The hot spots
Could half a trillion Chinese soon be visiting a town near you as holiday fever grips a new generation of the Middle Kingdom’s consumers?
The estimate from HSBC is that the Chinese will make more than 150 million international trips this year (153.5 million to be more precise), although Erwan Rambourg, global co-head of the bank’s consumer and retail research team, thinks this is just the beginning in terms of the potential for outbound flows.
“Less than 10% of Chinese nationals have passports, according to government figures. In many Western countries the ratio is closer to half, so there is a huge opportunity for growth,” he explains.
Rambourg isn’t predicting that passport ownership in China is suddenly going to reach the same level, but he does think the figure could rise relatively quickly towards something like a fifth of the population, which would have a massive impact on tourism-related spending.
“People often tell me that the luxury stores in their countries are already packed with Chinese visitors, but I tell them that tourist flows are still at an early stage,” he suggests.
But where are the millions of new tourists from China likely to be travelling, and what are the factors that make the different destinations appealing? WiC spoke further to Rambourg to find out.
Make way for the Lucky Eight
With outbound travel still in its infancy, many Chinese tourists take their first steps in Hong Kong and Macau, made easier by their proximity to mainland China and the fact that visitors don’t need a passport to get into either territory.
Both cities are part of what Rambourg’s team has christened the ‘Lucky Eight’ – eight destinations in Asia that have been capturing most of the tourist flows.
In fact Chinese visits to the group didn’t grow quite as strongly last year as many analysts had predicted, primarily because political tensions disrupted tourism to Taiwan and South Korea. That said, Vietnam was one of the main beneficiaries, seeing visitors from China increase by half.
Older favourite Hong Kong and the casino king Macau head the group by a huge margin and HSBC forecasts that the two cities will attract more than 68 million visits from mainland China this year, from an estimated total of about 104 million to the Lucky Eight group.
Strictly speaking the Chinese don’t regard the trips to either location as leaving home soil – it’s more a case of visiting two of the country’s special administrative regions. Yet the majority of outbound tourists travel to these two cities. Over the past four years Hong Kong has welcomed about half of China’s global holidaymakers, but Rambourg says that the city, while rebounding in visitor numbers, is unlikely to recapture the boom times of earlier years, when double-digit visitor growth was common, because tourists are choosing to travel to alternative places.
Macau is going through a similar period of consolidation. After a contraction in 2015, it recovered to flat growth in 2016, and visitor numbers grew about 8% last year, helped by the tensions between China and other destinations, and a series of new casino openings in the gaming enclave.
What is clear from the visitor numbers in general is the ebb and flow in visitor growth as preferences change and China’s tourists switch between countries.
Fluctuations in currency also have an impact in diverting traffic to different destinations. Two years ago a weakening in sterling after the British voted to leave the European Union prompted an uptick in visits to the United Kingdom as the costs of accommodation and shopping fell. The year before something similar happened when the rouble depreciated against the yuan, with Russian tourism operators reporting a flood of Chinese visitors to cities like Moscow and St Petersburg. At a similar time the weaker yen was drawing crowds of Chinese shoppers to department stores in Tokyo. Japan’s airlines kept things flowing by offering double baggage allowances on their homeward flights.
The politics of passports
Another factor in shaping where the Chinese are going on holiday is politics. Beijing rarely hesitates to wield the spending of its nationals as a political weapon. The highest-profile case currently is in South Korea, where the Chinese authorities imposed restrictions on group tours last year in retaliation at Seoul’s adoption of an American missile shield defence system. The number of Chinese visitors has halved, costing the Koreans nearly $4.8 billion in tourism-related revenues, local news agency Yonhap reports, citing estimates from the country’s central bank.
“The Chinese stopped going because it is impossible to book onto group tours, not because sentiment towards visiting Korea suddenly changed,” Rambourg confirms.
Beijing has also made it harder for tour operators to organise visits to Taiwan, where the number of Chinese arrivals has slumped by a fifth since the electoral victory in 2016 of a party Beijing views as hostile. The Taiwanese have responded by courting visitors from the rest of Asia, setting new records for international arrivals.
