The New Chinese Traveler

Business Opportunities from the Chinese Travel Revolution

G. Bowerman

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781137397287
• eBook ISBN: 9781137397331
• Topic: Social Sciences
• Subtopic: Business General
• Index: Social Sciences

This book explains the emerging trends and developments of Chinese outbound travel, alongside the motivations, desires and expectations of Chinese travelers themselves. Packed with interviews, this book will help businesses create products and services that meet the rapidly evolving and diversifying requirements of tech-savvy Chinese travelers.

chapter 1

Building a Brand New Industry: From ADS to the New Tourism Law

From Zheng He to “inelastic demand”

In November 2013, a celebrity-loaded reception in Beijing was promoted as a celebration of the 15th anniversary of liberalization of China’s outbound travel market. Organized by Top Travel, a glossy Chinese-language travel magazine, the event, called “100 bigger worlds,” featured a charitable initiative by a coterie of Chinese pop stars and TV actors to raise funds to send children from deprived backgrounds on an overseas travel-and-study program.

Media attention about the event was sparse, which was surprising given its central tenet: Chinese outbound tourism is a thriving industry that has been built from the ground up in less than two decades. The achievements in this short period of time are a source of pride to the Chinese government, which refers to overseas travel as a social benefit created by its economic development policies.

Politics aside, the growth figures are impressive – outbound tourism numbers doubled from 2009 to 2013, while more border crossings were made from China during the first nine months of 2013 than in the whole of 2011. According to official figures, 10.5 million border crossings were made from China in 2000. Fourteen years later, more than 100 million outbound trips will have been made. No country has ever witnessed such explosive tourism growth, and visa-free access is now being used to induce further expansion. In June 2014, the China Tourism Academy said China passport-holders could, at the time, visit 81 countries and regions without a pre-arranged visa or by collecting a visa on arrival.

Chinese exploration is nothing new, of course. Chinese merchants traveled across Asia when Rome ruled Europe, and, in his book 1421, Gavin Menzies claims that the Ming dynasty Admiral Zheng sailed to North America 600 years ago. More recently, Chinese emigration since the eighteenth century is evidenced by the Chinatowns established from London to San Francisco, Kolkata to Johannesburg and Buenos Aires to Melbourne. These Chinese districts feature shops, restaurants, clan houses, temples and churches. Sustained emigration also created South East Asia’s sizeable Chinese diaspora, most notably in Singapore, Malaysia, Indonesia and Vietnam.

But, with the exception of a small number of tour groups in the late 1980s and 1990s, mass-scale Chinese travel is a twenty-first century phenomenon. Recent Chinese tourism has come to be viewed in three, rather narrow, categories from the elite super-wealthy who buy properties, yachts and, occasionally, foreign companies on their travels; to the burgeoning middle class spending their disposable cash on experiential travel; to package group tourists on shopping tours around Asia, Europe the US. While those categorizations tell some of the story, ten defining trends over the past decade expand those easy definitions into a more rounded picture.

(1) Domestic tourism is developing on a diversified scale that is simply impossible to fathom if you don’t live in a rapidly urbanizing, economically expanding nation of around 1.4 billion people.

(2) Travel to Hong Kong and Macao (both officially categorized as international destinations) has, hitherto, been the significant contributor to outbound travel from China.

(3) Chinese travelers have generally tended to visit at least one Asian destination before graduating to longer haul trips to Europe, Australasia or North America.

(4) Travel to visit family and friends living or studying overseas has been a strong contributory factor to long-haul travel.

(5) Affluent Chinese travelers are increasingly displaying “inelastic demand” and are happy to travel wherever the calling takes them.

(6) The majority of outbound travel – beyond weekend destinations like Hong Kong and Macao – has been focused around the state-mandated Chinese public holidays.

(7) Chinese tourism has integrated with experiential advances that have improved the travel experience for travelers worldwide. Savvy Chinese tourists now have high service expectations, and the challenge for tourism providers is to anticipate how to cater for the further evolution of the Chinese travel dream.

(8) China has, unquestionably, assumed leadership status in the future shaping of global travel, air transport and hospitality, and related industries like retail, infrastructure and real estate.

(9) Given Chinese travelers’ propensity to spend, there has been a monumental conversion from a cash-based economy to one dominated by card purchasing. Virtually no one used a credit or debit card in China a decade ago. In early 2014, its banks had issued around 4.2 billion cards (around three times the nation’s total population). Combined with the growing prevalence of “electronic wallet” mechanisms and a stratospheric rise in online shopping, urban Chinese now favor invisible cash exchanges to banknotes – and this has made overseas travel less complicated during a period when the RMB remained non-exchangeable.

(10) The application of technology has made Chinese travel more easily monitored and metric-related, but it has also contributed to a dynamism and, fluidity that render it a highly unpredictable story.

Approving the world’s travel destinations

China has created the world’s fastest-growing tourism sector with assiduous care over the past two decades. Now that more than 100 million Chinese are traveling annually, it’s hard to conceive that outbound tourism didn’t really exist in China until the late 1990s. Before then, those who traveled into the outside world were mostly officially sanctioned businessmen, government members, diplomats and university students. Some leverage was provided for approved tour groups, but it was minimal.

