China Invests in Tourism
By now most everyone has seen the headlines “Chinese Economy in Trouble”, “Chinese Economy Unravels”, etc. but this is misleading. The economy has slowed from soaring 10% growth to more sustainable levels around 6-7%. However, even at 6-7% this still puts the growth rate at much higher than most developed countries, and China is switching its growth to much more sustainable sectors. One of the sectors they are boosting is Tourism.
The Chinese love to travel and a growing middle class is spending record amounts of cash on foreign holidays, boosting economies all over the world. In fact, according to the World Travel & Tourism Council just last year the Chinese spent $215 billion abroad, a 53% increase from 2014. This means that 1 in every 10 international travelers comes from China. When Chinese households start making around $35,000 a year they begin to travel. The first trips are usually around Asia, but lately travelers have become more adventurous and Europe and the United States have become quite popular. Travel within China is extremely popular and even with the growth of international travel, domestic travel still accounts for most Chinese travel and travel spending and is projected to keep increasing.
While China may have the largest number of outbound tourists that does not mean that it is not a tourist destination in itself. From 1978 to 2014, the number of tourists visiting China has grown by an average of 12.85% year by year. In May 2016, Premier Li Keqiang attended the first World Conference on Tourism for Development. The conference was proposed by the Chinese government and jointly hosted with the United Nations World Tourism Organization. There were over 600 representatives from 107 countries in attendance. The premier called on countries to ease visa restrictions, simplify procedures and keep travelers’ safe.
China’s tourism boom is partially as a result of this government initiative to encourage travel. China is carrying out over 50 tourism projects over the next five years. These projects include: building more airports, establishing better travel infrastructure in more rural parts and working together with other countries to ease visa restrictions, this is all part of a bigger plan to make the economy less dependent on manufacturing. This initiative is hardly news, China has been increasing its tourism infrastructure for the past few years and according to the Travel & Tourism Competiveness Report, China has climbed from 47th place (2009) to 17th place (2015) out of 148 ranked countries. China has made significant improvements in the reasonable location of domestic and international airports, the number of airline companies in operation, number of world cultural and natural heritage sites, export of cultural and creative projects, quality of information available, and number of expos and conventions.
This focus on improving the infrastructure of tourism presents many unique opportunities. The sector might be growing immensely but it is still in its infancy; there is intense competition with little innovation or differentiation among Chinese travel agencies, hotels and airlines. The Boston Consulting Group recently carried out a survey and 95% of Chinese travelers feel that they are poorly served on both domestic and international fronts. This generates an opportunity for travel-related companies to gain a first-mover advantage. BCG also found that only ¼ of US and European travelers are planning to/willing to increase their spending in sectors relating to tourism, but more than 1/3 of Chinese travelers intended to “trade up.” The market value of leisure trips will more than quadruple by 2020 and demand for accommodations will double. There are some qualities unique to Chinese travelers that can benefit companies that seek to serve them. Chinese travelers are usually part of an active younger group, eager to see new places and for many it is their first overnight leisure trip. These travelers are likely to take longer trips (6+ days) and travel with larger groups (5+ people) of friends rather than family. When travelling abroad these groups of travelers prefer to use travel agents and online information and recommendations for additional leisure activities. Rather than spending most of their spending on accommodations and meals the Chinese devote over half of their budget to shopping, especially luxury goods. There are also certain services that Chinese travelers desire that many American firms would not even consider. Most Chinese do not rent a car while travelling overseas so they rank baggage delivery services between airport and hotel as a top-ten desired service.
The opportunities to serve these unmet needs are present both with domestic travel in China as well as international Chinese travel. There are many foreign travel services in China, but they tend to focus on expats, so this portion of the travel market is still underserved. This presents a huge opportunity to expand your services abroad if you are in the travel or tourism industry.