Even the tiny Pacific nation of Palau is suffering from a tourism ban in what is believed to be a protest from Beijing over a visit by the leader of Taiwan. Yet Palau’s government professes not to be bothered by loss of about half of its arrivals because the large inflows were posing a problem for a country with such a small local population. Instead it has announced plans to limit new hotel construction to five-star facilities that focus on fewer but more affluent visitors from other markets.
Thailand – one of the Lucky Eight – has also been trying to cultivate interest from wealthier visitors, including a campaign against ‘zero-dollar’ tours that compel Chinese tourists to shop at specified stores and dine in designated restaurants.
Typically organised by firms registered in Thailand but with Chinese owners, the tours target low-price, high-volume tourists. But the Thais complain that they sell their country short as a destination. Much of the revenue goes straight to the Chinese parent firms so local hoteliers and restaurateurs miss out, and the tour operators skirt local taxes, depriving the government of income.
Eighteen months ago the authorities responded by impounding more than 2,000 tour buses used by the Chinese tourist agencies and the wider crackdown led to a 30% drop in the number of visitors in the last quarter of 2016. Some of the cheaper tours resumed quietly last year but the policy does seem to be having an impact, with fewer Chinese travelling to Thailand in groups. Fortunately, the number of independent tourists is making up for the loss, official statistics have indicated. “It was presented more as a way of protecting people from getting cheated but it significantly affected the numbers of Chinese visitors,” Rambourg says. “But receipts aren’t falling anything like as sharply as the number of visitors. In cash terms, we don’t see the same level of declines.”
On the flipside, plenty of other governments are desperate to host more of the Chinese, now that they have a better understanding of the returns for their tourism sectors. In particular, they are re-examining their visa policies and making it less onerous for the Chinese to visit. “We’ve seen that happening in markets like Australia, South Korea and Japan, with much easier access for Chinese tourists,” he comments. “The European Union is offering something similar under Schengen and the United States started to grant 10-year, multi-entry visas under President Obama. Why make it complicated when you know that the Chinese are coming to spend?”
Previous campaigns from the Australian tourist board (from Paul Hogan’s 1980’s classic ‘I’ll slip an extra shrimp on the barbie’ to the more recent ‘So Where the Bloody Hell Are You?’) were targeted at audiences in the United States and Europe.
In Britain (a non-Schengen state), visa policy has become a political talking point. Travel bosses including Willie Walsh, chief executive of the International Airlines Group, have been disappointed in the efforts of the government in delivering new 10-year visas, which were first promised two years ago. “We need a step change on China. We make it hard for Chinese tourists to visit,” the airline supremo has complained. “Making it easier for Chinese businesses and tourists to come to the UK is critical to boosting our economy and enhancing global trading links, especially post-Brexit. We continue to lose out on the new jobs that Chinese investment and affluent tourists bring.”
Shop till you drop
Shopping is one of the key drivers in the flows of Chinese to overseas destinations as tourists hunt for more expensive, luxury goods.
Cities like Hong Kong, Milan and Paris have gorged on high-spending visitors attracted by cheaper prices than back at home in China, where the same items are subject to higher taxes.
Two years ago a weaker renminbi started to make some of these trips less cost-effective. More importantly, many of the luxury brands have tweaked their pricing strategies. The result: the discounts that tourists once received by buying goods in Europe or Hong Kong have shrunk.
Research from HSBC last year pointed to previous periods in which luxury items in China were priced as much as 40% higher than the same goods in other parts of the world. Savings on high-end watches purchased in Switzerland or France pretty much paid for trips to Europe, for instance. “It was a no-brainer for tourists. Why bother buying the goods in China?” Rambourg asks.
But many of the luxury brands have been ‘harmonising’ their prices, he reports, giving the example of a Cartier watch, which now costs the same in China as it does elsewhere.
The rise of e-commerce has also encouraged the Chinese to buy at home rather than travel in search of bargains. Previously, shoppers were often unsure that the goods on offer in their home cities were the real thing. Having travelled, they are more confident that they know the difference between legitimate goods and knock-offs, which is generating new trust in local shopping.
