Lower average spending might sound like terrible news for destinations throughout the world, but is actually evidence of the democratization of international travel in China, and presents destinations with new opportunities to cash in on Chinese tourism.
According to the latest data from Global Blue, the global tax-free refund company, the average Chinese traveler is spending less than before during their journeys throughout Asia. Average spending dropped by a whole 30 percent across all nationalities in August, with lower spending among Chinese travelers quoted as one of the main reasons behind the lackluster performance. Nevertheless, the data also shows that the total number of transactions among Chinese travelers rose by as much as 28 percent in the same period, second only to Taiwanese travelers with a transaction growth of 43 percent.
This illustrates the changing image of Chinese international travel, particularly in Asia, as China’s growing middle class is venturing to destinations beyond China—and is lowering the average affluence of Chinese travelers in doing so. Tax-free shopping, which the data are pertaining to, is one of the favorite travel pastimes among Chinese global travelers no matter the level of affluence. Yet, looking for a good tax-free deal on an Audemars Piguet luxury watch and searching the best price for a new Panasonic rice cooker represent two entirely different types of tax-free shoppers. The absolute number of Chinese travelers shopping for something similar to the former is not declining, but they represent a shrinking share of Chinese global travelers.
Global travel, distinctly a luxury product in China until just a few years ago, is more convenient than ever with ever-improving visa policies, better air connections, and stifling competition that are making overseas travel more affordable than ever. Neither does it hurt that the Chinese middle class is growing by the millions alongside these general industry developments. Another significant trend is the growing number of routes that connect China’s Tier 2 and Tier 3 cities with attractive international destinations, making international travel accessible to a larger portion of the Chinese middle class than ever before.
So what does it all mean?
Much of the untapped tourism potential in China lies with the growing middle class, particularly in lower-tier cities. At the same time, as international travel becomes less of rich person’s club, it should not surprise anyone that the average global Chinese traveler buys items more in the price range of rice cookers than of luxury watches. This, quite intuitively, is driving average Chinese traveler spending down across the board. The good news is that international travel is not a zero-sum game: an increase in budget-conscious Chinese travelers does not mean less highly affluent Chinese travelers. In fact, both groups are growing market segments in China.
But there are more factors at play. Japan, last year’s hottest shopping destination for Chinese travelers, has seen its yen strengthen in 2016—causing shopping to take a tumble by 33 percent in August, according to Global Blue. Additionally, in an effort to give tourist shopping a boost, Japan recently lowered the threshold for tax-free eligibility from ¥10,000 (US$99) to ¥5,000 (US$50). Needless to say, this is another reason behind the dropping average spending among Chinese travelers in Asia. When it all comes down to it, such efforts are only positive as they extend the benefits of tax-free shopping to more budget-conscious Chinese travelers, and widen the appeal of Japan to the fastest-growing tourism market segment in China: the middle class. Finding ways to cash in on its increasingly prominent position in Chinese global travel is one of the main challenges for tourism stakeholders around the world, and lowering the tax-free threshold is one way to do it.
A growing number of Chinese travelers, no matter the level of affluence, is good news for the service sector in most places around the world. Yet, overcrowding remains one of the biggest problems and risks causing cannibalization of the more affluent customer segment. Finding ways of dispersing the growing number of Chinese travelers to more remote, yet interesting, areas is a challenge—but can bring substantial benefits to the local tourism industry. For city-states, it is likely to prove impossible, with attracting the more affluent customer segments becoming the main priority. Hong Kong is a case in point, with overcrowding caused by Chinese tourists quoted as one of the reasons for growing anti-Chinese sentiment.
With a growing middle class and international travel more accessible than ever, average spending among Chinese global travelers is destined to decline, but with the right strategy in place, that is good news for destinations and retailers alike.