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Jun
2015

The travelling Chinese August 2013

tcChina begins to protect its tourists

The first “Tourism Law of the People’s Republic of China”, which had been in the system for about 30 years was finally adopted by China’s top legislature and will take effect on 1st October.

In essence, what this means is that tourist attractions, or other destinations for example, cannot pay commissions to travel companies and their staff, that include them on the travel itinerary as a means to make money. This will affect those destinations that rely on volumes of Chinese visiting to make money. But it does now create a level playing field for all international destinations, luxury brands etc. to establish their name with the Chinese population, and indirectly encourage travellers to ask a travel company to include them on the tour. The law is unlikely to affect the wealthy travellers, many of whom will not take part in a pre-planned tour, but may have a bespoke itinerary created for them; more on this later.

The direct impact of the law will increase prices of both domestic and international tours. Reviewing several major travel agents offers, the general price of a package tour to Southeast Asia, Europe, North America, Australia, Japan, Korea, Hong Kong and Macao has increased 20% – 30% as a result of the policy. Package tours to Europe and the U.S. have increased the most to more than 35%, and insiders predict that the price may be doubled over the National Day holiday in October.

“The price of tours to European countries will no longer be below 10,000 RMB (US$ 1,634), and are estimated to rise to 20,000 RMB (US$ 3,268), or at least an increase of 5,000 RMB (US$ 817). ” KeHaishui, Deputy General Manager of China International Travel Service (Xiamen) estimated that a US tour will now cost at least 10,000 RMB (US$ 1,634).

Temporary decline in the number of Chinese overseas travellers

Although the Chinese people are generally very susceptible to the shopping environment, atmosphere and suggestions from friends or sales staff, and become more impulsive in the store, they are still sensitive to the price tag, and they are currently accustomed to low price travelling. Undoubtedly Chinese consumers will become more conscious about travelling after the law takes effect duo to the price increases, especially those travelling overseas. But an alternative view is that the main consumers of luxury goods are far less affected by rising travel costs. Although we may see a decrease in short-term, these particular consumers are likely to increase year on year.

Structural changes in travel costs

According to the most recent survey by Hotel.com, 15% of Chinese overseas travellers hold the opinion that shopping is the third most important aspect of the trip, and they prefer buying luxury goods in Europe and the US, and most are middle or upper middle-class. Generally, they work on a fixed overall budget, including transportation, hotels, restaurant bills and shopping costs. If the travel cost increases it is likely that the spending on shopping will decrease. What’s more, they will become more selective and conservative during the shopping process.

Of course, an increase in travel costs has little affect for Chinese HNWIs, and a regularised market will make them feel more comfortable and may increase the frequency of going abroad.

Opportunities for overseas retailers

As identified earlier in this piece, another important affect of the law is that travel agents are not allowed to designate specific shopping places to their clients. As a result, travellers need to identify stores themselves. Those retailers who used to cooperate with Chinese travel agents and benefited from the travellers taken by tour guides may suffer the most. However, many retailers may benefit, particularly from those tourists that were taken by a tour guide in the past, may come back to the same store again. Those on tours which now have ‘free time’ that once was a shopping trip, are quite likely to choose to go shopping anyway during this time, as it would be an easy choice.

Grasp the opportunity

The following tips may help retailers to grasp this new opportunity:

  • Promoting through China’s traditional media, digital media and online communities, especially mainstream social networking service sites dedicated to tourism, and where consumers advise and tell each other about their experiences, will be very important. China’s middle-class are keen to collect information on the Internet before their trip, and in particular, reputation and comments from others online.
  • Retailers can cooperate with travel agencies to produce shopping guide brochures and distributed them to tourists during the tour which is not against the law and will enhance the travel experience of tourists, so travel agencies will be happy to do this. In addition to deepening the understanding of the retailer, a brochure will also attract tourists who don’t do research and don’t already know the retailer. Compared to promoting and advertising in China, the investment in a brochure would be more cost effective.
  • Although Chinese travel agencies are not allowed to lead tourists to go shopping, local tour guides still can. By cooperating with local tour guides, retailers could give them commission for guiding travellers to the store.

The introduction of new tourism law has had a great impact on China’s tourism industry, but we believe that in 2013 Chinese consumption overseas will continue to increase. More international retailers will benefit from the growing income levels and travel requirements in China, and the travelling Chinese will remain a major impetus for commercial development overseas.


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