Tourism Down: Trade Tensions Redirect China Travel

Tourism Down: Trade Tensions Redirect China Travel

Tourism Down

Trade Tensions Redirect China Travel

On Tuesday June 4, China issued a travel advisory on the United States (US) amid the tension of trade war. The advisory warned citizens who planned to travel to the US, asking them to be cautious of police harassment and public order. Chinese state media Xinhua News Agency reported that China’s Ministry of Culture and Tourism cited recent “frequent” shootings, robbery and theft in the US as the reason for its alert. Another state-run media, China Central Television reported that “Recently, U.S. law enforcement agencies have repeatedly harassed Chinese citizens visiting the United States through exit and entry inspections, door-to-door interviews and other means.” This came with the escalation of the US-China trade war after trade negotiations between them fell through in early May.

China has previously used its outbound tourists as “weapons”. In 2018, the total number of Chinese outbound tourists reached 162 million. Two years ago, in order to protest the decision of the South Korean government to deploy the US THAAD missile defense system, the Chinese government temporarily banned domestic tour groups from traveling to South Korea. This resulted in a 48% drop in the number of Chinese tourists visiting Korea in 2017.

Potential influence on the U.S.

There is no clear indication that China will ban its citizens from going to the US, but given the growing hostility between the two countries, the number of Chinese tourists to the US is still likely to decline this year. With tourism a service export, the sharp drop in the number of Chinese tourists may cut billions of dollars from the US economy. According to the National Travel and Tourism Office, 3 million Chinese citizens visited the US in 2018, down from 3.2 million in 2017. This is the fifth largest group of foreign tourists to the US and their total consumption reached 36.4 billion US dollars. However, Chinese tourists still only accounted for less than 4% of the total number of visitors to the US last year. Therefore, some analysts believe that even if the number of Chinese tourists plummets, the US hospitality and airline industries will still perform well.

On the other hand, this may still cause losses to industries where Chinese tourists spend lots of money. Historical data shows that approximately 40% of the United States’ international students are Chinese, resulting in a flow of spending into the US education sector. In 2018, this expenditure was approximately $15 billion. International students are an important source of income for US universities, and they may be hit hard by a slowdown in Chinese citizens visiting the country.

Luxury brands are another area that may be hurt. Chinese consumers, who contribute one-third of the global luxury consumption expenditure, may now direct their spending towards other global shopping cities such as Paris or Milan instead of New York. This will not be pleasant news major US companies including Tiffany, Ralph Lauren, and Tapestry. In fact, Tiffany & Co.’s US sales to Chinese tourists reportedly fell by more than 25% last quarter, a trend that will only worsen as the trade war continues between the two countries.

Potential influence on Australia

Chinese tourists are Australia’s largest visitors. After peaking a year ago, the number of Chinese visitors has been slowing over the past nine months. According to data from Bank of America Merrill Lynch, there was a 3% decline in the number of Chinese bound for Australia in April. The figure declined 5% in March and 1% in February respectively. The situation is totally different in Cambodia with a 53% jump and in Indonesia with a 23% hike. Thus, the analysts commented that the flow of Chinese tourists to Australia has hit a wall because of the weaker economy and trade tensions with the U.S. More Chinese travelers are choosing to visit cheaper holiday spots in Asia.

Following Beijing’s travel advisory on the U.S. in the last week, analysts warned that Australian tourism would be “vulnerable” in front of the Chinese government’s political action. Instead of previous bullish predictions, Chinese travel agents took a conservative forecast and will not increase the number of forward hotel bookings they make in Australia in 2019. At the same time, Australia’s Gambling industry has experienced a plummet in revenues as the trade tensions have taken a toll on the number of Chinese high-rollers visiting our gambling venues.

The tourism industry is an important contributor to the Australian economy. Unfortunately the US-China trade war has brought a negative impact on both sides and also on Australia, threatening to hurt our economy. It is important for Australia to avoid engaging in the political conflict which may worsen the situation.

By Steven Gao

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