The return of stagnant Chinese tourists, I found out why, and found out, “They’re too busy making a living”

Hotel Shilla's 4th quarter earnings estimates were cut in half due to the slow recovery of Chinese tourists
Chinese tourists do not increase despite re-opening and group tours allowed
Chinese economy in severe deflation, Chinese people no longer able to afford tourism

The number of Chinese tourists visiting Korea is showing a slow recovery compared to before COVID-19. As ‘big hit’ Chinese group tourists do not return as expected, the domestic tourism industry, which had been dreaming of increasing sales due to China’s re-opening (resumption of economic activities) and group tour permit measures, appears to be taking a direct hit. Accordingly, experts are analyzing that Chinese people are reluctant to travel due to China’s economic and diplomatic isolation and reduced economic activity due to the conflict between the United States and China.

Decline in Chinese tourists visiting Korea, a blow to domestic tourism industry

According to data from the Korea Duty Free Shop Association on the 15th, domestic duty-free shop sales totaled 12.4512 trillion won from January to November 2023. Even considering the expected sales in December, it does not reach the level of 17.8 trillion won in 2021 and 2022 when the COVID-19 pandemic was in full swing.

Industry officials cited the decline in Chinese tourists as the reason for the decline in duty-free shop sales. Recently, the domestic tourism industry is expected to benefit from tourism in earnest as the Chinese economy showed signs of recovery last year after escaping from COVID-19, and Chinese group tours to Korea were allowed in August last year, six years after THAAD (Terminal High Altitude Area Defense) retaliation. I was filled with anticipation. However, the actual number of Chinese tourists visiting Korea counted at the end of the year was 144,000 per month, less than half the monthly average of 416,000 from 2017 to 2019 when group tours were impossible due to the THAAD incident.

As the number of Chinese travelers decreased, a red flag also turned on for the hotel industry. According to Fn Guide, a securities information company, on the 14th, out of 105 reports lowering the target stock price published from the 2nd to the 12th, 5 reports lowered Hotel Shilla’s target price. In detail, Korea Investment & Securities lowered Hotel Shilla’s target stock price from 100,000 won to 90,000 won, NH Investment & Securities lowered it from 94,000 won to 90,000 won, Shinhan Investment & Securities lowered it from 88,000 won to 82,000 won, and Kiwoom Securities The target stock price was lowered from 108,000 won to 92,000 won. DB Financial Investment was significantly lowered from 100,000 won to 75,000 won. This is due to the fact that Hotel Shilla’s fourth quarter earnings estimate, which was 41 billion won as of November last year, was reduced by almost half due to the decrease in Chinese tourists.

China’s economic slump ‘severe ‘

The main reason for the delay in the recovery of Chinese tourist numbers is severe deflation (slowing economic growth) in China. So far, China has achieved economic growth of over 8% per year, driven by its huge domestic market. The share of consumption in China’s GDP (gross domestic product) reached 76.2% in 2018, 57.8% in 2019, and 65.4% in 2021. Economic growth, which had been continuing its high-altitude march, collapsed at once when the COVID-19 pandemic broke out and President Xi Jinping implemented zero-corona policies such as social distancing and city blockade. In 2022, Chinese consumption accounted for 32.8% of GDP, down by more than half compared to the previous year.

The Chinese government’s response to this was complacent. The expectation is that if re-opening is widely promoted and active consumption promotion policies are implemented, consumers will open their wallets again. However, Chinese consumers actually closed their wallets. As of August 2023, of the 227 trillion yuan in Yuan deposits, individual deposits alone amount to 132 trillion yuan (about 2 trillion 4,556 trillion won). Considering that China’s GDP in 2022 is about 121 trillion yuan (about 2,500 trillion won), more money than GDP is sitting in the bank.

As economic recovery slowed due to failure to stimulate consumption, Chinese companies closed their doors to new hiring. Accordingly, China’s youth unemployment rate last year was the worst in history. According to the National Bureau of Statistics of China, the unemployment rate for youth aged 16 to 24 in China was 21.3% as of June last year, the highest level ever. As more than one in five young people were unable to find a job, the Chinese authorities stopped publishing youth unemployment statistics starting in August.

In addition, economic isolation due to the conflict between the US and China is also playing a major role in China’s economic slump. This is because international capital has flowed out of China at a rapid rate as economic uncertainty in China has increased due to sanctions against China, such as the US Inflation Reduction Act (IRA) law. In fact, according to data from China’s National Administration of Foreign Exchange, international capital’s investment in Chinese stocks and bonds decreased by about $31 billion (about 39.7 trillion won) as of the end of October last year. This is the largest net outflow since joining the World Trade Organization (WTO) in 2001. The future outlook is not bright. The Institute of International Finance (IIF) predicts that foreign capital worth $65 billion (approximately 84 trillion won) will flow out of Chinese stocks and bonds this year.