Is China’s Tourism Slowing Down?

China Bubble Burst

There are some that suggest the surging Chinese outbound market is haltering due to the very recent economic indicators coming from China. Is this an accurate analysis of the financial situation’s impact on the Chinese outbound market? Will America’s Chinese inbound market go in to a free fall? What should our strategy be?

We should look beyond the immediate situation and take a broader perspective on the realities facing China, and more specifically, the traveling Chinese middle class.

China has two financial exchanges, one in Shanghai and the other in Shenzhen. What has taken other countries a century to create, took China about ten years. In very simple terms, the purchase of stocks was at fever pitch, fueled by many unsophisticated buyers; meanwhile the economy itself was in a cooling off phase.  The perfect recipe for a “bubble”. And the bubble burst.

The market had been trading at a growth rates of up to 130%. When the bubble burst, share value dropped by about 30%. The Chinese government intervened and inserted strict financial controls and other support mechanisms and within 48 hours the market bounced back. Those that lost money were latecomers to the party, while others lost some of their earlier gains. A little later a further adjustment took 8% of the market value but has again stabilized. However, those investors still held on to major gains.

We need to put the stock market growth, bubble and immediate bounce-back into perspective. Small events in China appear big to the outside world. Within China small events remain small. It has a population of 1.35 billion (4 times that of the USA), of which about 50 million households invest in the stock market, with a typical investment portfolio representing about 12% of their total assets. Remember that China is big. (Okay, an overstatement). China will continue to have the disposable income to travel with a ferocious appetite.

Not only will the Chinese continue to travel in ever growing numbers but we will see the continual increase of younger independent travelers transitioning from the traditional groups. When we analyze who is traveling we see that travelers aged under 35 make up 62% of outbound travelers.

These independent younger Chinese travelers are very comfortable with the planning process. They are also very tech savvy. Since Google is blocked in China, the domestic search engine Baidu has a stronghold on the country’s online search process, maintaining an approximate 70% market share. If you travel to Hong Kong or Taiwan, or even further afield to Thailand you will see large numbers of individual (F.I.T) Chinese travelers, who have made their own arrangements through authorized Chinese travel agents and who are welcomed with open arms with many Chinese  signs, menus, and other China Ready elements. There is no slow down in Chinese travelers visiting these easier to reach destinations.

And equally there is no slow down in sharing of travel experiences through the very popular Chinese social sites such as Weibo, (Facebook meets Twitter plus a search engine), Douban (“lifestyle and culture” social networking service targeting 20-35 year olds), WeChat (text and messaging with push message capabilities), YouKu (Similar to YouTube with User Generated Content and a growing number of glitzy  professionally produced video material), – and most of this is accessed by mobile devices. The percentage is a staggering 80% of the 650 million that use the internet. Clearly, if your information is not mobile friendly you are not “China Ready”.

The sharing of travel experiences is growing fast and this organic growth will not slow down. This thirst for exploring the world will only gain momentum. Additional flights to the USA will not slow down. As an example a new Hainan Airlines’ Beijing to San Jose flight started operation mid June with 5 flights a week and almost immediately Carmel began seeing the impact. A new visa waiver program making it easier than ever to get an extended US visa will not slow down visitation.

The reality is that only 7% of the Chinese population has a passport. Certainly room for growth. Here in the USA just over 40% have a passport. The pent up desire to visit and experience America will not slow down, not even by occasional financial market adjustments. The curiosity of the younger Chinese will not abate. Merrill-Lynch projects that by 2019 the number of Chinese tourists will total 174 million and they will spend US$264 billion, up 60% from 2014. Everything connected with China seems to be a numbers game.

Let’s not forget the strong emotional aspiration to experience the world that cannot be ignored. The Chinese traveler’s desire to visit our wide open spaces, enjoy our fresh air, our national parks, experience our lifestyle, visit our historical places, visit our theme parks, and simply enjoy the freedom our country has to offer.

I tend to agree with Apple CEO Tim Cook and his prognosis on August 24th that the “growth of the (Chinese) middle class over the next several years will be huge”. For us in travel and tourism this is not a time to cut bait and run. This is a marathon not a sprint.

(Bob Gilbert is a Partner in Chinese Host Inc., the largest Chinese inbound operator in the Western USA)