A recent spike in visitors to China may indicate that tourism could be China’s ticket to a robust recovery as the government acts to spur more consumption, restructure property-market debt and spark productivity in the public and private sectors.
China’s tourism is poised to rival that of other popular global destinations. “While the recovery in China's outbound travel remains stagnant and domestic consumption remains soft, visitor arrivals are picking up, rising more than 300% year-on-year in the first quarter,” says Qianlei Fan, Morgan Stanley’s transportation and infrastructure analyst for Hong Kong and China. “We see tourism revenue rising even higher and it could top $500 billion in 2033, translating to cumulative revenue of $2.8 trillion over 10 years from $131 billion in 2019.”
China’s Service Exports and Tourism
China's above-average GDP growth over the past 20 years has been helped by the increase in its share of global exports of goods, but it has lagged behind in global service exports, which include travel and tourism as well as IT services, intellectual property charges and financial services. Since 2000, China’s global goods exports rose to 14% from 4%, while services exports only reached 6% from 1.8% over the same period.
"If China were to narrow this gap and boost services exports, it could lift the whole economy while limiting impact from information security concerns and potential trade frictions associated with other categories in the service sector," says Fan. “We think international travelers could be a key part of this story and see revenue from this group rising from $77 billion in 2019 to reach $431 billion in 2033.”
Analysts expect China to expand its share of global tourists to 6% by 2033 from 2.4% in 2019, with inbound tourism contributing as much as 4% to GDP over the next decade from just under 1%. France the world’s most visited tourist destination, by comparison reported about $71 billion from international tourism in 2019 with tourism overall contributing near 8% to GDP.
Mainland Attraction
China has taken steps that should help revitalize the tourism sector, including infrastructure improvements like airport upgrades, high-speed rail services expansion, pollution control and public safety measures. Additionally, post-COVID policy changes such as visa-free entry for citizens of several European countries and Malaysia, as well as technology enhancements allowing foreign travelers to make digital payments and buy railway tickets more easily, should help boost growth.
Pre-COVID, Hong Kong and Macau residents made up nearly 75% of total inbound visitations to China and contributed 30% of tourism revenue, spending around $350 per trip. At that time, a high percentage of travelers from Hong Kong probably were not genuine tourists, but individual exporters, known as daigous. But yuan depreciation and tighter Chinese customs have led to a shift toward regular tourists and more spending by Hong Kong visitors apart from daigous. Spending among high-spending Hong Kong tourists could double over the next decade.
Since the border reopened last year, hundreds of thousands of Hong Kong residents daily have taken short trips to Shenzhen or nearby cities in Guangdong, as the contrast between the inflationary pressure in Hong Kong and deflation in China has made value for money more important to Hong Kong’s consumers and travelers. And analysts see this appeal expanding to price-sensitive travelers from more distant shores.
“We think global inflation, in contrast to China's deflation, will likely attract more international tourists seeking value-for-money options,” says Fan.
Ready for Takeoff
Business travel has recovered faster than leisure since China’s reopening and should continue to improve following a rebound in China’s goods exports.
Meanwhile, short-haul travel should initially recover faster than long-haul as analysts think visitors from further afield may spend more time planning their trips. But they expect to see a return and acceleration of the pre-COVID trend of growth in foreign visitor arrivals that made up 22% of inbound travelers but contributed 60% of inbound tourism revenue in 2019.
Pre-COVID, transportation and lodging accounted for 35% of total tourism income in China, compared with around 46% in the U.S., where the prices of public transport and hotels are generally higher. Transportation and lodging as a proportion of total tourism could rise with a surge in China's inbound travel, potentially boosting revenue for airports, airlines, lodging, online travel agencies, travel retail, and internet companies, among others.
Growth in international tourism could also benefit China’s employment rate, which peaked in 2014 and has been falling ever since. China’s tourism industry employs about 0.2% of the total population and has significantly lower employees in the tourism industry than the U.S. (2.7%) or Japan (4.7%).
“An influx of foreign tourists could add up to 35 million jobs in the sector over the next decade, equal to 5% of current total employment, which could help feed the productivity and consumption engines the government is trying to revive and be an additional contributor to GDP expansion,” says Fan.
For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full note, “China’s Travel Transition,” (May 8, 2024).
