The Chinese New Year Effect

The sumptuous meals in reunion dinners and typical nosy questions regarding our love life or future plans along with conspicuous red decorations that exemplify luck and fortune. Does that ring a bell?

Chinese New Year (CNY) otherwise known as Spring Festival or Lunar New Year is a festival that celebrates the beginning of a year in the traditional Chinese calendar. Countries that encompass the general population of Chinese descent like China, South Korea or Singapore are susceptible to business volatility if advanced measures are not taken ahead. As a matter of fact, business operations are expected to resume on the 8th day of the festival as it is a symbol of auspiciousness in the Chinese culture.

According to the Chinese government, approximately 415 million trips took place for the celebration during the Year of Pig in 2019. The annual tradition of family reunification and overindulgence prompted a seasonal travel rush. Chinese travelling back home during the season are generally required to book their trip months earlier to preclude exorbitant prices. Nevertheless, special measures such as an addition of 600 extra trains and services were rendered by China's railway system to accommodate the planet’s largest human migration. Travelling for business purposes is plainly inappropriate as CNY is seen as a time for reunion, business calls for this time are usually deemed inappropriate.

China has been the “The World’s Factory” (ubiquity of Chinese products is evident) supplying cheap manufactured goods to the world. The manufacturing powerhouse’s closure for more than 4 weeks might pose a detrimental effect to the economy. For instance, limited capacity and smaller workforce due to halted production will result in reduced product quality and shipping delay. In other words, larger firms are forced to subcontract workers or smaller factories in order to meet continuous demand. Considering the new workers, firms are required to train them which incurred high adjustment costs. Poor quality products are inevitable as time is needed for workers to acclimate. Hence, firms are advised to prepare inventory stocks and strengthen quality control over products to sustain in short-term downfall.

China’s Total Exports from July 2014 to July 2019

The Chinese markets have consistent export patterns throughout the years as illustrated in the diagram above. Annual exports surge significantly before plummeting at the beginning of the year in consequence of the rise of seasonal exports demands from year-end holidays and followed by the nationwide factory freeze for 4 weeks, in turn, stagnating production line and manufacturing processes. However, the ensuing V-shaped rebound indicates the ending of the celebration and the manufacturing powerhouse is getting back on track.

The red packet, also known as ‘angpau’, is a monetary gift traditionally given by those who are married or employed hoping to pass on a year of good fortune and blessings. In light of the red packet etiquette, China’s central bank is vigilant during the celebration, expecting an onrush of cash withdrawals that can exacerbate liquidity risk.

In this pandemic era that filled with uncertainties, it is imperative to adhere to advices and preventive measures stated by the ministers, ensuring the health and safety of everyone. After all, an e-angpau is comparatively decent as well.

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About the Author

Lee Shu Yan is a full-time economics student and a part-time plant hobbyist, constantly exploring for business ideas. She hopes to someday be able to launch a startup that is aligned with her values.