Transcript China*s Economic Turbulence Impacting Travel?

Will China’s Economic Turbulence
Impact Your Travel Business?
April 2016
China & Global Tourism
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
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.
Increased international
tourism, and growing comfort
and trust in some business-toconsumer (B2C) overseas
websites among China's
shoppers stimulated overseas
purchases.
Source: Bain & Company's 2015 China Luxury Market Study
Arrivals & Departures
128.49mn overnight visitor
arrivals in 2014 (UNWTO).
East Asia and the Pacific major source region (91.2%
of arrivals in 2013).
116.59mn overnight
outbound visitors in
2014 (UNWTO).
Only about 6% of China’s citizens even possess a
passport but that equals 81.4 million of them
(Forbes.com).
China & The World
World Bank
Economist
Christine
Lagarde,
Managing
Director, IMF
“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.”
“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.”
“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.”
GDP PPP Rankings – China Tops
Source: IMF WEO database (October 2014) for 2014 estimates, PwC projections for 2030 and 2050
China surpasses US as largest trading nation
China's consumers account for almost a third
of the global luxury market
Chinese Economy & Its Woes
GDP, a shade lower in 2015
China reported its official annual GDP growth figure for 2015 at 6.9%, slightly
lower than 2014’s 7.3%.
About $1 trillion moved out of China
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.
Experts Say
Source: https://www.weforum.org
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
“ ...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 rockfirm and our policy to open up
further is clear.”
“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?
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 Yuan
Devaluation of Yuan has already had its impact on the stock market.
Currency devaluation may continue though not to a large extent.
Consumer Confidence
China’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.
Optimistic Predictions
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/
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 longhaul 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-riskstronger-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.itbkongress.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/
References
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-whychinese-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-impactchinese-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
RoosterGNN, 'EXCLUSIVE INTERVIEW: CHINA'S TOURISM INDUSTRY AND THE ECONOMIC
CRISIS', 25 September 2015, http://rgnn.org/2015/09/25/economic-crisis-chinas-tourismindustry/
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-slowingeconomy/2993418.html
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