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Matthews Asia Weekly

The newest duty free shopping mall in Sanya, China celebrating its grand opening last month.

Changes in Chinese Tourism

Week of October 24, 2014

As average incomes in China have risen, investment themes tied to rising tourism have also grown. In particular, international travel is increasingly appearing on the wish lists of Chinese consumers. Last year, China’s total outbound tourists reached about 97 million, and is expected to continue its strong growth. 

As a group, China’s outbound travelers are often known for their tendency to spend on luxury consumer goods, while at the same time being generally thrifty spenders when it comes to hotels and food. During a recent visit to the Maldives, Chinese President Xi Jinping even joked that Chinese tourists should stop eating so many instant noodles and try more local seafood. The remarks followed some controversy after a hotel on the archipelago reportedly removed hot water kettles from the rooms of Chinese travelers because they were eating primarily instant noodles.

While it may take time to change some habits, Chinese tourists have certainly already expanded their choice of overseas vacation destinations. In fact, the turquoise water and coral-fringed islands of the Maldives now attracts more tourists from China than from anywhere else. In Southeast Asia, more and more Chinese tourists are visiting Indonesia, where such arrivals rose 22% during the first half of this year. The Indonesian government is working on a target to increase this figure by 37% to reach 1 million Chinese visitors overall for 2014.

Most surprisingly, despite soured bilateral relations between Japan and China, the number of Chinese tourists traveling to Japan doubled year-over-year in July (marking 281,200 visitors). And China has also become the largest source of international tourists to Japan for the first time since July 2012. Another popular destination has been South Korea. Chinese tourists have been flocking to the country’s duty free stores, and tourism from China was on pace to rise by 39% in 2014, compared to last year. 

Of course, some areas of the region have also seen a dip in Chinese travelers as tastes change. Singapore, Malaysia and Thailand—once among the most popular destinations for Chinese tourists—have also seen significant recent declines. Thailand’s coup in May and the tragic incident of the missing Malaysian airliner have been cited as likely factors behind the drop. Earlier in May, during a three-day holiday, Hong Kong—a shopper’s paradise, which has been a typical first stop abroad for mainland tourists—saw its first decline of tourists from the mainland since 2005. 

Chinese tourists are increasingly offered more options, not just internationally, but also domestically. I recently attended the grand opening of a duty free shopping mall on Sanya, which sits at the southern tip of Hainan Island, China. The 775,000-square-foot shopping mall, possibly the world’s largest duty free store by size, was built to fully utilize a special tax-free policy for domestic tourists visiting Hainan Island. And store prices for many popular items, such as cosmetics, are comparable to places like Hong Kong. Another upcoming attraction that will compete for tourism spending is Shanghai Disneyland, expected to open late next year, which could save Chinese tourists a trip to Disneyland parks in Hong Kong or Tokyo for those wanting to see Mickey Mouse. 

With all these changes, it is important to keep in mind what we believe to be the optimal approach to investing in the region: rather than betting on short-term trends, take a longer, holistic view of which companies may benefit from long-term developments in Chinese tourism.

Sherwood Zhang, CFA
Portfolio Manager
Matthews Asia

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies.