Chinese tourists are back traveling, but what can we expect from the rebound?
"The fastest-growing, and one of the top per capita spending markets, was back in play."
When China’s long and lockdown-heavy journey away from COVID finally reached its culmination in late 2022, the global travel industry breathed a sigh of relief. The fastest-growing, and one of the top per capita spending markets, was back in play.
The expectations are sky-high, but will those wishes match reality and will we see a resurgence in Chinese tourists traveling throughout 2023?
Just how tough was 2022 for China?
The long wait for the Chinese tourist to return became even longer in 2022 as China zeroed in on a strict anti-COVID stance that became a unique policy position globally.
It is worth reviewing how drastic this was and the impact that it had on Chinese tourists and the regional travel industry.
While the rest of the world was largely on a path of relaxing their approach to fighting the pandemic and reducing what restrictions remained in place, Chinese authorities went in the opposite direction.
They enacted some of the most drastic lockdowns seen within the country since 2020 and experienced anywhere in the world, fielding mandatory stay-at-home orders across massive metropolises and restricting international travel.
“China's whack-a-mole policies where you try to suppress every single outbreak just became more and more difficult,” explains long-time Asian travel expert Gary Bowerman, Director of Check-in Asia. “You saw these big city lockdowns - Shanghai, Xian, Chengdu, Shenzhen, Guangzhou - you saw people locked down in Hainan Island when they're having a holiday, and that really knocked not just travel sentiment, but consumer sentiment (too).”
Civil airline passenger travel plummeted in 2022, with the number of trips falling 62% compared to 2019 after briefly rebounding slightly in 2021. “Ah” we hear you say, “but China has the world’s largest high-speed rail network, which has taken market share from regional airlines.” Well, performance there was only marginally better, as passenger kilometers fell in near lockstep, diving 55%.
Rail and civil air passenger traffic in China in 2022
“The other big issue was employment,” points out Bowerman. “Because the tech industry got regulated very, very hard during the pandemic and there were lots and lots of layoffs”, particularly among the young, urban and affluent, who are a critical travel demographic. “For the first time in their lives, a lot of people who had only really seen upward curves … suddenly saw unemployment. They saw the housing economy in free fall and they saw that their future prospects weren't as bright.”
How is the Chinese tourist feeling today?
That tough outlook has created long-lasting ripples throughout the Chinese economy and travel market.
The latter point about the housing market is particularly important due to “just how many people hold their wealth in apartments”, says Bowerman. Chinese consumer investing in many ways is the housing market, as millions of families have poured their wealth into not just their own apartments, but second or third properties.
That market suffered heavily in 2022, with the value of transactions cut in half Year-on-Year (YoY), even with government intervention and many projects being left unfinished.
There are signs of the slump ending, but its scars will last well into 2023.
Similarly, the psychological effects are still present. A survey of Chinese tourists by Dragon Trail Interactive in January 2023 noted that, aside from economic pressures, many are still concerned about COVID, with more than half citing concerns about coronavirus impacting them or their family’s health as their reason not to travel abroad in 2023.
Reasons cited by Chinese consumers for not traveling abroad in 2023
However, the early shoots of recovery are now visible. “The one thing I would say about Chinese consumers, particularly younger consumers, is they're incredibly resilient and the trends change so fast,” says Bowerman. “So quickly the focus (has moved to) people wanting to travel both domestically and internationally.”
Looking at some of the favored destinations among Chinese tourists, we can see the effects of returning demand in pricing, where there is an uneven but upward trajectory as we end Q1 2023.
Lighthouse - YoY changes in hotel pricing in international destinations popular with Chinese consumers, 2023 versus 2022
YoY pricing shows that across the top destinations for Chinese tourism in Asia-Pacific prices are typically well up on 2022, with Japan leading the way (albeit it from an extremely low base), and notable bounces for South Korea and Taiwan in March and April, which is when Chinese bookings are really picking up following the opening.
China’s island destinations to prosper in 2023
The above caution and lingering concerns over financial and physical health are going to keep Chinese tourists, largely, closer to home though.
When asked by Dragon Trail where they expect to go in 2023, Chinese tourists answered with the usual suspects, but China’s island destinations featured most prominently.
Way out ahead was Hong Kong, selected by 20.7%, followed by Macao, which 11.4% hope to visit in 2023.
Dragon Trail - Where are Chinese tourists planning their 2023 outbound travel?
This is reflected in our data, as we can see prices rocketing upwards in Hong Kong from February onwards and maintaining their strength throughout 2023 on the back of heightened demand signals, such as OTA and metasearch queries for the hotel’s cities, which have more than trebled since late December 2022.
On average, prices for Hong Kong hotels in 2023 are around 60% higher than a year earlier.
“Hong Kong is hot again, definitely there's no question about that,” agrees Bowerman. “The Chinese airlines are really flooding back into Hong Kong,” which is critical to growing demand in a constrained market.
Lighthouse - Hong Kong hotel room pricing in 2022-2023
Looking at the country’s other major island vacation destinations, Hainan and Macao, a similar outlook is emerging. Hainan is following on from outperforming most of mainland China in 2021 and 2022, with prices for Sanya exceeding the previous three years thus far for the year.
