Will China‟s Economic Turbulence

Impact Your Travel Business?

April 2016

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China & Global Tourism

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China: Hot tourist market

• No.1 tourism spender in the world. Chinese tourists spent $215

billion abroad in 2015, 53% more than in 2014 (WTTC).

• Biggest tourism source market volume-wise. The number of

Chinese tourists travelling internationally has more than doubled

to 120 million people over the last five years, that means one in

every 10 international travellers now comes from China (WTTC).

• 10 mn border crossings in 2000; 57 mn in 2010; 83 mn border

crossings in 2012; 98 mn in 2013; 116 mn in 2014 (COTRI,CTA).

Overseas travel, luxury shopping on the rise

Increased international

tourism, and growing comfort

and trust in some business-to-

consumer (B2C) overseas

websites among China's

shoppers stimulated overseas

purchases.

Overall, overseas luxury

purchases grew 10 percent

in 2015, with consumers

flocking to Japan, where

their spending increased

more than 200 percent.

South Korea, Europe and

Australia were also popular

shopping destinations, due

to favourable exchange rates

and competitive pricing on

luxury goods in these

markets.

Source: Bain & Company's 2015 China Luxury Market Study

116.59mn overnight

outbound visitors in

2014 (UNWTO).

Arrivals & Departures

128.49mn overnight visitor

arrivals in 2014 (UNWTO).

East Asia and the Pacific -

major source region (91.2%

of arrivals in 2013).

Only about 6% of China‟s citizens even possess a

passport but that equals 81.4 million of them

(Forbes.com).

China & The World

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“With a population of 1.3 billion, China recently became

the second largest economy and is increasingly playing

an important and influential role in the global economy.”

World Bank

Economist

“As a group, emerging and developing economies

account for almost 60 percent of global GDP, up from just

under half only a decade ago. China alone has lifted more

than 600 million people out of poverty over the past three

decades.”

Christine

Lagarde,

Managing

Director, IMF

“Growth in the world economy has become

increasingly reliant on just three countries: China, the

United States and India were responsible for nearly

80% of global growth in the first three months of

2015.”

Source: IMF WEO database (October 2014) for 2014 estimates, PwC projections for 2030 and 2050

GDP PPP Rankings – China Tops

China surpasses US as largest trading nation

China's consumers account for almost a third

of the global luxury market

Chinese Economy & Its Woes

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China reported its official annual GDP growth figure for 2015 at 6.9%, slightly

lower than 2014‟s 7.3%.

GDP, a shade lower in 2015

Over the last year and a half, individuals and companies have moved

about $1 trillion out of China, as the economy weakens. Those outflows

have been partly offset by money coming in from the trade surplus.

About $1 trillion moved out of China

Experts Say

Source: https://www.weforum.org

“ ...we could have resorted to

massive stimulus measures that

would spur faster growth in the

short term. We do have the ability to

do so, but we have chosen not to do

so, because the growth fuelled by

huge input of resources and

investment will be unsustainable for

China and put the world economy at

risk. That is why we underscore the

need for structural reform to tackle

the deep-seated and medium- to

long-term problems in the economy

to secure more efficient, solid and

sustained growth. This endeavour

won't be a smooth sailing. It won't

happen overnight. It will inevitably

encounter difficulties and

resistance. But our resolve to push

forward structural reform is rock-

firm and our policy to open up

further is clear.”

Remarks on the World Economy by H.E. Xi

Jinping President of the People's Republic of

China At Session I of the 10th G20 Summit

Antalya, 15 November 2015

China Says

“Several top economists, however, predict a much

bleaker outlook for China in 2016, according to analysis

in the Wall Street Journal and Reuters. China’s growth will

continue to shrink to 6.7 percent in 2016, according to a

poll of economic forecasters, owing to a supply glut

across sectors, Reuters reported. “We’re going to have a

choppier sea ahead of us, ” Nomura Group economist

Yang Zhao told the Wall Street Journal in January.”

(www.ibtimes.com)

Will The China Crisis Impact Your Business?

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General impact of the economic slow-down

2016, a volatile year

“This is so-called new normal, which means China will go from a high

growth rate to slower or more sustainable growth rate,” Francis Cheung

head of China/Hong Kong Strategy for Hong Kong-based brokerage

CLSA said. “It at least will take two to three years for the economy to be

on the stable growth path. Unfortunately, that‟s not good for the market.

