China’s latest financial events and the outbound tourism market

Economists are warning that the second largest economy shows signs of meltdown. The growth is slower, exports have decreased 8.3% in July from a year earlier in dollar value and there are doubts on domestic consumption, which might not be strong enough to compensate for the gap on foreign trade.

China’s outbound tourism market is developing fast and is the biggest tourism source market in the world. 62 million Chinese crossed the border in the first half of 2015. Businesses have raised fears over to what extent this can affect the growth of the top source of travellers in the world.

Professor Pedro Nueno, the China-Europe International Business School (CEIBS) in Spain, is optimistic. ‘I do not see a crisis or an economic slowdown, but a moment of adjustment.’

Yuan depreciation

The Chinese yuan has lost 3% of its value against the US dollar since Monday 10^th August 2015 but it had appreciated 15% in the last months. Although the last events are worrying economists, the impact in relative terms is moderate.

The outbound tourism industry will not see much effect for the time being. First of all, the fluctuation is well below the growth rate expected for China for this year, which is still near 7% of the GDP. Second, the effect would never be immediate, as most holidays are booked months in advance.

The cost of outbound tourism products has not been risen in the recent days and if so, it involves a round-up of 50 to 200 yuan in tour packages worth from 3,000 to 10,000 yuan

When we consider the euro, the yuan depreciation is even more irrelevant: one euro costs 7.42 Yuan on the 24^th August 2015 almost 1 Yuan more expensive from the 10-year minimum of March 2015 (6.58 Yuan) However, it is still far cheaper than in April 2014 (8.64 Yuan), when the Chinese tourism was already swiftly growing.

In order to deal with the depreciation, travel agents in Singapore are considering special deals for inbound Chinese visitors should the devaluation affect their business. ‘If the lower yuan exchange rate continues in the next two to three months, travel agents may have to adjust their prices to remain attractive to the Chinese market’, explained Ms Alicia Seah, director of marketing communications at Dynasty Travel.

The stock market

The stock market has gone 135% up in about a year. After rocketing to almost 5,200 in June, the Shanghai Composite index is now back to where it started. According to Professor Arlt, director of COTRI, the Chinese Outbound Tourism Research Institute, on his Forbes blog: ‘Many inexperienced, small-scale investors have been burned badly by such volatility, using borrowed money to enter too late into the run. For most members of the top 5% of Chinese society, affluent enough to travel beyond destinations like Hong Kong and Macau, their ability to spend a few thousand dollars for a trip to places like Phuket or California has however not been seriously hampered’

A recent report by financial services company GaveKal says that China’s stock market is the playground of a limited number of investors. “The pain of the crash is affecting probably no more than 20mn to 30mn Chinese households, most of which range from upper middle class to very wealthy.”

China’s securities regulator issued last April a strong warning about the country’s soaring stock markets and tightened rules on margin lending. ‘It’s good that the Government had warned that the stock market is not for everyone’ says Pedro Nueno, president of the CEIBS. He also affirms that the government is doing well by bursting the stock market bubble that was occurring in China.

For Jonathan Ming Ren Liu, assistant president of America Asia Travel Center, the recent Chinese stock market crash ‘is just a distant story on his television’

In this regard, Robert Kleinhenz, an economist for the Los Angeles County Economic Development Corp., predicts that any negative effects on California tourism industry from China’s crash will be temporary: “When China gets past this blip, there’s a lot of growth to be had, and we’re going to see that growth turn into tourism and investment dollars,” Kleinhenz said.

According to Professor Arlt on Forbes, ‘the economic slowdown is certainly creating headaches for many luxury brand managers — Maserati closed another showroom in Beijing recently while Swiss watch exports to China fell 40% in July. But outbound travel, even the five-star variety, is still much cheaper and affordable than a Quattroporte saloon or a Breguet chronometer’.

Read more: Four inactions that will NOT bring you Chinese customers to your travel business

Photo: Japanexperterna, flickr