ATR - Understanding China

China Market Updates,August 2009

China's Economy Keeps Growing
China's GDP grew by 7.1% to RMB 13.99 trillion (USD 2.06 trillion) in the first half of 2009, as massive government spending and record lending helped the economy rebound. The economy expanded 7.9% in the second quarter; analysts said it added confidence that China would achieve the 2009 full-year growth target of 8%.

Growth in Chinese Outbound Travel
The CNTA released that 22.55 million of Chinese citizens had traveled abroad since 1 January until 30 June 2009 being an increase of 3% year-on-year. 11.5% of them travelled for business which was a decrease of 10.3% whilst leisure travel increased 2.8%. This reflected that despite the almost total halt in outbound travel from May to July due to H1N1, the January to April results had dramatically improved on last year.

China Market's Potential Beyond Japan
China will lead Australia's inbound tourism market growth over the next 10 years while Japan's contribution is expected to dwindle, according to two reports published by Australian tourism industry. China is expected to contribute 19.7% of market growth between 2008 and 2018.

Chinese's Desire for Travel Keeps Growing
Since January 2009 the number of Chinese tourists travelling domestically reached one billion, an increase of 10%.

Six More ADS Destinations for Chinese Tourists
The Chinese government has now granted Approved Destination Status (ADS) to United Arab Emirates, Guyana, Ecuador, Mali, Ghana and Papua New Guinea. This means that approved travel agencies in China can now legally market and organize leisure groups to travel to the above nations.

Demand for Philippines Travel Increasing
The number of Chinese tourists to Philippines increased in the last six months by 23%. The Philippines has conducted marketing in China and promoted charter flights such as Shanghai to Boracay, Hangzhou to Boracay and Nanjing to Boracay. Relaxed visa restrictions have also assisted the growth in Chinese arrivals.

China Remains No.1 for Online Use
China's number of registered internet users hit 338 million at the end of June 2009 over shadowing Asia’s second highest user country which is Japan with 99 million people.

Mainland China Travel Demand for Taiwan Keeps Growing
Mainland Chinese have made about 660,000 visits to Taiwan since the island relaxed restrictions in July 2008, up 136% year-on-year.

Japan Allows FIT Visa for Chinese
Japan announced that from 1 July Chinese citizens can apply for FIT visa, where as previously leisure travel to Japan was by group only. Whilst the application process is complicated, it is still expected to have a dramatic effect on the outbound travel market of China in future.

Thailand Waives Visa Fee for Chinese
Thailand government announced that leisure visa application fees of RMB 230 (USD 33) for Chinese tourists would be waived for the following 12 months.

MU Now a Major Shanghai Based Airline
China Eastern Airlines (MU) has acquired Shanghai Airlines, a deal of RMB 9 billion (USD1.3 billion) which will create a newly capitalized carrier in China's financial hub, Shanghai.

Chinese Want More Than Just Shopping
In a recent report released by China Tourism Research Institute revealed that the average spends by Chinese tourists when overseas is over US$1,000. Shopping is still considered one of the most important activities. The report also stated that service quality is increasingly becoming an important focus of Chinese tourists. Other aspects considered important are signs and notices written in Chinese in the destinations they are travelling to.

China Market Updates, June 2009

China Outbound Travel Market Temporally Halted
H1N1 Flu has all but stopped the Chinese outbound travel industry with very few outbound groups in June and forecast for July. During May (including May Labor Day holiday) many group bookings to U.S.A, Canada, Australia and Europe were cancelled or postponed by customers, but some destinations without flu became especially popular such as Japan, Africa and islands in South East Asia. However once the flu broke out in Japan all Chinese outbound halted. More than a fear of contracting the disease it is the forced quarantine policies of any suspected of having contact with an infected traveler by Chinese government that has most potential travelers concerned that it’s not worth the risk of travelling currently.
Massive Pent Up Demand Predicted after H1N1 Subsides
With the Chinese economy being touted as showing indications of recovery and after a surprising best first quarter results in years, the effects of H1N1 has been devastating. However it is now predicted by many senior executives of the Chinese travel industry that pent up demand will be extremely strong, when the controls put in place by Chinese authorities are relaxed. In preparation for this forecast surge in demand, many travel companies are now working on revamping their future programs whilst the have the almost complete halt in demand currently.

The Effect of New 'Regulation on Travel Agencies'
It is the travel companies whose mainstream revenues were based upon receiving shopping commissions in order to subsidize selling below cost tour packages that are being dramatically affected. The entire travel industry is now waiting to see which major will be the first to be penalized if it sells tours in the old, now outlawed manor. This wait-and-see approach has effectively meant a dramatic down turn to any travel business that was not affected by H1N1. Further to the reduction in outbound numbers is has now seen strong reduction of travel company staffing levels with redundancies and forced leave without pay being enforced, due to limited revenues.