“In the past we often described luxury outlets in China as showrooms,” he reports. “Shoppers looked at the items but they would buy them overseas because prices were so much lower. Now these showrooms are transforming into functional, profitable stores because the Chinese are much more likely to be buying the goods at home.”
If the reasons to shop overseas aren’t quite as compelling – in price terms, at least – what might the Chinese do instead? One interpretation is that more of them will follow a path similar to the Japanese, who started out in larger groups on whistle-stop bus tours in the 1960s and 1970s, before opting for more instances of self-guided, independent travel in the decades that followed.
Rambourg cautions that some of the similarities in behaviour across the two nations have been overstated. “An obvious distinction is concerns about security, which seem to have a greater impact on the Japanese than the Chinese. This has been very apparent after the terror attacks in Europe over the last three years. Obviously Chinese tourists still have concerns about security risks but they soon start returning to destinations where attacks have happened. It’s not the same with the Japanese, who just stop travelling to a market if there are security fears.”
In another instance of how the Chinese are different, many have been slower to acquire the more curious mindset of independent travellers. “On their first visits overseas they generally want validation or what we might call ‘bragging rights’. The goal is to get a top-of-the-range handbag from Milan or the best cosmetics from Korea,” he suggests. “Japanese motivations have typically been a bit broader and they have been more adventurous at an earlier stage. They are more likely to visit Michelin-starred restaurants or go to museums, for example. In general terms, the Chinese are more focused on going shopping and getting comfortable about a location before trying to do more.”
But as more Chinese grow accustomed to holidays overseas they will get more confident about trying new things, and greater numbers should move away from group tours to independent travel.
Rambourg offers his experience of visitors returning to France as an indicator. “The first time there the Chinese choose Paris and generally travel in groups. Typically they will eat at Chinese canteens and they don’t try French food. They stay in cheaper places in the suburbs and allocate the majority of their spending money to shopping. But on a second trip things might be different. They might travel independently with family or friends, and they are more prepared to try the local food. They won’t spend as much on luxury goods, using more of their time to visit local attractions or museums, and they may try to explore parts of France beyond the capital.”
The next hot spots
Which countries are poised to capture more of the profits from Chinese tourists in future? One tip in Asia is South Korea, despite the slump in visitor numbers over the last few months.
The Chinese took over as the largest source of visitors four years ago, accounting for about half of the 17 million foreign tourists in 2016. That was despite an outbreak of Middle East Respiratory Syndrome (MERS) the previous year, which put a dampener on growth. Then the Koreans ran into another roadblock when Beijing slapped the ban on group tours.
The Chinese government has never confirmed the embargo officially but tourism bosses had hopes for a detente after the leaders of the two countries met late last year. This was followed by news that travel agents in Beijing and Shandong were resuming sales of group tours. Yet the restrictions have largely stayed in place and the impact is evident again this year: almost all the Chinese are arriving as independent travellers compared to the beginning of last year, when the bulk were coming on group tours.
Over the longer term Chinese interest in visiting South Korea looks resilient, however, and Rambourg thinks that the Koreans are doing relatively well in riding out the short-term disruption. The implication is that the market could grow substantially in easier times, helped by Chinese fascination with Korean popular culture. “Almost anything Korean is cool right now – whether it’s listening to K-Pop, watching K-Drama or buying Korean cosmetics,” he says.
For longer haul destinations, his tip is markets that strike a chord with concerns the Chinese have at home. “Go to Shanghai or Beijing and you will hear people talking about pollution and food safety, and tourists are looking for destinations that alleviate some of those anxieties,” he says. “Markets like Australia, New Zealand and South Africa have natural advantages with their images of clear blue skies, healthy food and beautiful landscapes. They resonate as destinations because they play on the escapism angle, taking the Chinese away from their everyday existence.”
The same destinations are stirring the interest of experienced travellers, who want to avoid the well-trodden circuit of more established destinations and spend less of their holiday time on shopping.
“Once you’ve toured the Asian region the next stop is longer-haul and the focus is more on adventure and experience,” Rambourg concludes. “Think about it as storytelling. In the past, the Chinese brought luxury items home from their trips. But a handbag or a watch isn’t enough anymore. It’s less about what you have bought than what you have experienced, which favours newer, more distant destinations.”
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