This Lunar New Year: Good for China’s factories, bad for travel
Working from home has driven up overseas demand for Chinese exports, keeping workers in factories during the holiday.
Kuala Lumpur, Malaysia – Across many parts of Asia, and among Asian diaspora beyond the region, families are normally busy around this time of year repainting and spring cleaning their homes to prepare for visits by family members or buying oranges and festive cookies, all to get set for the Lunar New Year celebrations.
But as with most things that COVID-19 has touched, this Lunar New Year – which falls on Friday – is turning out to be anything but normal for many individuals and companies, for a second consecutive year.
While chatting the other evening with my ethnic Chinese neighbour I asked him whether he was going to be giving his home the annual spruce-up.
“Why bother? Who’s going to come?” was his succinct reply.
Malaysia, as with many other places, has seen a surge in coronavirus cases in recent months, resulting in a return to lockdowns and travel restrictions.
And in China, the world’s second-largest economy, a recent spike in cases is inadvertently proving to be something of a positive for its factories, but adding to the pain of its travel and retail industries, as well as many of its people.
Last year, as China grappled with the emergence of a then-unknown respiratory virus, city workers who had gone to their rural hometowns for the holiday were left stranded there as authorities suddenly imposed travel restrictions to control the spread of the disease.
After largely bringing COVID-19 under control at home, a jump in cases last month prompted Chinese authorities to encourage migrant workers to stay in the cities and near their workplaces, reducing what is usually the world’s largest annual migration of people to a trickle.
Another lost year?
While many will miss being with their families at this cherished time of year, the latest developments are also crushing large parts of the economy, in particular travel, hospitality or any other sector that relies on face-to-face contact with customers.
In many Asian economies and industries, the Spring Festival is the most lucrative time of the year as people splurge on expensive dinners and presents.
China’s retail sales in the first two months of 2019 – the period that included the Spring Festival – stood at 6.6 trillion yuan ($1 trillion). For the same two months last year, that figure had plunged by 20.5 percent. Many analysts expect sales this holiday season to be better than last year, but still far below what they were in 2019.
China’s annual mass migration is usually a spectacle. But the 2021 version of it, stretching from January 28 to March 8, is likely to be much smaller than those of previous years.
China’s Ministry of Transport estimates that people will make about 1.15 billion trips during this year’s Lunar New Year. That represents a 20 percent decrease from 2020, and a more-than-60-percent slump compared with 2019. About 95 percent of those trips usually take place by road and rail, with planes and boats making up the rest.
Carrots and sticks
The number of new coronavirus infections surged in mid-January to their highest in more than 10 months, most of them in China’s north and near the capital, Beijing. To rein in the spike, authorities have adopted a carrot-and-stick approach.
People travelling across provinces must undergo multiple tests, both before departure and on arrival. At their destination, travellers are also required to quarantine themselves at home.
But many employers are doing their bit to encourage staff to stay in the cities and work through the holiday. The Financial Times newspaper reported that some of these incentives include cash gifts, additional streaming credits for mobile phones and free entry to local tourist attractions.
As a result, many people have cancelled their trips, according to media reports.
“The [news of travel restrictions] highlights an important risk to Chinese travel-related companies: that yet another important holiday period could effectively be lost to COVID-19,” logistics and transport research firm Tracking Traffic wrote in a note distributed on the Smartkarma platform.
“Along with Golden Week (October) and the Summer school holidays, [Lunar New Year] is one of only a few periods when Chinese tourists and their families can take long trips (4+ days) within China or internationally. Additionally, we believe many Chinese tourists tend to spend liberally during these long holiday periods, so potential restrictions on [Lunar New Year] travel could hit Chinese travel service providers especially hard.”
China’s airlines could suffer particularly badly.
For instance, the average airfare that China Southern Airlines, one of the country’s big three carriers, charged its passengers for the most frequently travelled domestic routes in the first 25 days of 2021 was about 39 percent below its peak between September and October last year, according to China analyst Osbert Tang, an investor and managing director of Carresberry Capital in Shanghai.
For many weeks after the end of last year’s Spring Festival, migrant workers found themselves out of work as they were stranded in their villages, unable to return to the cities because of travel bans. And without their workers, manufacturers in key cities were forced to remain idle, scrambling global supply chains that rely on the last-minute delivery of raw materials and components.
This year, that situation appears to have been reversed.
Overseas demand for Chinese goods has been surging as people everywhere retool their lives for the new COVID-19 normal.
Exports have grown at double-digit rates for the last three months of 2020, and factories have been looking to take advantage of the situation by powering through the holiday.
Full disclosure: I have probably been partly responsible for China’s big export numbers recently. Working from home over the last year or so, my wife and I have had to buy new computer monitors, while the wear and tear on other gadgets have increased, forcing us to replace them. Over this time, we have replaced our kettle, toaster oven, fans and most recently the fridge – all of which have at least some, if not most, of their components made in China.
Hence the incentives for Chinese workers to carry on working and pad out their pay packets, when they would normally be enjoying their one break of the year surrounded by family with their favourite foods and copious amounts of alcohol, handing out small red packets filled with money to kids running riot around them.
Happy Year of the Ox to all those who are celebrating – or trying to.