Japan & Korea Simplify Visa Requirement for Chinese Travellers
From July 1st, Chinese citizens will be able to apply for private leisure travel visa (FIT) to Japan instead of being able to apply for tourist group visas. In 2008, China was 12% or one million of Japan's international arrivals. Japan is now forecasting to attract six million Chinese tourists per annum by 2020. Meanwhile the Korea Tourism Organization has also simplified tourist visa application policies on a trial basis for intending visitors from the provinces of Jiangsu, Zhejiang and Anhui Provinces, and also Shanghai. Applicants only need to present passport, ID and photos, but applications must still occur through travel agency. Applicants need to have either had at least three time prior successful visits to Korea or one to the U.S.A, Canada, Australia, Japan or a European country.

Recent Aviation Updates
From 25 May, Hainan Airlines launched a new service from Beijing to Dubai. Korea Airline launched two new services between Seoul to Xi'an and to Mudanjiang respectively, now expanding its total routes to within China from 28 to 30. Delta Airline launched a new non-stop service on Shanghai - Detroit from 3 June with a Boeing 747-400 aircraft. This was then followed by the announcement that it will cease Shanghai to Atlanta flights currently operating by a Boeing 777, which is not yet 12 months old.

Current Economic Conditions

Much information is being forecast by tourism industry experts now in relation to China's outbound travel markets and the current global financial crisis. As governments all over the world are pouring billions of dollars into their financial system to minimize the impact of the world economic meltdown, many international tourism organizations are also now viewing China as the savior to their tourism industries.

China aims to now become the first nation to recover from the global economic crisis, as it too has been severely affected by the worldwide events.

In 2009, economic growth in China is expected to slow to 7.5 percent, a level not seen since 1990, according to the World Bank. In 2008, the Chinese economy expanded nine per cent, which was the first single-digit growth since 2003.

China's economy grew by just nine percent in the third quarter of last year. At the time of writing this 2009 market development plan initial macroeconomic key figures for December 2009 were released by the Chinese National Bureau of Statistics, outlining that China's gross domestic product slowed to 6.8 per cent in the fourth quarter of 2008.

China unveiled a four-trillion-yuan (590-billion- US dollar) spending package in late 2008 to revive the economy. It is now anticipated there will be further announcements regarding more efforts to spur growth in the Chinese economy. The government will next expedite the investment of 600 billion yuan into six major projects already approved as part of a master plan for scientific and technological development.

China to be the First!
China aims to become the first nation to recover from the global economic crisis, Premier Wen Jiabao was recently quoted as saying by Chinese state media. "Our aim is to be the first to recover from the financial crisis." Wen said, "Our measures have already taken effect", adding that the economic data for December was "better than expected". (Monday 12th January)

It is important to note that these numbers reflect the percentage growth of an already huge economy which should be compared to other major national economies around globe that have now quickly dipped into recession. These other major developed nations now in recession were also source for destinations around the world.

Current Tourism and Travel Forecasting

Outbound tourism in China, once privilege enjoyed by few, is now more accessible to the average travelers, due to cheaper packages and a stronger Yuan. The global financial crisis is affecting some industries in China, but outbound travel, to some extent, seems to actually be benefiting from it. Recent statistics from the China National Tourism Administration show that the number of Chinese outbound travelers reached 34.4 million in the first nine months of 2008, up 14.8 percent year-on-year. In September alone, about 3.7 million Chinese people traveled overseas, an increase of 9% year-on-year. Anecdotal research demonstrates that most foreign government tourism bureau’s are not just maintaining their market development investment in China but in many cases are now seeking to increase their investments to make up for the forecast shortfalls from Europe, the United States, Japan and other traditional markets. Certainly many industry analysts have reported that despite the global financial crisis and looming economic recession, many Chinese travel companies are confident the country's huge population and tremendous market potential will continue to maintain growth in demand for outbound travel. During November and December it also became very apparent that the Chinese government equally has mobilized its domestic marketing resources to make up for the downturn in inbound arrivals from its traditional international markets.

Chinese Tourism Still Flourishing Domestically
In a recent release by official industry figures from the Chinese National Tourism Administration (NTA), figures show domestic tourism is still flourishing. Domestic tourism will probably not be influenced very much by the financial crisis, believes Zhu Dan, a tourism official from the state-owned tour company. "China's tourism industry will be able to weather the storm. The crisis will have some effect on tourism, but it will not be very serious."

During the recent October National Holiday week, 178 million Chinese traveled within the country, up 22.1 percent from the same period last year. "Our business depends mostly on domestic tourism, and China's booming economy."

