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The subtle power of Chinese tourists

And they are still coming. Every day legions of mainland Chinese are descending on Hong Kong armed with cameras and shopping bags as part of an annual vacation exodus around China's National Day, Oct. 1, the reason for one of three Golden Week holidays in the Chinese calendar. 

There was a time when the comparatively wealthy residents of Hong Kong were skeptical about the economic and social rewards of the mainland tourist invasion. Mainlanders were seen as lower spending and more demanding than either European or North American visitors.   

But one new study of the economics of Chinese tourism paints a very different picture. The Chinese tourist might be thrifty and expect more value for money but individually leaves a bigger mark on the local economy than many more wealthy travelers.   

The reason, said Yuwa Hedrick Wong, Mastercard's chief economist for the Asia-Pacific region and the study's author, is that Chinese visitors spend more of their travel budget in the grass-roots economy, where wages are lower and employment generation greater.   

The study estimates that for every 2.7 jobs created in Hong Kong by inbound tourism from other countries, Chinese inbound tourism creates 5 jobs because of the "multiplier effect" of the way Chinese tourists spend.   

"In the case of Hong Kong, our research data is very clear," Hedrick Wong said. "It shows that the spending of the Chinese tourist in Hong Kong is very, very different from tourists from North America and Europe. Even though the per-day spend is quite a bit lower, the economic impact is much bigger." 

The study is one of many to chart the biggest emerging phenomenon in global travel: the rise of the Chinese outbound tourist. By 2020, China is expected to send 115 million people abroad every year and become the biggest source of outbound tourism, according to a report published last week by the brokerage firm CLSA Asia-Pacific Markets.   

The surge in China's outbound travel, from 29 million departures last year, will be driven by a mix of rising incomes, changing demographics, high savings rates, reduced regulatory barriers to travel and the prospect of a stronger currency, CLSA said.   

Hong Kong and Macao are acting as incubators for these newly globe-trotting Chinese travelers. It is where the Chinese are taking their first tentative steps outside the mainland, particularly as individual travelers away from the cocoon of mass tour groups. About 75 percent of all Chinese outbound tourism is to Hong Kong and Macao.   

The wave of mainland tourism took off in July 2003, when China introduced a program to allow Chinese from designated areas to travel to Hong Kong and Macao on their own. They are the only destinations outside the mainland where this is permitted.   

Thirty-four mainland cities, with a total population of 172 million, are covered by the program. Almost half the mainland visitors to Hong Kong are now traveling outside group tours.   

But there is clearly an appetite in China for more exotic travel, especially as incomes rise and authorities grant greater freedom to travel.   

In the past year, China has sharply increased the number of world destinations that have official approval for group travel. The biggest expansion came last September, when Beijing reached agreement for 25 European countries to receive approved destination status. Surveys of Chinese traveler opinion place Europe at the top of most desired destinations. The United States has yet to reach agreement with Beijing on approved destination status.   

In the face of growing competition, Hong Kong and Macao are making a strenuous pitch to retain their appeal to the Chinese tourist. To attract new mainland visitors and entice repeat visits, these two special administrative regions of China have gone on a spending spree, building tourist attractions and casinos. Hong Kong Disneyland opened its doors on Sept. 12, while Macao plans to build 20 new hotels and casinos over the next five years.   

According to industry analysts, the Chinese, although not always easy to please, are making a vital contribution to Hong Kong's rapid economic growth, which reached 8.1 percent last year. Chinese tourists either directly or indirectly kept 300,000 people in Hong Kong employed as of 2003, according to government figures.   

But figures from the Hong Kong Tourism Board show that Chinese do spend less. In 2004, the average Chinese tourist each spent 4,355 Hong Kong dollars, or $561, on a single visit, compared with 5,122 dollars for a European and Middle Eastern visitor and 5,250 dollars for a visitor from the Americas - and this despite normally staying one night longer than other nationalities. Still, based on those figures, the 8.25 million Chinese who have arrived in Hong Kong so far this year will have spent about 35.9 billion dollars.   

Hedrick Wong, the Mastercard economist, said it was the profile of Chinese tourist spending that made the real economic difference.   

"They typically do not stay in five-star hotels," he said. "They stay in two-star. They spend all day out, getting up early for breakfast. They go sightseeing, theme parks, shopping, dining out and karaoke. So their money is not spent on accommodation but really providing a lot of demand for smaller businesses."  

In contrast, he said, North American and European visitors to Hong Kong can spend up to two-thirds of their money on a hotel room.   

"Their spending on paper may look high but the impact on the local economy is very small," he said.   

Hedrick Wong argues that the experience of Hong Kong provides lessons for other destinations as the Chinese spread their wings. He said the winners would be budget hotels that can handle big tour groups and small businesses rather than "luxury stores and branded goods."   

But the potential effects of the coming wave of Chinese travelers is hotly debated. The CLSA report argued that government statistics and news reports understated the amounts that increasingly affluent Chinese travelers spend on shopping. In its own regular survey of tourist spending patterns in Hong Kong, CLSA found that the Chinese spent a total of 6,250 dollars per visitor per trip, an increase of 97 percent from two years ago, when its surveys started.   

Luxury goods accounted for a big slice of trip spending, while souvenirs and crafts were low priorities, the report said. What Chinese save on cheap hotels they spend to "splash out on the latest Louis Vuitton bag." Another survey shows that Chinese tourists apportion an average of $987 to shopping alone during all overseas trips, meaning they shop "up to 80 percent more than the Japanese," CLSA said. It predicted that luxury goods makers and retailers would be big beneficiaries of the surge in Chinese travel.   

Still, other analysts are less convinced about the Chinese travel boom. With Hong Kong and Macao soaking up the vast majority of outbound tourists, only seven million mainland Chinese traveled the rest of the world last year.   

Clint Laurent, executive director of Asian Demographics, a consultancy, said the travel industry would be unwise to forget the power of the Japanese tourist.   

The biggest spenders on tourism are those earning upward of $30,000 a year, and the Japanese account for 88 percent of the value of that market in Asia. Chinese tourists accounted for the bulk of Asian travelers in the yearly income bracket of $4,000 to $15,000.   

"You can see how the tourism industry is dichotomizing between high margin, low volume and low margin, high volume travelers," Laurent said. "That is really the divide between China and not China."    - By Donald Greenlees     INTERNATIONAL HERALD TRIBUNE      6 Oct 2005

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