Brexit: The Chinese Tourist Boom That Wasn’t

    Data released from Visit Britain suggests Chinese spending and tourism in the UK actually dropped post-referendum.
    Chinese tourist spending in the UK dropped in the months that followed the Brexit referendum. (Shutterstock)
    Daniel MeesakAuthor
      Published   in Finance

    Few people have doubted the Brexit referendum’s positive effects on Chinese tourism, and perhaps more importantly, Chinese tourist spending in the United Kingdom. After all, the British pound has become a lot cheaper for Chinese tourists, whereas currencies like the U.S. dollar, Hong Kong dollar, Euro, and Japanese Yen have all become more expensive in the same period. The cheaper Japanese yen in 2015 even led to “explosive shopping,” becoming the word of the year in Japan, so a similar effect should be expected from the cheaper British pound.

    However, it would appear as if the opposite is true.

    According to the latest visitor data from Visit Britain, which covers the first three quarters of 2016, fewer Chinese tourists visited the United Kingdom in the period after the referendum than last year. While Chinese tourist arrivals were only down some 1.3 percent, Chinese tourist spending took a much harder hit and dropped by more than 12 percent. In dollar terms, it’s an even harder hit as the pound lost some 15 percent of its value against the dollar in the same period.

    While there certainly are valid arguments for why Brexit could end up deterring Chinese tourists from the UK in the long-run, none of the potentially ill effects of Brexit have yet to come to fruition—after all, the UK has yet to leave the European Union. That means that Chinese tourists still don’t have to fear customs duty nor VAT when crossing an EU-UK border, and the visa situation remains unchanged from before the referendum. Uncertainties about the potential fallout of the Brexit still loom on the horizon for the UK, but with the formal leave likely lying several years in the future, these uncertainties will likely leave Chinese tourists and tour operators unfazed in the foreseeable future.

    So, post-referendum UK remains largely the same but has gotten a lot cheaper, yet Chinese tourists are arriving in smaller numbers and are spending less. What happened?

    Even before the referendum, the UK was an underperforming destination in the Chinese market—far outperformed by European peers such as France, Germany, and Italy by several orders of magnitude. Since the UK isn’t part of the Schengen Area, it requires an additional visa for Chinese tourists visiting countries across the European continent, causing it to be excluded from many tourist’s itineraries.

    Even so, many of the UK’s Chinese visitors make it a part of a longer trip in Europe—combining a trip to the UK with stops all over the European continent. The fate of Chinese tourism to the UK is, in other words, very much intertwined with Chinese tourism to Europe as a whole.

    Unfortunately, Europe didn’t have a great year for Chinese tourism in 2016: high-profile terror attacks and bad press in China about the migrant crisis both had a negative impact on Chinese arrivals in Europe. While places like Eastern Europe and Scandinavia provided some bright spots last year, Chinese tourist favorites such as France and Germany both saw Chinese arrivals drop as the negative effects seemed to predominantly affect destinations in Western Europe.

    Dwindling Chinese tourism numbers to such destinations can only mean bad news for the United Kingdom, and it seems like the effect may have been larger than many people anticipated. Or rather, the cheaper pound that followed the Brexit referendum mitigated the effects to a much smaller extent than media reports would have people believe.

    Chinese tourist spending in the United Kingdom dropped throughout 2016, including in the period after the Brexit referendum. (Data from Visit Britain)

    Curiously, however, is the fact that Chinese tourists didn’t only visit in smaller numbers, but also spent significantly less than the year before. While the cheaper pound that followed the Brexit referendum may have led to a drop in prices across the board immediately after the referendum, a quick harmonization of prices by luxury brands didn’t make the UK a bargain hunter’s dream for long. For Chinese tourists simply looking to acquire luxury products cheaper than at home, short-haul destinations with easier visa restrictions proved more cost effective for most of 2016—in spite of the Brexit referendum.

    As time progresses, the “benefits” of the cheaper pound keep dissipating as prices of goods are adjusted to reflect the lower exchange rate. With the cheaper pound not doing enough to boost Chinese tourism beyond 2015’s numbers even in the period that immediately followed the referendum, the future looks even murkier. For the UK, it’s clear that more than an improved exchange rate is required to keep Chinese tourist arrivals—and spending—growing.

    If that proves difficult now, it doesn’t bode well for when the United Kingdom does leave the European Union. With the UK not part of the European Union, Chinese tourists in the UK risk losing out on some of the benefits—such as not having to fear customs duty when crossing a European border—while still conflating security concerns in Western Europe with those of the United Kingdom. After all, EU member or not, the United Kingdom remains a part of Europe—both geographically and in the minds of Chinese tourists.

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