There are positive signs across China's outbound travel industry now emerging, as demand for Chinese New Year is exceeding expectations of most. However it is with optimistic caution, conscientious planning and a great sense of vigor that planning needs to be done for 2009 in China.

Overview of China Outbound Travel Market

China is now and will continue to be the biggest travel market EVER!

Over 45 million Chinese will travel internationally in 2009!

Most International companies are now very serious about this travel giant!

The Chinese travel industry is developing fast and eager for direction!

China’s recent economic boom has seen the birth of new middle income and upper classes. About 345,000 of the country’s 1.5 billion people are millionaires in US dollar terms. China’s outbound market amounted to 41 million in 2006, overtook Japan in 2003 as the number one outbound travel market on the planet. In 2008 over 45 million Chinese will travel from China and this number is expected to increase to 100 million by 2020, according to reports by the WTO, PATA, WTTC and CNTA. China is the fastest growing economy in the world and is predicted to be the largest economy in the world surpassing the US by 2040.

China as Large and Diverse as Europe

Internationally, it is often not well understood that China is as diverse as it is geographically large! This diversity not only includes a multitude of ethnic populations, culture, language and traditions but also different business practices and market trends.

In the travel industry of China, there is little national centralization with each city or province often having its own government policies, business practices, strategies, itinerary and product programs.

Each city or province has varying levels of maturity in terms of international travel, industry structure and consumer desires. These differences are due to a variety of reasons including economic prosperity, aviations access and the development of the local infrastructure in accordance with the central and provincial government planning.

Aviation access is the first step to being able to the market, and this is best on a direct basis but also via nearby hub such as Hong Kong, Japan and Korea, and possibly soon Taiwan.

In order to truly develop the outbound leisure travel markets of Greater China, regular contact must be kept with the various offices of the major & minor travel companies located in cities across this vast country.

Key target markets within China are develop principally highlighted by average person income and travel industry sophistication.

Ability to gain the important visa to earn the right to travel is important, and many countries view certain provinces and cities as higher risks to non-return. MICE unlike leisure travel, the key decision makers mostly located in the major cities of Shanghai, Beijing, Guangzhou and Taipei.

The market is highly fragmented with top 100 travel agencies controlling 50% of the market.
These are large travel agencies that are operating on volume with slim margins to gain profit.
Most of these companies further to also have significant sales to organizational buyers (business and / or government).
Main channel for reaching end consumers is via retail agents provincially.
Consumers do preliminary research on their own. By the time they visit or call the travel agencies, they have a pretty good idea of where they want to go and are looking for detailed product information and price.
Resale networks are established through personal relationships and trade shows.
Customer acquisition costs are high. 70%+ of the gross profit goes to retailers in a wholesale transaction.
Sell to organizations through personal relationships or formal biding process (usually annually).

There are few retail only travel agencies in the strict sense as a significant percentage of retail travel agents do
resellsome of their low volume destinations products.
They purchase often through wholesalers as only the major retailers are capable of conducting international
travel business with out relying on locally based wholesalers.
Many retail travel agents do not have the necessary outbound travel licenses.
There are over 9000 travel agencies in China and mostly independent economic entities.
Divisions within these travel agencies could be owned and operated by independent contractors (without licences) who pay a fee to the agency, this is common.
Retailers advertise in local newspapers to drive traffic to their outlets.
Retailers are now increasing their online internet presence with many now doing business exclusively over the internet.

These travel specialists focus on serving government departments and state owned organizations
They have few retail outlets (often only one location) and they usually have long term relationships with
buying organizations
Approximately 100-150 business specialists nationally
The biggest of these business travel specialists are in Beijing
Ministries of Chinese central government are among the biggest customers
Local governments tend to go to local travel agents
There are considerable less business travel specialists outside of Beijing
There are two ways of getting organizational business
Through long term relationships with organizations
Through a formal bidding process (but one needs to have a reputation in order to be invited to the bidding)
Businesses are less price sensitive and require more services
They prefer inbound operators who have the ability to customise itineraries

Dedicated incentive focused planners on serving corporate direct often with no retail outlets just corporate style office
They seek to develop long term relationships with buying organizations but are often always made to tender for the business along with the competition
Approximately only 25 true incentive / travel companies
In China there are very few true incentive house operators yet
There are many conference organisers that do not have a travel license that are seeking to develop their market and
often combine with a major agents for large tenders
There are principally two ways of getting incentive business in China
- Solid long term relationships with the key incentive planners
- Be constantly prepared to submit proposal including suggested formats to the agencies preparing tender submissions
Prepared to have flexibility in rate as some become more price sensitive