Macao’s statistics service reported that YoY increases for arrivals into the Special Administrative Region from the mainland rose 54.5% in January and 143% in February. While this is still less than half the number of tourists from February 2019, it is indicative of how Macao will recover quicker than most regions.
These island destinations are core components of the Chinese travel circuit and the wider trend we are seeing is that Chinese tourists are attracted to typical tourist destinations.
Beijing and Xi’an, home to China’s most prominent historical and cultural sites are both seeing strong demand and therefore rates in 2023.
In Beijing hotels are typically pricing rooms 20% higher than last year. In Xi’an spikes in demand in early May and October exhibit pricing that is 50% and 30% above rates posted in 2022, respectively, and elevated rates over both 2019 and 2022.
Lighthouse - Beijing and Xi’an hotel room pricing in 2022-2023
A slower recovery for some Chinese tourist old favorites
Outside of China there has been much fanfare and optimism about the return of the Chinese tourist, but those hopes may need to be dampened, as it will take time for this to emerge according to the available data.
As noted earlier, international travel remains a psychological boundary to some consumers, and, while China’s economy is not as robust as it was in the past, there is also currently a fundamental constraint: flights.
“Everybody thought it would be press and play,” comments Bowerman, “the Chinese tourists will come back straight away”.
However, the impact of the pandemic has been underestimated. “The damage that's been done to the travel infrastructure in China, and particularly the airlines. They don't have the capacity to quickly scale up their flights,” says Bowman. This has resulted in limited routes and high prices in Q1 of this year and ramifications long into the summer of 2023.
For example, the Civil Aviation Administration of China (CAAC) noted that while 43.2 million passengers flew in February, only a fractional 706,000 of those were to international destinations. A further 264,000 were to Hong Kong, Taiwan and Macao.
China Daily, quoting the CAAC, reported that while plans for the summer-autumn flight season are to schedule 117,222 passenger and cargo flights each week, 3,463 will head to Hong Kong and Macao and only 14,702 will fly to international destinations, with many of those outbound flights taking time to establish and run up to capacity.
According to reports, only in late April will China Southern re-establish its more important tourism routes to destinations such as Thailand and Indonesia from Guangzhou.
It appears that Chinese airlines are currently focusing on re-establishing profitable routes close to home before expanding internationally. This process will take some time and it may be a while still before all international routes reach full capacity and for passenger demand to materialize in many countries.
We are currently seeing the most positive pricing trends in countries where those routes have been re-established to some degree. We already noted how Macao and Hong Kong have benefitted from this trend, but so have Japan and South Korea, where more routes are now operating.
Looking at how prices for the next 90 days from the first week of April onwards have changed compared to just before China reopened in late December, there has been a positive 19.1% jump in Japan, 8.4% in South Korea and 4.6% in Thailand.
In contrast, further flung and less popular destinations have not yet seen the hoped-for positive momentum from Chinese tourists.
As we look further South, according to government data, in February, Australia welcomed 40,430 Chinese tourists, marking the first full month since the reopening of China's border.
However, this figure only represents 20% of the number of Chinese tourists recorded in the same month during the record year of 2019. Additionally, China's tourist count falls far behind that of other countries such as New Zealand, the U.K., and the U.S.
Lighthouse - Change in hotel prices over the next 90 days from 2nd April 2023 compared to 90 days prior
Turning towards 2024 for take-off
It seems prudent then to adopt a more cautious approach to Chinese tourism demand than the forecasts that were made at the beginning of the year laid out. Instead, anticipate international travel volumes to emerge at a slower rate.
Regional favorites will continue to be the main beneficiaries during a gradual climb back to pre-pandemic levels, and many Chinese travelers will stick to known destinations within its borders. “Ninety percent of outbound Chinese tourists stayed within Asia Pacific and that's not going to change,” thinks Bowerman and “it may even be that that percentage is even higher.
“When Thailand and Bali are available again, more people will go there because they just get better value and that's always been the case,” he predicts, “In terms of outbound spending, the yuan is much lower than it was back in 2019. So, you don't have as much money in your pocket when you travel.”
The real gains, assuming the travel market is not restricted artificially by global events, will occur in 2024. The China Tourism Academy predicts domestic tourism revenue to reach 71% of pre-pandemic levels this year and COTRI forecasts that 170-180 million outbound journeys will be made from the mainland next year, finally surpassing 2019 numbers.
Our data sees no reason to doubt that this slower recovery will gain momentum throughout the year, before turning it into a much stronger internal and outbound market in 2024.
Dragon Trail’s survey found that the majority of travelers expect to make trips from July onwards but with a boost to travel in early May.
Dragon Trail - Chinese tourists are planning trips in H2 2023
When we use our forward-looking demand and pricing indicators, we see strong support for these trends, with elevated demand signals in early May, early October and then at the start of next year being shared across Japanese, South Korean, Thai and Taiwanese markets.
In summary, the recovery is on, it’s just not everything, everywhere, all at once.