The growth of tourism did not occur in a vacuum, of course. Experience from industrializing nations from the early nineteenth century onwards proved that economic growth and increased urban affluence catalyze the desire to explore beyond work and home. For this reason, China established the Golden Week public hoidays in 1999 to provide mandated time for workers to spend as they chose – whether that be with families and friends and/or embarking on tourism trips around their homeland. As more people became able to afford overseas trips, the government explored ways to administer and control both the volumes and the flight paths. It conceived a phased process of approving overseas destinations for Chinese groups.

Approved Destination Status (ADS) was a ubiquitous buzz phrase during the first decade of the new millennium. The Chinese media frequently teased readers with trails of upcoming ADS agreements with new destinations, while grateful foreign governments flourished press statements announcing that they had found their tourism Holy Grail: confirmation by the Chinese government that their nation would join the list of approved destinations for Chinese group travelers.

The ADS acronym seems dated now. Almost 150 tourism destinations had signed up by the end of 2013, and China’s outbound market has matured beyond a reliance on packaged tour groups through state-approved agencies. But back in the early 1990s when ADS was first introduced for destinations in South East Asia, including Malaysia, Singapore, and Thailand, it heralded the start of the Chinese travel revolution. It was the stamp of approval that would, two decades later in 2013, result in those three nations each receiving record numbers of Chinese visitors: Malaysia (1.79 million), Singapore (1.24 million), Thailand (4.7 million).

The ADS program also set the wheels in motion for today’s wider tourism dispersion. Businesses worldwide that welcome Chinese visitors – from the Cornell Museum of Glass in New York and the Prado Museum in Madrid to wine tour operators in Tuscany and DMZ guides in South Korea; and from the beachside restaurants of Nusa Dua and Cancun, to the safari parks of the Serengeti and the dive boats of the Great Barrier Reef – know that none of this would have happened without the managed effect of the ADS program.

China’s ADS policy was created to account for the growing propensity of Chinese citizens to travel abroad, but it also imposed strict mechanisms to control travel movements. Even today, only certified ADS travel agencies are allowed to promote and organize outbound tour groups, assist with the visa application process and make payments to foreign parties. Foreign governments signing up to receive ADS groups became able to promote their country within China as a tourism destination, but were required to liaise only with approved travel agencies and tourism authorities. Being granted ADS status did not initially permit a nation to welcome independent travelers, or to set up its own travel agency mechanisms.

The ADS process was rolled out gradually. Early members included South Korea which joined in 1998; Australia and New Zealand joined in 1999 and were the first countries outside Asia to do so; and Japan joined in 2000. In 2003, Germany became the first EU nation to receive ADS recognition. A swathe of European countries – including Austria, France, Iceland, Netherlands, Poland and Spain – followed in 2004, the same year as Jordan, Kenya, and Zambia. The UK signed up in 2005, as did Chile, Peru and Russia; and the US joined in 2007 (effective from 2008) – the same year as Bangladesh, Monaco and Morocco. Canada was a relative latecomer, signing the agreement in 2010, a year in which Micronesia and Serbia also put pen to paper.

The use of ADS as a policy tool was discussed in a research paper published by The Hong Kong Polytechnic University (HKPU) (PolyU Study Finds Chinese Outbound Tourism Policy a Form of Diplomacy, January 2014). Written by Dr Tony Tse of HKPU’s School of Hotel and Tourism Management, the paper notes that few countries in the world have a public policy on outbound tourism, and the Chinese government “uses tourism as a form of ‘soft’ diplomacy in its dealings with other countries.” In particular, Dr Tse notes, the withholding of ADS status was an important political and economic leveraging tool. It has since been noted by some commentators that China continues to exploit the soft power opportunities by encouraging countries to sign bilateral visa-free agreements to avoid losing out in the scramble for its big-spending tourists.

Dr Tse’s paper argues that the government also used outbound tourist flows as economic support mechanisms, in particular to Macao after the return of sovereignty in 2009, and to Hong Kong following the economic setbacks after the handover to China in 1997, after which the economy was bolstered in 2003 by the Individual Visit Scheme. Dr Tse also cites South Korea, Sri Lanka, Thailand and the UK as examples of how “the development of Chinese tourism can be seen as a manifestation of positive political relationships,” with Chinese tourists being “unofficial diplomats building the soft power base.” To benefit, Dr Tse concludes, destinations must learn what Chinese travelers want and “understand the policy and politics at play.”

China, outbound tourism and the WTO

China was approved to join the World Trade Organization (WTO) on 11 December 2001, and was duly required to open up much of its economy and integrate it with global commercial-legal mechanisms. Some industries and sectors were opened and some tariffs were reduced more quickly than others, and a spate of trade disputes between China and other WTO member countries surfaced in the ensuing years. The primary result of WTO membership over the past 13 years, however, is that China has become the planet’s largest exporter and second-largest economy.

