【独家·英文版】The?Power?of?Chinese?Tourists

【独家·英文版】The Power of Chinese Tourists

2013-11-09 博鳌观察

The PRC has become the largest source of international travelers since 2007, most of whom head to its Asian neighbors and benefit the hosting economies significantly with their strong spending power. Some Asian neighbors of the PRC have loosened visa requirements. To take advantage of this rapidly-growing business opportunity, more Asian governments should follow suit.

With rapid economic growth, the PRC has become the largest source of international travelers since 2007. Even so, there is still large potential for PRC travelers to grow, most of whom will likely head to its Asian neighbors. Such a trend should benefit the hosting economies significantly as PRC visitors have shown strong spending power. For this reason, some of its Asian neighbors have loosened visa requirements toward PRC visitors in recent years, which have effectively increased the number of visitor arrivals from the PRC. To take advantage of this rapidly-growing business opportunity, more Asian governments should follow suit.

The rise of the overseas Chinese traveler

With a large population (1.35bn as of 2011) and rapid economic growth, China has surpassed the US as the largest source of international travelers. The total number of resident departures from PRC reached 70m person-trips in 2011, with an annual growth rate of 14.4% YoY.

About 85% of PRC travelers choose Asian destinations, with Hong Kong (40%) and Macau (28%) being their favorites. In recent years, Japan, South Korea and Taiwan have been quite successful in attracting more PRC visitors and together they received nearly 10% of PRC visitors in 2010. ASEAN countries welcomed an-other 7-8% of PRC visitors.

For most Asian economies, PRC has become one of their most important tourist sources; and the importance is ever increasing in recent years. For example, PRC is now the biggest source of outside tourists for Hong Kong and Taiwan, second largest source for South Korea, Japan, Thailand and Singapore, third largest source for Malaysia and the Philippines.

When mainland Chinese travel overseas, they on average spend more than visitors from other places. As a result, the spending of PRC visitors helps boost retail sales in destination economies. For example, PRC visitors contributed to 36.3% of Hong Kong's retail sales value in 2011.

According to the World Travel & Tourism Council (WTTC), direct contribution of travel and tourism to Asia Pacific's GDP in 2011 was US$554bn (or 2.6% of GDP). The forecast is to rise by 5.9% to US$586bn for 2012, which is much higher than the world's average growth rate of 2.8%. Obviously, the increasing number of visitors from the PRC should be a main driver of such growth.

Still tremendous potential

While the total number of overseas travelers from mainland China has become the largest in the world, its resident departure to population (DTP) ratio is still very low (5.2% for 2011) compared to other economies, even though there has been a ten–fold increase since 1994.

We compared 25 countries' DTP ratios by controlling GDP per capita in constant prices. For economies with similar levels of GDP per capita to China, most have a much higher DTP ratio. China's GDP per capita was US$5430 in 2011 (at current price), which is about the same level as South Africa in 2009 (US$5733). Were China's DTP ratio to reach that for South Africa (8.9% in 2009), its resident departure should have reached 115m person-trips, which is 64% higher than the actual 70m person-trips in 2011.

Such an increase could be easily achieved in the coming years as household consumption in China continues its rapid growth. In fact, China is already the 3rd largest consumer in the world today and could become No. 2 by 2020. As income and consumption grows, tourism spending will likely grow at a similar pace. Therefore, both resident departures from PRC and their overseas spending per capita are expected to maintain rapid growth in the future.

The effect of loosening visa policies

A well-known hassle for PRC tourists is the difficulty to obtain visa for overseas travelling, as few countries have signed bilateral visa waiver agreements with the PRC. Recognizing the spending power of PRC tourists, many Asian governments have loosened visa requirement for PRC visitors in recent years. Taiwan first allowed Mainland tourist to visit in group form in 2008. Japan and South Korea followed suit in 2010 by simplifying the visa application process for PRC visitors.

PRC visitors react passionately to these policy changes, as evidenced by surges in the number PRC visitors after the policy relaxation. For example, Japan and South Korea welcomed 40.4% YoY and 40.1% YoY more PRC visitors in 2010 than in 2009, respectively, likely due to their loosening in visa requirements in July 2010.

The number of Mainland tourists to Taiwan surged by 269.1% YoY in 2009 after the opening for Mainland tourists in July 2008, and maintained a robust growth at 48.4% YoY in 2010. Although it slowed to 9.2% YoY for 2011, likely due to safety concerns caused by the accident in Ali Mountain, growth of Chinese tourists in group form picked up again by 56.5%YoY for 1H12.

In light of the achievements, South Korea has made further efforts to attract more PRC tourists. In June 2012, it increased the issuance of multiple-entry visa for PRC visitors and started a pilot transfer tourist program, which allows transfer passengers to enter South Korea for 12 hours without a visa.

Taiwan is also acting aggressively. After two rounds of opening for Mainland individual visitor scheme (IVS), the government is eager for the third round. In fact, its "Minis-try of the Interior (MOI)" is amending a regulation in order be able to issue multiple-entry visas to Mainland visitors. If implemented, this will be the first time for Taiwan to issue multiple-entry visas to Mainlanders, although currently it only aims at visitors for business purposes and have entered Taiwan at least three times in the past 12 months. Nevertheless, chances are high for the multiple-entry visas to expand its scale going forward.

In our view, such a trend is far from over. With the rising power of Mainland visitors, more and more Asian economies shall ease visa requirements toward PRC citizens.

Chien & Sun:Christie Chien,Asia Economist, Daiwa Capital Markets Hong Kong Limited;Mingchiun Sun,Chief Economist for Asia ex-Japan, Daiwa Capital Markets Hong Kong Limited.