How golden was the Golden week?

Last week China had its so-called golden week, in connection to the National Day Holiday (the other golden week is during the Chinese New Year around the end of January). When it was implemented in 2000, the original intention of giving a one week long holiday to the whole of China was to boost internal consumption as people are expected to travel, to spend money on presents, consumer electronics, food and so forth. Hence every year sell-side analysts and the investors’ community jump on the released official data and try to draw conclusions on the consumers’ mood and wallet. This year’s golden week results are probably under even stronger scrutiny amid rising concerns of a China’s hard landing, which we do not believe in. 

So what does the Golden Week’s statistics tell us? Domestic retail sales with no less than 700 bn RMB (82 bn USD) recorded a slightly slower growth than usual but were still up a healthy  17% year-on-year (vs 18.7% in 2010). This week, some of my colleagues are actually meeting a number of our retail holdings and will see whether the managements confirmed the trends in the holiday sales as well as third quarter results. Domestic tourism traffic increased 9% year-on-year, a more moderate growth than last year (+16%) that was exceptionally strong – partly explained by the Shanghai World Expo, but there were still 300 million people travelling during the week according to the National Holiday Office. Besides, an increasing number of well-off households chose to spend their holidays outside mainland China, and Hong Kong and Macau clearly benefit from this, as do other major tourist and shopping centers in Europe and the US.

As always one should not think of China as one single country as there are huge regional differences. As to me I spent the Golden Week in Yunnan (云南,a very poetic name meaning “South of the clouds”), also one of the provinces that reported some of the strongest retail sales growths. Yunnan is a fascinating province in the far southwest of the country, next to Tibet and north of Vietnam, offering fantastic sceneries and lots of cultural discoveries about ethnic minorities.

I also brought back with me two observations. First domestic tourism is really huge. I don’t think I’ve ever seen in my life such crowded streets as the ones of the beautiful old town of Lijiang, a UNESCO Heritage site, which became famous and wealthy thanks to the old tea horse road. Chinese tourists however concentrate on cities and easily accessible destinations, so up on the high hiking trail of the Tiger Leaping Gorge there were hardly any Chinese to be seen, which we were quite happy for since the trail next to 800 meters deep cliffs was sometimes extremely narrow and slippery….

Second, the countryside remains very poor. Yunnan is a relatively underdeveloped province with a strong agricultural focus. Spending a few days in a village, learning how to harvest rice and tea, walking every day to the market square give a very different perspective on China than the bustling Shanghai. One can understand why farmers still have very little discretionary spending, as their monthly income of 60 EUR will not allow it. However the rural incomes are now growing faster than the urban incomes, for the first time in more than a decade. So we can expect Golden sales in the countryside in the future as well.