID-19.

The latest data echoes our positive views on the Chinese economy where consumer and services activities will continue to normalize. The solid consumer demand has created a favorable macro backdrop for consumer-related companies and the associated investment opportunities.

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

1 Ministry of Culture and Tourism, Citi Investment Research, as of October 8, 2020.
2 “China's Golden Week shoppers declare COVID 'curbed'” Nikkei Asia, published October 10, 2020.
3 Q2 2020 Earnings Release by Meituan, Booking, and Expedia, company reports, data as of August 2020.
4, 11 September 2020.
5, 11 September 2020.
6  2020 National Day Golden Week: Pent-up Demand to Unleash During the Lengthened Holiday” Citi Research, 14 Sep 2020
7  2020 National Day Golden Week: Pent-up Demand to Unleash During the Lengthened Holiday” Citi Research, 14 Sep 2020
8  Morgan Stanley Research, Taiwan Macro and Strategy Chartbook, 14 September 2020.
9  Morgan Stanley Research, Korean weekly air passengers, as of 22 September 2020.
10  Morgan Stanley Research, India Google mobility indicators, as of 20 September 2020.
11  China Global Television Network, as of October 8, 2020.
12  Bank of America Merrill Lynch Global Research, as of October 8, 2020.
13  Bank of America Merrill Lynch Global Research, as of October 8, 2020.
14  Citi Investment Research, as of October 8, 2020.