MNI INTERVIEW: China's Outbound Tourism To Recover By 2024
China's currency and current account surplus will be impacted as 20% of the global tourism market rebounds to pre-pandemic levels, a former State Council adviser said.
China’s USD250 billion outbound tourism industry is set to fully recover by 2024 as air fares drop and Covid requirements are eased for Chinese travellers, former State Council adviser Henry Wang told MNI.
Wang expects outbound tourism to reach two-thirds of its pre-pandemic levels by the end of the year, marking a healthy rebound in Chinese travellers who accounted for around 20% of the international tourism market before Covid, with flow-on impacts for spending in destination economies and the value of the yuan.
“You cannot change the Covid mindset overnight after such a long time,” said Wang, who believes it will take another 12 to 18 months to reach pre-Covid levels following the relaxation of control measures earlier this year. He expects a “stronger up-tick starting in H2 this year”.
“Domestic tourism has increased, but this won't dampen the huge appetite to see the world amongst China’s growing middle class”, said Wang, who is now the CEO of the China Center for Globalization in Beijing.
“I don't think the pandemic has impacted China’s longer term growth trend for foreign travel”
REMOVING BARRIERS
Wang said barriers would need to be removed to help support the rebound in Chinese travellers.
“Airlines need time to scale up operations and bring costs down, with the high price of flights during the initial phase of 2023 impacting passenger demand” he said.
Visas are another issue, with regulations needing to be relaxed and time allowed for application and processing. “After three years a lot of visas will have expired and need to be renewed, this takes time,” Wang said.
Travelers were potentially put-off by some countries requiring PCR tests only from China arrivals. “At that time, inbound passengers to China all needed a PCR test, regardless of origin - people felt this was unfair,” he said.
The US health authorities recently stopped mandatory PCR tests for arrivals from China, though flights between the US and China are capped at 12 per week. Beijing resumed issuing tourist visas into the country mid-March, the first time since 2020.
CURRENT ACCOUNT
Rising outbound tourism may drag on China’s foreign FX reserves as yuan is sold for the currencies of destination countries. The impact on the yuan will be offset by expected lower oil prices and renewed interest in onshore equities, former U.S. Treasury economist Brad Setser told MNI recently. (See: MNI INTERVIEW: PBOC Tempted To Weaken Yuan If Rebound Falters)
Increased outbound passenger flows may also widen China’s services deficit, which together with slowing demand for exports could see China’s current account surplus narrow to 1.0% of GDP this year, according to JP Morgan estimates.
TRADE OPENING
The flagging of China’s desire to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in the Work Report delivered as the recent People’s Congress shows “China is serious about opening up and maintaining the rules-based order,” according to Wang.
“The government is now promoting CPTPP clauses to companies and local governments, and authorities are pushing hard to get compliance sorted,” said Wang.
Chinese state media reported that Shanghai mayor Gong Zheng identified conforming with CPTPP rules as a priority during his first meeting since the congress, with the recent expansion of free trade zones also aimed at ascension into the regional trading bloc.
“I think after the UK has its application processed, attention will turn to China,” said Wang.
He said recent meetings between Australian and China trade officials showed “feelings on both sides were very warm, clearly a thaw is underway”.