Much like the saying “one swallow does not make a summer”, one Golden Week cannot single-handedly bring about an economic recovery. However, just as a swallow is an early sign of the spring thaw, the rise in tourist activity during China’s recent Golden Week holiday hints at a gradual recovery of the country’s economy.
There are two aspects to this recovery. The first aspect is the domestic tourism numbers. The second is the surge in international tourism. Domestic tourism represents domestic consumption in more ways than one because these raw figures fail to appreciate the larger discretionary expenditure involved when the increase in international travel is considered.
This signals a resurgence of confidence in China’s economic future. Individuals concerned about the future tend to limit their discretionary spending as they save for unexpected challenges. The domestic figures consistently improved compared to previous years, notably exceeding those from 2019, just before the Covid-19 lockdowns.
It is estimated that 826 million domestic trips were taken by train, car and plane over the eight-day holiday. This is up 4.1% from the last pre-Covid-19 Golden Week in 2019. Also, domestic tourism revenue increased by around 1.5% compared to 2019. That may sound like a low figure, but remember, this is a 1.5% increase over the last pre-Covid-19 period, so it represents a steady resumption of growth.
Reuters calculated that the individual tourists’ spending on domestic trips during the holiday also beat the pre-pandemic spending levels. The characteristics of domestic travel also changed. Of course, the traditional tourist spots remained popular. Shanghai welcomed more than 21 million visitors. However, the more remote regions of China — the adventurous frontier — saw more significant increases in tourism numbers. The Inner Mongolia grasslands had around 14 million visitors, and Gansu and other outer provinces saw similar increases. As living standards and economic outlook improve, Chinese tourists seek richer travel experiences.
China’s outbound trips surged during the Golden Week holiday, surpassing pre-Covid-19 levels. This spike represented an 85.1% increase compared to the same period in 2019, nearly quadrupling the 2022 average. Data from the travel booking site Ctrip indicates that year-on-year growth in outbound travel bookings has reached nearly 20 times the previous figures.
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After introducing a visa waiver programme, Thailand was the preferred choice for international travel. Booking platforms like Ctrip and Qunar say Chinese tourists looking to go abroad favour cheaper Asian destinations and those with less restrictive visa requirements. The most significant change in international tourism was the growth of individual or small-group tourism. There was no return to the large group tour business that characterised the market before the pandemic.
While large group tours are expected to make a comeback, it is evident that post-pandemic Chinese travellers are seeking international experiences that are unique and adventurous. This desire highlights their willingness to spend on discretionary items. Thus, the most significant takeaway from the Golden Week travel period is that the Chinese economy is clearly on the path to recovery.
Technical outlook for the Shanghai market
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The Shanghai Index is testing the support level near 3,080. This is an important feature. If support is successful and the market rebounds, this sets up the conditions for a double-bottom rebound. That is a bullish development, although the index must overcome resistance from the value of the downtrend line and the resistance level near 3,160.
If support near 3,080 fails, the next downside target is near 3,000. This is not a strong support feature, so the market may dip lower towards 2,900 as it did in October 2022.
The downtrend is a sustained pattern that makes breaking difficult with a quick rally. A sideways consolidation pattern using the 3,080 as a support floor is more likely to develop. This sideways pattern may be trapped in a sideways trading band between support near 3,080 and resistance near 3,160.
A sustainable long-term uptrend must move above the long-term downtrend line with a current value near 3,130 and a historical resistance level near 3,160.
Investors will also continue to watch for the development of a 1-2-3 Guppy Multiple Moving Average (GMMA) breakout pattern. This behaviour pattern shows investors gradually becoming convinced that the rallies created by traders are evidence of a trend change.
The 1-2-3 pattern starts with a failed rally where the short-term GMMA cannot move above the upper edge of the long-term GMMA, as we see on the current chart. A rebound from support may form the next part of the pattern.
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If this rally develops, the short-term GMMA should move above the upper edge of the long-term GMMA before the rally collapses again. This is also when the long-term GMMA begins to compress and change direction. Currently, there is no evidence of compression in the long-term GMMA. In this pattern of development, the second rally fails and then retreats.
The third stage of the 1-2-3 pattern is where the index retreat uses the lower edge of the long-term GMMA as a support feature. This third rally confirms the breakout and the beginning of a longer-term uptrend.
Two Additional features were developed. First, the short-term GMMA moves completely above the long-term GMMA. Second, the long-term GMMA turns upwards as it first compresses and then begins to expand.
The primary signal for the development of an uptrend is for the index to move above and stay above the value of the downtrend line.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia-China Business Council. The writer owns China stock and index ETFs
