Chinese Economy Struggles with Loss of Tourism Revenue, Negative Consumer Sentiment

Chinese Economy Struggles with Loss of Tourism Revenue, Negative Consumer Sentiment

Published: July 4th, 2020

China’s long economic hangover from COVID-19 is far from over. The uptick in infections since lockdown measures were first relaxed has forced new limits on social activities and dampened the pace of recovery. The country saw tourism revenue plunge by a whopping 70 per cent during last week’s massive, three-day Dragon Boat Festival.

The restrictions have hit Beijing hardest. New social distancing measures and close scrutiny on travel in and out of the city were implemented after a spike in coronavirus cases just a fortnight before the holiday weekend was set to kick off. Across the country, numerous beauty spots have capped the number of visitors, pushing attendance down to a fraction of normal capacity.

China’s Ministry of Culture and Tourism said tourist trips to the capital during the festival brought in revenue of 12.2 billion yuan, from 48.8 million visitors. That marked a drop of more than 69 per cent from the 39.3 billion yuan the festival weekend pulled in last year.

Official figures have tourist trips to the city during the 2019 festival at close to 96 million.

In a note to investors, economists at Nomura said tourism and other activity data from the holiday festival suggest that China’s services sector recovery remains weak, though for obvious reasons related to the ongoing pandemic. Increased social distancing measures and consumer confidence were being clouded, they said, by heightened uncertainty and high unemployment.

Travel bans meant the number of cross-border trips during the Dragon Boat Festival holiday this year was almost zero. Government data suggests there has been no significant improvement in the tourism sector since May’s underwhelming Labour Day holiday.

Airline sector readies itself for more bad times

When Covid-19 first emerged in October last year in Wuhan Province, Chinese authorities implemented numerous measures to get control over the spread of the disease. One of those was to extend the country’s Lunar New Year holiday shutdown by another week.

Those measures seemed to work. Within weeks the outbreak had slowed, and by April, much of the country was back at work. Then Beijing had to deal with a new threat: travellers bringing coronavirus back into the country from abroad.

Covid-19’s rapid spread across major economies has become a global pandemic that’s infected more than 10 million and led to the deaths of over 500,000 people. Beijing has had to deal with major diplomatic, reputation, and logistical problems as a result, hitting demand for Chinese exports hard.

In response, the government has tried to minimise its export dependence and look to increased domestic consumption for growth. With most of its borders still closed, its hoped that the billions spent on foreign tourism last year will flow within China instead.

In the first half of 2019 alone, official numbers estimate overseas spending by Chinese tourists at $127.5 billion, mainly on trips to other parts of Asia.

Whether enough Chinese consumers have the confidence and disposable income to spend at similar levels, post-pandemic is highly uncertain. Chinese sales of consumer goods from January to May fell by more than 13 per cent, year on year.

Reporting on the pace of recovery in tourism, Chinese travel booking site Ctrip said it had also experienced a sharp decrease in tourist demand during the 2020 Dragon Boat Festival, and that it actually marked a decline in demand from two previous public holidays earlier this year.

Pockets of travel demand persist

But other numbers still seem to show that Chinese consumers want to spend on holidays, despite the difficulties created by restrictions on travel in and out of Beijing. Searches for airline tickets hotels for the latest Dragon Boat Festival on Ctrip, for example, climbed back to 70 per cent of levels recorded by the site last year.

Hotel reservations rose 15 per cent from May to June, while 60 per cent of bookers reserved rooms in four- and five-star hotels.

Customised tour packages and local tourist destinations have both seen a jump in demand, according to Chinese travel site Mafengwo. The Tencent-backed company also reported more searches for camping and related terms, up more than 120 per cent from May to June.

Ctrip said the most popular in-country destinations were Shanghai, Chengdu in the country’s southwest, Sanya city on Hainan Island, and Guangzhou in the south. All four topped the rankings as places of departure and arrival for air travel.

Among the 20 most popular tourist destinations were Emperor Qinshihuang’s Mausoleum Site Museum in the city of Xi’an, and Shanghai’s Disney Resort.

Projections from McKinsey show that if China can shift all consumer travel spending to domestic markets, the country will gain $238 billion. The US travel market would suffer a loss of $52 billion.

Recovery, but slowly

In the same report, McKinsey analysts said they do expect Chinese travel to make a comeback. But that it may take three to four years for a full return to previous levels of air travel demand.

China’s slew of major travel infrastructure projects may also have to wait longer to see a return on investment. Those constructed for overseas connections, like Beijing’s Daxing International Airport will need more time to deliver their expected ROI. The airport opened its doors last Autumn; however, business travel is expected to continue its decline as the trend of working from home and video meetings beds-in further.

McKinsey noted that both Beijing Daxing and China’s new Guangzhou Terminal 2 were both designed perfectly for passengers making international connections, but were built for a pre-coronavirus reality. ‘In the next two years, that enhanced utility won't be needed.’

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