by Ben Kirby
of Thornburg Investment Management
With more disposable income than ever before, Chinese tourists are venturing abroad in ever-greater numbers, many on shopping sprees.
On a recent trip to Japan and Korea, I was struck by the number of firms citing “Chinese tourism” as a key driver of their business performance, against the well-known narrative of economic slowdown in China. In fact, aggregate outbound Chinese tourism increased by only 7% in 2015, a significant deceleration from the steady 18%-22% annual growth since 2010, but as you dig deeper, a clear bifurcation becomes evident. Departures to Hong Kong and Macau, which account for more than half of total trips, declined by 1%, whereas travelers to all other locations grew by 20%. The number of Chinese traveling to Japan more than doubled in 2015 and the number of visits to Thailand increased by more than 70%. South Korean travel was down slightly, due to the Middle East Respiratory Syndrome (MERS) outbreak in the summer of 2015, but remains high on the “wish list” for Chinese vacationers. If cost were no issue, the U.S. and France are also cited as top destinations, but currently account for a small portion of total departures.
Chinese outbound destinations Year-over-year Growth in 2015
Source: CEIC: China Economic Data Database
With per-capita gross domestic product now above $8,000, the average Chinese now enjoys significantly higher disposable income than in years past, yet most have still not traveled farther than Macau. In 2015, 57 million Chinese traveled abroad to locations other than Macau or Hong Kong, accounting for just 4.3% of the total population. Compare this to South Korea, where 39% of the population traveled abroad in 2015 or to Japan, where about 13% of the population travels internationally every year.
Breakdown of Chinese Outbound Tourism in 2015
Source: CEIC: China Economic Data Database
When surveyed, the typical motivations for international travel apply – a desire to relax, to broaden one’s horizons, and to spend time with family and friends. But more than for most vacationers, Chinese also travel to shop. The average Chinese traveler to Japan spends about 60% more than the average non-Chinese traveler. While this may be a cultural difference, it is more likely a reflection of the perceived higher quality, safety, and guaranteed authenticity of goods purchased abroad as compared with locally purchased products. As expected, luxury handbags and designer eyewear attract their fair share of shoppers, but rice cookers, electric toothbrushes, and skin care products are also selling well.
Foreign governments have noticed the growing demand from China and are jockeying for position. Japan, for example, has relaxed visa restrictions to entice more travelers, while the Korean government recently auctioned additional duty-free concessions, effectively doubling the size of their tax-free shopping areas. The Korean duty-free shopping zones are staffed with salespersons fluent in Mandarin, often their first language.
If these trends continue, there are many investment options to consider. Airports, airlines, travel agents, hotels, and tourist-oriented shopping destinations should all benefit. But there are also risks to the Chinese tourism trend. A sudden slowdown in Chinese economic activity, a sharp devaluation of the renminbi, terrorism, or government intervention could temporarily halt the growth, if the not longer-term trend.
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