There will still be a volatile market in 2016.” (www.latimes.com)

General impact of the economic slow-down

Moderate direct financial impact of lower share prices

• China‟s stock market only makes up a relatively small 20 percent of the

economy (Cheong Kee Cheok, senior research fellow faculty of

economics and administration at the University of Malaya, at the 10th Asia

Economic Summit).

• There is not enough foreign investment in the Chinese market for it to

be a major problem. The London consultancy Capital Economics has

said foreigners own just 2% of shares (www.bbc.com, 07 January 2016).

• Most people don't own shares - only one person in 30 does (Capital

Economics).

General impact of the economic slow-down

Commodity prices slumped Notably that of crude oil, metals, cotton, coal among others.

Countries that were heavily trading with China will suffer a loss

namely Japan, US, Hong Kong, South Korea, Taiwan…

Weaker YuanDevaluation of Yuan has already had its impact on the stock market.

Currency devaluation may continue though not to a large extent.

Consumer ConfidenceChina‟s consumers are less optimistic than in previous years. CLSA‟s

survey of Chinese consumers showed that most thought that business

conditions would improve modestly in 2016. (www.latimes.com)

Impact on Travel Business

The impact on travel business especially, outbound travel will not

be visible immediately as most of the trips were booked well in

advance and travel will happen.

If there is less economic growth (decrease in wages/salary or no

increase in wages /salary, loss of jobs etc.) then the trend to

travel especially to long-haul destinations and to splurge on

luxury items may take a backseat especially for the middle-class

segment.

However, the affluent may still continue to travel and spend.

Impact on Travel Business

Decrease in trips/shopping expenses

• 60% of respondents of CLSA survey to reduce their outbound trips if

there is low income growth.

• 68% to cut their travel-related shopping spend if their family income is

lower than anticipated.

• Only 14% said there would be no impact to their travel plans.

However, CLSA (Credit Lyonnais Securities Asia) remains bullish on its

long-standing forecast of 200 million Chinese overseas trips by 2020.

This is despite the expectation that Chinese outbound tourist growth will

slow to 9% over the next five years from 17% over the past five years.

Source: www.clsa.com

Impact on Travel Business

Depreciating Yuan May Reduce Trips/Expenditure

• 43% of CLSA survey indicated they may reduce the number of trips

they take if the Yuan depreciates by 10% in the next year.

• 35% said they would cut shopping spending.

Source: www.clsa.com

Impact on Travel Business

Cheaper, closer destinations may be preferred by the

middle class

• For those who decide to travel , Asian and middle-east

destinations could be more popular especially with the middle

class segment.

• Destinations with weaker currencies may receive more Chinese

tourists, like Japan.

• Travellers may also indulge more in domestic travel.

"We expect the Chinese middle class will continue

to travel," said Annebeth Wijtenburg, public

relations manager for the World Travel & Tourism

Council. She added, “if the market situation leads to

lower disposable income for Chinese travellers, it

will have a slight impact on the destinations that

have been receiving these tourists."

(www.latimes.com)

Optimistic Predictions

Despite the expected gradual

slowing of economic growth in

China from the breakneck pace

exhibited over the past decade,

the Chinese economy will remain

a leading emerging market with

considerable impacts on

international tourism. Millions of

Chinese nationals will make their

first international leisure trips over

the next eight years as the

growing middle class and

increasing affordability means

international travel is more

accessible for Chinese

households. The Future of Chinese Travel’, InterContinental

Hotels Group.

Rural Chinese cities are

expanding, and their citizens are

adding to the population of eager,

curious, tech savvy and globally

minded travellers. The middle

class is well established, and

disposable income exists for

citizens not only in Beijing and

Shanghai, but in Chongqing,

Shenzhen, Hefei and Chengdu.. '2016 The Future of Chinese International

Travel', Resonance.

HSBC predicted that outbound

tourists from China will rise from 116

million last year to about 242 million

by 2024, which is about the total

arrivals in Indonesia, Germany, Iran

and Egypt combined in a single year.http://www.voanews.com/

Chinese people tend to begin

travelling abroad once their

household earns about $35,000,

David Scowsill, CEO WTTC said.