Beyond China, the world became accustomed to – if not always enamored by – the “Made in China” label (even if that often meant “assembled in China using components from other countries”). Consumers gratefully purchased exported items ranging from clothes, car parts and furniture to smartphones, widgets and wheelbarrows at prices considerably lower than they might otherwise have expected.

One requirement of China’s WTO accession was the reform of its closeted travel sector. This proved to be a slow process. Wholly Foreign Owned Enterprises (WFOEs) were permitted from 2003 for hotel projects, and some foreign travel companies were entitled to establish joint-venture (JV) travel agencies in Beijing, Guangzhou, Shanghai, Shenzhen, and Xi’an. The Beijing-based Morning Star was established in 2001 and American Express teamed up with China International Travel Service (CITS) in 2002. More JV travel agencies focused on corporate travel followed but the licenses did not permit foreign firms to enter China’s most coveted tourism sector: outbound leisure travel.

In July 2003, new rules enabled foreign firms to own more than 50 percent of a JV travel agency with a Chinese company provided they met certain conditions: notably registered capital of RMB 4 million for the JV, and the foreign operator needed to prove gross sales of USD 40 million for a JV, or USD 500 million to set up a WFOE. These conditions set the bar high, and enabled only established global players to become involved in the Chinese travel agency sector. Still, foreign participation was excluded from the management of overseas leisure travel.

Six years later, in May 2009, China’s State Council and the CNTA adopted the New Regulations on Travel Agencies. This represented a significant revision to previous policy governing foreign investment by permitting the establishment of WFOE travel agencies, lowering the registered capital threshold for establishing a travel agency and lifting the restrictions with regard to establishing branches by foreign-invested travel agencies. Two critical connected elements of China’s travel infrastructure remained protected, however: the travel sales distribution network and the management of outbound travel.

Travel agents worldwide rely on a handful of computerized systems that aggregate airline flights, hotel bookings, package tours, cruise trips and other travel services. These networks, called Global Distribution Systems (GDS), were the bedrock of the travel industry in the pre-Internet era. They were used to make all bookings and to maintain stability of pricing – since demand and supply are easy to control through aggregated systems. Travel agents made bookings on behalf of their traveler clients (who did not have access to GDS), thereby ensuring a cozily unimpeachable supply chain.

And then the Internet happened. Online travel agents like Expedia recognized that travelers wanted control over their own bookings and the prices they paid. The advent of independent online travel agencies imperiled the modus operandi of the GDS in established markets, although travel agencies still rely on their offerings.

In China, the judicious marshaling of tourism development by Beijing rendered the GDS system central to managing outbound travel. Travel agents and airlines sanctioned to make overseas bookings for clients used the same GDS, operated by a Beijing-based, state-built company (now listed on the Hong Kong Stock Exchange) called TravelSky, which was incorporated in 2000. Overseas package tours booked anywhere in China were processed though TravelSky’s centralized computer system.

In 2013, the Civil Aviation Administration of China (CAAC) relaxed the regulations, and a slow, partial change was implemented to license overseas GDS operators, like Singapore-based Abacus and Madrid-headquartered Amadeus, to collaborate with approved Chinese travel agents. Primarily, this enabled the selling of flights offered by foreign airlines, plus hotel bookings and outbound travel services by approved tour operators. Operationally, such situations – which are burdened with caveats like “knowledge transfer” and “technological integration” – are embedded with difficulties in China. Both Abacus and Amadeus had to secure a billing and settlement plan (BSP) certification from the International Air Transport Association (IATA). Neither company was expected to be fully operational until late 2014 at the earliest.

They are entering an arena dominated by TravelSky, an entrenched, well funded and technologically ambitious company, which has benefitted from years of state protection from competition, has the Chinese domestic flight and travel agency booking system tied up, and has entered partnership agreements with some foreign GDS suppliers. TravelSky remains partially owned by the holding companies of Air China, China Eastern Airlines and China Southern Airlines – China’s three largest commercial airlines. In recent years, it has established subsidiaries across Asia, plus Europe and the US, and ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• Preface
• List of Abbreviations and Acronyms Used
• Introduction: Beyond the Middle Kingdom: The Makings of a Travel Revolution
• 1 Building a Brand New Industry: From ADS to the New Tourism Law
• 2 Going Global: China’s New Travel Class Spreads Its Wings
• 3 Magnetized by Macao: Creating a Global Tourism Phenomenon
• 4 The Purchasing Prerogative: Hong Kong and Shopping Tourism
• 5 Sun, Sea, and Shopping: China Goes to the Beach
• 6 Lights, Camera, Action: Chinese Tourism on TV and Film
• 7 All Around the World: Tourism Marketers Target China
• 8 A Place to Stay: Checking-in with Chinese Travelers
• 9 Taking Flight: China’s Aviation Revolution
• 10 The Media Game: Publishing for the Modern Traveler
• 11 Smart Travel, Chinese Style: Trip Planning and New Technology
• 12 Keeping It Local: Fast Trains, Ski Slopes and the New Macao
• 13 The Resort Revolution: Chinese Weekenders in Search of Style
• 14 Economics in Action: Business Travelers Explore New Frontiers
• Index