TT-834 (Tourism Edition) -- Why There May Be Less Chinese Tourists in 2016

* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie
Lloyd, a long-term technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

Tourism Sector Edition Sunday, Jan 17, 2016, Issue No. 834

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+++ Why There May Be Less Chinese Tourists in 2016

Almost as if on cue, after our #833 Terrie's Take predictions newsletter
last week, the Nikkei ran a number of articles expressing fear that the
current rout in the Chinese stock market could impact Chinese tourism
into Japan. Yeah, OK, we agree that it's unlikely the Nikkei editors
read this newsletter, but the point is that our prediction wasn't
difficult to make -- because of the past sensitivity of the Chinese
outbound travel market to negative economic and political developments.
For example, look at how the number of Chinese inbound tourists dropped
by 50% in 2012 over the Senkaku Islands tiff.

Why are Chinese travelers so nervous about bad news, and how will this
affect travel numbers to Japan?

A recent Intercontinental Hotels Group (IHG) study (actually done by
Oxford Economics) stated that China had about 27m households in 2013
which earned more than US$35,000/year and who could comfortably afford
international leisure travel. This number is probably around 35m now. A
bit further down the socio-economic ladder, there were another 23m or so
households earning US$20,000-US$35,000 and which could also make at
least short-haul trips to places like South Korea and Japan. By 2023,
the numbers in both segments are expected to almost triple. So there
will be a lot of newly-middle class Chinese people experiencing overseas
travel for the first time, or if they are experienced, who still have
the rest of the world to discover.

The IHG numbers appear to suggest that the first wave of substantially
well-off Chinese have already done their Japan discovery trips and that
this segment is now spreading its wings further afield to North America
and Asia, or nipping down to hideaways purchased in Thailand. But since
the number of Chinese inbound travelers to Japan has continued to
increase, it seems that the first wave of travelers is being replaced by
less wealthy compatriots who are taking cheap short-haul trips here and
combining leisure with more pragmatic "shopping services" for friends
and relatives back home. The demographic shift is partly confirmed by
JTA data that shows that 49% of Chinese families traveling here in Q2
last year earned around US$40,000 or less. These people are often
stretch their budgets to make the trip, as demonstrated by anecdotal
stories in the hotel industry of overcrowded hotel rooms, piles of
wrapping trash, and cooking even when there are no facilities.

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This segment of travelers has less tolerance for financial setbacks and
is naturally skittish. Thus, with the losses that many Chinese families
are suffering in the stock market, once the current cycle of
already-booked tourists rotates out of Japan, we believe the inbound
numbers will take a hit at least until the stock market (and the related
housing market) stabilizes again. And if it doesn't stabilize in a
favorable way, then the inbound numbers will go into reverse for a
while, at least until Japan's marketing and tourism authorities wake up
and start increasing marketing and incentives for other Asian source
markets.

The over-focus of the Japanese government and tourism industry on the
China market is of course understandable, given the huge financial
benefits being enjoyed by companies that are on the shopping lists of
our Chinese guests. Take electronics retailer Bic Camera for example.
This group enjoyed a record net profit of JPY2bn in Q2 of 2015, 48% more
than the same period in 2014, thanks mostly to tourists. The company's
revenues actually fell by 2% year-on-year, but because tax-free sales
doubled to 11% of overall sales, and Chinese tourists buy more
high-margin home appliances, the company's profits came in higher.
Likewise, whether it was electronics, apparel, accommodation, railway
tickets, or food, the story has been the same right across the nation.

This is why the idea that there might be less Chinese tourists for a
while has spooked the Japanese stock market. Some companies directly in
the flow of inbound tourist money have seen their stock prices plunge --
such as Asics and Matsuya department store, both of which are at 2015-16
lows.

Does this mean that 2016 is going to be a year of doom and gloom for the
Chinese inbound tourism sector? Not necessarily. Obviously things will
not go well if the Chinese and perhaps global stock markets go into free
fall. However, the majority of analysts around the world are saying that
this appears to be a temporary correction and not the start of a deeper
bear market. We are not economists, but commonsense tells us that this
is probably a reasonable assessment, if only because the Chinese
government can still go a lot further in stock market controls,
devaluing its currency, and curbing the outflow of capital, if it wants.

There are several other threats to the Chinese inbound tourism sector
this year besides the loss of the shopping-centric segment. Firstly, the
emerging repeater "Free Independent Traveler" (FIT) travel segment,
which accounts for about 25% of inbound travelers from China, will be
hit if there is a substantial and sustained increase in the yen against
the renminbi. The FX rate at the start of the Chinese traveler boom to
Japan in 2013 suggests that anything above 15 yen to the renminbi will
be impactful. We're at 17 at the moment. Secondly, if the Chinese
government decides to deflect public attention from the economy by
engineering another Senkaku confrontation then all travel segments will
be hit.

...The information janitors/

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+++ ABOUT US

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