CHINA. For tourism boards, convention and visitors bureaus, and other tourism stakeholders, making the argument for why it’s worthwhile to focus on the Chinese market has been easy for a long time, Daniel Meesak writes for Moodie Davitt Report content partner Jing Daily.
Some of the industry’s favorite arguments are that the market is rapidly expanding, that it can boost visitor numbers in the off-season, and most importantly, that Chinese tourists are more spendthrift than any other market segment.
However, while Chinese tourists remain big spenders in comparison to most other tourism markets, the trend points in the opposite direction.
Destinations as diverse as the United Kingdom, Hong Kong, Singapore, and Japan all saw the average expenditure for Chinese tourists decline in 2016 — and the same trend echoes true across many short-haul and long-haul destinations frequented by Chinese tourists. While this development may seem concerning for tourism stakeholders around the world, it’s perhaps better perceived as a sign of China becoming a more mature tourism source market.
Since the Chinese government officially sanctioned outbound tourism, international travel has exploded in growth—long proven by double-digit growth of Chinese tourism. However, stringent visa rules in most destinations, high costs, and few direct international flights from cities other than China’s more affluent first-tier cities made it difficult for China’s rising middle class to venture on vacations abroad. The result, of course, was that many Chinese travelers were either wealthy individuals or at least wealthy business travelers.
Even so, the majority of border crossings from mainland China were to Hong Kong and Macau, frequented by lavish shoppers (and daigou merchants), and Chinese high-rollers respectively.
The Chinese yuan has declined against the Hong Kong dollar for years, making both leisure travel and daigou shopping in Hong Kong less attractive than it used to be.
However, Chinese tourism is quickly moving away from its origin story as something for the wealthy, and in the case of Hong Kong, the opportunistic. Today, the Chinese passport is stronger than ever before, with a growing number of countries offering Chinese tourists either visa-free entry or visa-on-arrival policies. For the middle and upper classes in lower-tier cities, domestic travel to first-tier cities is no longer necessary to reach international destinations. In fact, even long-haul flights to destinations beyond Asia are now readily available for many of China’s lower-tier city residents. An increasingly competitive market, both for airlines and tour operators, has also helped drive prices for international travel down—no matter where in China you live.
For Hong Kong and Macau, various external factors are also at play. The Chinese yuan has declined against the Hong Kong dollar for years, making both leisure travel and daigou shopping in Hong Kong less attractive than it used to be. In Macau, Xi Jinping’s anti-corruption campaign put the brakes on Chinese high-rollers who fear increased scrutiny of their extravagant gambling habits. Better exchange rates, a growing number of tax-free shopping opportunities, and being farther away from the watchful eyes of the Chinese government have pulled many Chinese tourists toward other destinations in Hong Kong and Macau’s place.
Nevertheless, in destinations that have grown in popularity at the expense of Hong Kong and Macau, average spending among Chinese tourists is also down. Japan, which quickly became an extremely attractive shopping destination in 2015, has seen Chinese tourists go from buying luxury products and expensive electronics to instead buying low-revenue items such as beauty products and 100 Yen Shop bargains. Similarly, what was supposed to be a post-Brexit referendum success story actually turned out to be a period of lower spending among Chinese tourists in the United Kingdom.
Tightening regulations on capital flight, repercussions of a potential trade war with the United States under Trump’s leadership, as well as a weakening Chinese yuan are all things that could cause both average spending and the number of Chinese tourists to tumble.
Whereas Hong Kong has seen both average spending and the number of tourists from China decline, most destinations continue seeing their Chinese arrivals surge amid declining average spending. The popularity of destinations such as Japan and the United Kingdom led to significant growth of both flight capacity and increased marketing efforts in China. Accordingly, Chinese arrivals kept growing, but with the lion’s share of the growth coming from lower-tier cities and less affluent market segments—in turn causing average spending to drop.
As things would have it, declining average spending is often a direct result of overall success in the Chinese tourism market. While luxury retailers may not be the big winners of such tourism growth, other tourism stakeholders such as hotels, tour operators, museums, and other types of retailers still stand to gain from the increasing number of Chinese visitors. Instead, the “normalization” of the average Chinese traveler—from highly affluent to upper-middle class—make “normal” tourism service providers the biggest winners instead of disproportionally benefiting businesses on the higher end of the market. Likewise, less affluent Chinese tourists aren’t necessarily cannibalizing on higher-end market segments either.
As things stand at the moment, declining average spending among Chinese tourists shouldn’t be a red flag to the tourism industry. However, tightening regulations on capital flight, repercussions of a potential trade war with the United States under Trump’s leadership, as well as a weakening Chinese yuan are all things that could cause both average spending and the number of Chinese tourists to tumble.
Until then, little seems to stop Chinese tourists from staying highly profitable and growing in numbers.
