Compared to the fairly rapid rebound in manufacturing and investment over the first half of the year, the recovery in household consumption has lagged. A strong comeback in travel activity ought to be evidence that all is back to normal. However, the total number of trips during the “golden week” holiday was 20 percent below last year. This comes despite the holiday week being 8 days long, compared to 7 last year, due to coinciding with the mid-autumn festival.
That should be a reminder how deep the economic impact of the pandemic was on China’s economy. The recovery is still unbalanced with household consumption only slowly picking up pace. A weak labor market and low wage growth are key factors constraining households’ appetite for consumption. The stability of China’s financial system remains another vulnerability. The government’s stimulus was successful in shoring up GDP growth, but has also resulted in accelerating credit growth.
Stimulus measures are likely to stay in place until household consumption and the labor market are on a more solid footing. But bar a second Covid-19 outbreak, China’s economic recovery is well on track.