Novelty of China’s ‘Holiday Economy’ Is Wearing Off

SHANGHAI —  Imagine 1.3 billion people getting a seven-day paid vacation at the same time. Now imagine that happening three times a year.

It’s a holiday with Chinese characteristics. And leaders of the world’s most populous country swear by the power of mandatory rest and recreation to keep the economy humming.

But three years into the experiment, critics complain that not only has the highly touted “holiday economy” failed to stimulate domestic consumption significantly, but it has also hurt some businesses and put an extraordinary strain on the country’s tourist attractions.

“I don’t think the holiday economy concept works,” said Li Zhining, an economics professor at the Chinese Academy of Social Sciences in Beijing.

In 1999, Asia had just emerged from a devastating financial crisis. There seemed no better way to ward off deflationary pressures and make up for lost business than mobilizing China’s own masses to spend money. So in October 1999, Beijing created a weeklong holiday to celebrate the 50th anniversary of the People’s Republic. A year later, authorities added the week surrounding Chinese New Year, which falls around February. Finally, they threw in the traditional May Day, which also grew from one to seven days off.

At first, the novelty of a long paid holiday enticed a lot of people to travel and splurge.

According to some estimates, about 200 million Chinese hit the road during last year’s breaks and pumped more than $8 billion into the economy.

But the novelty is wearing off.

Most Chinese can’t afford to travel three times a year, year after year. Those who can now want to avoid taking holidays with the rest of the country. Nobody likes bumping into a sea of people, whether climbing the Great Wall or dipping into the South China Sea.

Prices for package tours already are dropping as travel agencies face fallen demand leading up to this week’s National Day break.

“Many customers complain about traffic jams, poor services and a lack of quality accommodations,” said Chen Yimin, a manager at a Shanghai travel agency. “But we have no choice. How could the hospitality industry provide good services when so many people travel at the same time?”

Hotels, restaurants and retailers acknowledge doing brisk businesses during the three holidays. But sales tend to drop precipitously afterward.

The problem, some economists point out, is money. Unemployment is still a major problem as China undergoes a painful restructuring of its ailing state-owned enterprises. People don’t have enough disposable income to do the heavy lifting the government expects.

The Chinese are also savers--they’ve stashed away more than $1 trillion in personal savings accounts. But experts say the bulk of that money belongs to the country’s wealthy few. These deep pockets are unlikely to turn into big spenders on demand.

Besides, most of them tend to invest money overseas. Local newspapers are full of reports about well-off Chinese going abroad and buying multiple homes in cash.

“Ordinary Chinese people live on small salaries,” Li said. “But things like health care, education and housing that used to be subsidized by the state now must come out of their own pockets. Where is the extra money to shop and travel?”

A better incentive would be creating more jobs and increasing the people’s purchasing power, experts say.

“Long holidays can change when people spend money, but it can’t change how much they will spend,” economist Zhao Xiao said.

Meanwhile, businesses from lightbulb makers to telecommunications to car manufacturers also are crying foul. To them, the sudden exodus of workers and a total shutdown of government agencies amount to a logistics nightmare akin to a general strike.

“The complete closure of all government offices, bureaus, banks and state-owned enterprises, without any viable level of service remaining whatsoever, causes a major slowdown in manufacturing and trade for both domestic and foreign enterprises,” according to a letter a group of multinational companies recently sent to Chinese officials. “The complete closure also creates a substantial communication breakdown between domestic and international customers, suppliers, sales and distribution [networks].”

Another frustration for businesses is that the government orders people to work and go to school during the weekend before the long holidays. That can mean toiling nine consecutive days without a break. It translates to employee fatigue and lower productivity. By the time the vacation rolls around, many are too tired to enjoy it.

China eventually might come to the conclusion that it makes more economic sense to give people the freedom to choose when to work and when to play.

“The holiday economy is about the state meddling with the market,” economist Zhao told a Chinese magazine. “Once it’s proven to be totally ineffective, it will definitely exit the stage of history.”