Between 2003 and 2013, about 21

million households crossed that

threshold, he said. Another 61 million

households are expected to achieve

those earnings by 2023. http://money.cnn.com/

Optimistic Predictions

Long-haul destinations to benefit

By 2023, leisure trips are

expected to account for 62%

of total Chinese outbound

travel.

The top long-haul destination

countries for Chinese

travellers – namely the United

States, France, and Germany –

will likely remain the most

popular, but outbound

volumes and spending from

China to these and other long-

haul destinations are set for

considerable growth.

Source: IHG Report, 2015

Conclusion

The China‟s economy is slowing – with GDP growth of less than 7% a year.

Economic woes in 2015 - stock market volatility, devaluation of Yuan,

decline in trade, non-performing loans…

There is no doubt about the urge in Chinese travellers to explore near and

distant lands and to spend on luxury experiences...

However if the depreciation of Yuan continues and the income is affected,

this will definitely affect the Chinese outbound travel and related spends of

especially the middle-class travellers in future.

The faster the Chinese Government manages a smooth transition to a

sustainable growth rate, the lesser will be the negative impact on travel and

other businesses.

References

Agence France-Presse, 'IMF warns of risk of 'stronger growth slowdown' in China', 06

October 2015, http://www.globalpost.com/article/6663523/2015/10/06/imf-warns-risk-

stronger-growth-slowdown-china

China Outbound Tourism Research Institute,’China's "Second Wave" Of Outbound Tourists:

New Destinations and New Consumption Patterns', 04 March 2015, http://www.itb-

kongress.de/media/itbk/itbk_dl_en/itbk_dl_en_itbkongress/archive_2015/itb_destination

_days_1/Chinas_Second_Wave_of_outbound_tourists-2.pdf

CLSA, 'Chinese outbound tourism remains on track to reach 200 million by 2020', 19 January

2016, https://www.clsa.com/

CNN, 'Chinese tourists spent $215 billion abroad last year', 21 March 2016,

http://money.cnn.com/2016/03/21/news/economy/china-travel-tourism-record-spending/

CNN, 'Economic slowdown: Does China know hat it's doing?', 25 March 2016

http://edition.cnn.com/2016/03/25/asia/china-economy-lu-stout/

Forbes Asia, 'Five Reasons Why Chinese Outbound Tourism Will Continue To Grow Even In

Times Of Crisis', 22 August 2015,

http://www.forbes.com/sites/profdrwolfganggarlt/2015/08/22/five-reasons-why-

chinese-outbound-tourism-will-continue-to-grow-even-in-times-of-crisis/#5f2f5b8e3aba

Fox Business, 'Billionaire CEOs Play Down Impact of Chinese Market Volatility', 09 July 2015

http://www.foxbusiness.com/features/2015/07/09/billionaire-ceos-play-down-impact-

chinese-market-volatility.html

IHG& Oxford Economics, ' The Future of Chinese Travel',

https://www.ihgplc.com/chinesetravel/src/pdf/IHG_Future_Chinese_Travel.pdf

LA Times, 'Chinese Tourism After Black Monday: How Stock Market Downturn Will Affect

Global Travel And Spending', 27 August 2015,

http://www.latimes.com/world/asia/la-fg-asia-markets-20150827-story.html

Resonance, 'The Future Of Chinese International Travel', 2016,

http://www.resonanceco.com/

References

References

RoosterGNN, 'EXCLUSIVE INTERVIEW: CHINA'S TOURISM INDUSTRY AND THE ECONOMIC

CRISIS', 25 September 2015, http://rgnn.org/2015/09/25/economic-crisis-chinas-tourism-

industry/

The Wall Street Journal, 'Chinese Tourists Roaming Closer to Home', 29 September 2015,

http://www.wsj.com/articles/chinese-tourists-roaming-closer-to-home-1443521513

TTG Asia, 'China inbound tourism falls short of full potential: WTTC', 28 March 2016,

http://www.ttgasia.com/

The Economist, 'The Great Fall of China', 29 August 2015, http://www.economist.com/

World Tourism Organization (2016), „Compendium of Tourism Statistics dataset [Electronic]‟,

UNWTO, Madrid, data updated on 14/01/2016, http://www2.unwto.org/

Voice of America,'Chinese Tourists Defy Slowing Economy to Travel Abroad', 06 October

2015,

http://www.voanews.com/content/chinese-tourists-abroad-defy-slowing-

economy/2993418.html

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and references mentioned and inferences drawn thereof. Stark

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