When it comes to political risk, tourism is a highly responsive industry, as customers and companies react to events quicker than other sectors. October has been a tumultuous month for the Chinese tourist firms as several developments have shaken up the industry. From South Korea to Thailand, changes are afoot as the government sets its sights on the tourism industry. What may look like isolated events can actually be viewed as parts of a larger effort to boost domestic tourism as growth continues to slow.
Cross-strait tensions see sharp drop in mainland visitors
Tourism from mainland China has dropped some 20% since June as tensions between Taipei and Beijing increase. These tensions are due to President Tsai’s remarks rejecting the notion that Taiwan and the mainland form two parts of one country. In response, the first four days of the National Day Golden Week saw a 56% drop in mainland visitors to Taiwan compared to the same time a year ago. This is due to avoidance by Chinese tourists, but also in large part due to mainland travel agencies receiving implicit government orders to limit island-bound travel.
Mainland Affairs Council spokesman Chiu Chiu-cheng has expressed similar observations, stating that “the decline is mostly due to the mainland’s political interference and restriction on mainland tourists visiting Taiwan.” The nature of Chinese tourist habits lends itself to tampering by Beijing, as most rural and middle class tourists travel via group packages arranged by tour companies. This allows Beijing more control when tailoring outbound tourism to align with its foreign policy goals.
This significant drop in mainland tourist numbers highlights Taiwan’s reliance on the mainland market, something that Taipei is seeking to rectify by diversifying its tourist demographics. Discouraging travel to Taiwan also helps Beijing’s efforts to boost local tourism, as many potential visitors to Taiwan opt to spend their holidays on the mainland.
China restricts South Korea travel
China has announced restrictions on the number of tourists to South Korea; a move that has caused widespread uncertainty, as investors try to figure out Beijing’s motives. Unlike in Taiwan where clear geopolitical forces are informing the drop in tourism, the situation in South Korea is more nuanced. The Chinese government recently contacted provincial travel agencies, ordering them to cut Chinese visits to South Korea by 20% by the end of the month. This has included halting group promotions, limiting shopping schedules in South Korea to one per day, as well as introducing a 300,000 yuan (over $44,000) fine for violations of these new regulations.
In response to this, South Korean companies which rely on the significant Chinese tourist influx are trading lower, with Hotel Shilla and Amorepacific Group shares both down 7% and LG Household & Healthcare down 8%. Furthermore, this new tourist curb will have a knock-on effect on airlines and retailers, resulting in an expected $2.67 billion loss.
There are suggestions that this latest move is in response to South Korea’s decision to deploy THAAD anti-missile systems, a move that China has criticized. While it is not uncommon for China to use its economic clout in conjunction with foreign policy considerations to influence other countries, there may be other forces at work. Firstly, while China has reduced or stopped the export of certain products to countries such as Japan and Vietnam in the past due to foreign relation tensions, tourism is a different matter.
For instance, while Chinese tourism to Vietnam did dry up during the country’s 2014 anti-Chinese riots, this was due to safety concerns after the deaths of Chinese nationals in Vietnam. Moreover, despite tensions with Japan, Chinese tourist numbers have only increased, with China remaining the largest tourist source country for Japan. Japan has also announced its own plans to deploy the THAAD system, yet this coupled with its territorial disputes with China still did not result in such an actions from Beijing.
Furthermore, there have been tensions between South Korea and China regarding tourism, as a spate of violent crimes by Chinese tourists in Jeju resulted in South Korea restricting access to the island for some Chinese visitors. This comes at a time when Seoul is clamping down on border control over fears about Chinese tourists illegally remaining in the country. This concerns both illegal immigrants from China as well as those seeking to illegally obtain work in the country. Jeju instituted visa-free entry for up to 30 days for Chinese visitors back in 2008, yet some are calling for the program to be ended, following various scandals involving ill-behaved Chinese tourists.
With this in mind, China’s recent action could – although it is very unlikely given the economic toll on South Korea – be an attempt to aid Seoul in managing the influx of Chinese tourists. It is more likely that foreign policy tensions from THAAD and the aforementioned tourist faux-pas align with government efforts to boost domestic tourism spending. By reducing tourist flow to South Korea, China can limit capital outflow to one of its largest and closest tourist destinations. This would in turn encourage Chinese holiday-goers to spend their money on tourism and luxury products in China, thus boosting domestic consumption: an important aim for Beijing as economic growth slows.
Boosting domestic tourism
The recent National Day Golden Week holiday saw almost 600 million Chinese tourists spend $74.97 billion in China; an increase of 14.4% over 2015. In order to foster domestic tourism, the government is seeking to improve the accountability and quality of local tourism services. This has seen new, stricter regulations for ride-hailing services in a range of Chinese cities – regulations that mandate vehicle insurance, and stricter rules for drivers, among others. While these services are often used by locals, they see heavy service during national holidays from visiting tourists.
The problem for Beijing is that these new rules, while ostensibly aimed at improving service and safety, are resulting in many existing drivers being disqualified, thus reducing supply and frustrating customers. Indeed, by one estimate, some 90% of Shanghai’s 400,000 hire-car drivers fail to meet the government’s new requirements.
Furthermore, on October 7th the government announced that it is launching a three month crackdown on misleading online tourism advertising. The joint task force headed by the Cyberspace Administration of China and the China National Tourism Administration, is targeting: tourism web portals, travel agency websites, online booking services, tourist attraction and tourist area websites, as well as mobile apps. The government has also called upon citizens to inform on tourism sites if they come across violations online.
Chinese tourism in Thailand sees dual interference
In a similar vein to Beijing’s misleading advertising crackdown, Thailand has implemented new measures to counter so-called ‘zero-dollar-tours’ popular with Chinese tourists. Bangkok has ordered service providers to implement a minimum per person, per night cost of THB 1000 ($28.55). Tour companies are also required to provide itineraries before hand to the government to ensure compliance. ‘Zero-dollar-tours’ involve hotels linked to Chinese tour operators, with all business cash-driven, resulting in no tax income. Local Thai tour operators pay their Chinese tour operator partners to handle the group, while they get commissions from tourist attractions, restaurants etc.
Unsurprisingly, the lack of tax revenue and a paper trail worries Thailand, as by October 10th the country saw a 22.95% increase in Chinese tourists as compared to 2015. Similarly, China will want to crack down on Chinese tour operators engaged in such practices as part of its anti-corruption efforts and its plans to increase tourism service quality and oversight.
Another issue for Chinese tourism to Thailand is that with the death of King Rama IX, Thailand is entering a year of mourning, with various entertainment venues closed for the coming weeks. Moreover, Thais and visitors are expected to be subdued, avoid loud or obnoxious behavior, and remain respectful of the state of national mourning – in other words to not enjoy themselves to much.
Consequently, China is currently discouraging visits to Thailand in the coming weeks, as many tourist attractions will be closed. This move is also informed by Beijing’s recurring headaches involving ill-behaved Chinese tourists – such as in South Korea – overseas. Given the sacred importance of the late king to many Thais, Thailand is a powder keg which any foolhardy Chinese tourists could quickly ignite. Beijing wants to avoid an international incident, or even the kind of anti-Chinese riots seen two years ago in Vietnam at all costs.