New Generation of Chinese Travellers about to Embrace Asia says Abacus

Structural changes stirring in the Chinese travel market for more than a decade are about to unleash a new generation of travelers both within China and across the rest of Asia says Abacus International.

The company’s President and CEO Don Birch said that the new generation of Chinese travellers will throw a huge challenge to the local and regional travel industry in terms of everything from travel infrastructure, to product development and even the cultural issues associated with mass tourism.

“The full extent of pending change has not been obvious to the Asian travel industry, because of China’s relative isolation until the last few years and many changes have occurred behind partially closed doors. As China’s push for a more open economy continues, the rest of Asia will begin to experience many of the same benefits and pressures that make Chinese travel such a remarkable story,” Mr Birch said.

“China-driven travel growth provides an excellent opportunity for forward-thinking private operators, National Tourism Organisations and Governments to work together to plan and invest in infrastructure, and ensure the quality of current and future experiences and attractions through their joint actions.”

Big ticket items

“The Chinese have been busy exploring both their mammoth country and venturing overseas, and more people are visiting China for various reasons,” Mr Birch said.

As Asia’s major economic power, China has climbed from fifth to fourth place in the World Tourism Organisation’s rankings since 2002, with tourism accounting for over 5% of its GDP in 2005 or 5.5% of the world’s total travel and tourism industry.

Besides generating an expected value of US$354 billion of economic activity in 2006, China’s tourism industry has catalysed the country’s development, driving many major infrastructure and transportation initiatives, particularly in Beijing and Shanghai.

Capital investments in the tourism sector were estimated to be US$100 billion in 2006 according to the World Travel & Tourism Council. For example, in a clear indication of faith in China, Disney has submitted a proposal to construct one of its famed theme parks in Shanghai which will initially occupy 4.25 square kilometres, expanding to 10 square kilometres in the second phase, with the US$3.8 billion project expected to open in time for the Shanghai World Expo in 2010.

Boeing expects Chinese carriers to take delivery of over 2,600 airplanes in the next 20 years, more than tripling the current size of their combined airfleet, while China’s main airport hubs in Beijing, Shanghai and Guangzhou have embarked on privatisation plans to expand their capacity to cater for an increasing number of travellers.

Growth Drivers

“Rising disposable incomes, rapid urbanisation of China’s provinces and more liberal regulation of its travel and tourism industry have combined to unleash a rising tide of tourists in both the domestic and international arenas,” said Mr Birch.

In the four years from 2001 to 2005, the number of domestic passengers increased by more than 50% from 750 million to 1.2 billion. Outbound travel recorded a compound average growth rate of nearly 25%, leaping from 12.1 to 31 million travellers, making it the fifth-largest outbound market in the world.

“We expect China to be the fastest growing outbound tourism market over the next fifteen years, outpacing even the UK and the US, with more than 110 million trips in 2020, as more destinations are added to the current 81 countries which enjoy Approved Destination Status (ADS),” Mr Birch added.

“While these figures suggest stratospheric growth and a highly-mobile population, the reality is that currently only 1.3% of the Chinese population travels overseas for leisure. This is less than a tenth of other markets such as Japan and Taiwan, and speaks volumes about the potential yet to be unlocked in the Chinese market, particularly for international travel.”

Much of the surge in China’s outbound travel is due to private travel, reflecting the increasingly affluent and urbanised population. At the end of 2005, an estimated 22% of the population were ‘middle class’ households with annual incomes ranging between US$3,229 and US$12,917.

Wealth is also unevenly distributed across different provinces in China. Most of it is concentrated in large urban areas particularly Beijing, Shanghai and Guangzhou, with around 10% of those living in these major urban centres being at least occasional overseas travellers.

Besides enjoying an improved quality of life as a result of economic growth, a larger proportion of the elderly Chinese population are travelling more, with greater spending power than their younger peers. MasterCard’s 10-year forecast of outbound travellers from Asia projects that by 2014, travellers from the retired segment will account for only 13.5% of China’s total outbound travel figures, but they will command almost 45% of total spending.

According to China’s National Statistics Bureau, the Chinese population of retirees is expected to reach 81 million by 2015.

“Considering that Chinese travellers currently spend an average of US$1,000 a day, we can expect future spending by ‘grey’ tourists to be worth much more, presenting a significant market opportunity for the region’s travel and tourism industry,” commented Mr Birch.

The growth story is not confined to domestic and outbound travel. As one of the top tourism destinations in Asia, China received about 120.3 million foreign visitors in 2005, including visitors from Hong Kong, Macau and Taiwan, which generated US$29.3 billion, (up 13.82% from 2004), in tourism receipts.

Business and event driven travel

The globalisation of the Chinese economy is also fuelling business travel. Of the 31.03 million outbound travellers in 2005 (up 7.5% from 2004) 19% were travelling for Government and business purposes, and the remaining 81% for private & leisure purposes.

In the six years since China opened up its doors to global trade under the World Trade Organisation (WTO), Beijing, Shanghai and Guangzhou have grown as business and financial centres, being the main sources of international business travellers from China. However, other economic zones and regional cities such as Chengdu, Shenzhen or Xiamen are also evolving into sizeable markets as rising business costs drive smaller home-grown and regional companies inland.

“Business travellers are a key market for the estimated 200 new 4-5 star hotel properties in development by major international chains such as InterContinental and Accor, which will be opened within the next three years in various key locations in China,” Mr Birch said. 

“China is slowly growing into a choice destination for MICE events, rivalling other Asian destinations such as Singapore, Hong Kong and Thailand. Government investment in infrastructure for events such as the 2008 Olympics and the 2010 World Expo in Shanghai will certainly leave a venue legacy that will boost China’s position as a key player in the MICE industry.”

Structured for success?

Government policy has facilitated the growth of China’s domestic travel landscape according to Mr Birch.

The China National Tourism Administration (CNTA) made the first step to liberalise the industry in 1997 when it allowed 67 travel agents to operate outbound tours. Ten years later, this has grown to over 600 government and private Chinese-owned travel agencies with outbound licences. More than half of these outbound agents are located in the three main Chinese cities of Guangdong, Beijing and Shanghai.

In 2003, four years earlier than required by its WTO commitments, China took initial steps towards opening its travel industry to 100% foreign-owned travel agents through the relaxation of some location and capital requirements.

“China is well placed to pick up the pace of economic liberalisation by building on the success it has enjoyed in recent years with issues such as the appreciation of the Chinese currency, and development of an active and more robust share market,” Mr Birch said.

“More flexibility for airlines to price and segment their markets has resulted in lower domestic fares and contributed to the exponential growth in domestic personal travel seen in recent years.”

 A more liberal aviation regime is also likely to stimulate increased traffic, healthy competition and more partnerships between Chinese airlines and foreign operators.

While the Chinese government has made good progress in deregulating its domestic travel industry, China’s travel distribution market has yet to be fully opened to foreign competition, with a limited number of wholly and partly-owned foreign travel agencies operating in the country.

“This situation looks set to change in the coming years as the Chinese travel industry matures along with the rest of the economy and increasing professionalism is needed to meet the peak load requirements of the Beijing Olympics and World Trade Expo,” Mr Birch said.

“This will allow a window of opportunity for travel agents to gain market share and add value to the travel supply chain as online distribution still has very limited currency in China due to relatively low internet and credit card penetration.”

Coming ready or not 

“With China’s economy forecast to grow by 9.6% and 8.7% this year and next, travel service providers such as airlines, hotels and travel agents in neighbouring Asian countries will have to ready themselves for an influx of Chinese tourists, many of whom will be first-time travellers venturing outside of China for the first time,” said Mr Birch.

Estimates from the United Nations suggest that China’s population will increase to almost 1.5 billion people by 2025, accounting for 18% of the world’s population and further consolidating its position as an engine of growth for Asia’s travel industry.

“Singapore’s experience of being the first country to welcome a million Chinese tourists last year was just a taste of things to come as more National Tourism Organisations and their private partners lay down the red carpet for the Chinese travellers in the region,” Mr Birch said.

“As Abacus has been closely observing the Chinese market over the past decade we have seen how the changes in economic sentiment are driving a more international outlook in everything from manufacturing to aviation. Now Asia’s wider travel and tourism industry is catching China’s momentum, challenging all players in the travel supply chain to consider their strategies in the light of this vast potential,” Mr Birch concluded.

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