China’s Covid-hit tourism season deals fresh blow to the economy

THE summer chaos seen in some Chinese tourist destinations is a reminder of how far the country is from returning to normality as the government continues with its zero-tolerance approach towards Covid.

With daily virus cases almost in single digits at the end of June, and the international border still effectively shut, millions of Chinese were looking for a break. Instead, tens of thousands ended up being caught up in lockdowns in travel hotspots such as Tibet and the tropical island of Hainan.

The mayhem dealt a blow not only to peoples’ willingness to take a risk on travel but also to the airlines, hotels, tour guides and restaurants which depend on what was a US$830 billion industry before the pandemic began. Further reductions in consumption would be another strain on China’s economy, which is struggling amid a slumping property market, disruptions from ongoing Covid restrictions and power shortages. Local government finances in tourist areas would also be affected.

“I don’t think you can be optimistic about the tourism sector in the short-run,” said Gary Ng, a senior economist at Natixis in Hong Kong. “Tourism spending actually managed to hold up in 2021 because people couldn’t go travelling elsewhere,” but that’s not happening now, even though people still can’t travel easily overseas, he said.

The tourism slowdown could drag on China’s third-quarter growth by as much as 0.3 percentage point, according to Ng.

The economy is now projected to expand just 3.5 per cent this year, down from a previous forecast of 3.9 per cent, according to Bloomberg’s latest quarterly survey of economists. Retail sales, industrial output and investment all slowed and missed economists’ estimates in July.

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Compared with the rest of the world, the strictness of the central government’s Covid approach has helped keep the spread of the virus under control. Since the start of July, there’s only been about 61,000 confirmed cases nationwide - or about 0.004 per cent of China’s population.

Yet whereas airports in Western countries buckled under the weight of demand and not enough capacity in recent months, in China the travel chaos was caused by pandemic rules - such as preventing people entering or leaving cities when new cases are detected.

These resulted in mass lockdowns or difficulty departing holiday destinations. More than 100,000 tourists were trapped in hotels when the tropical island of Hainan locked down this month, while tens of thousands of holidaymakers were stranded in Tibet and thousands more confined in the Beihai beach town.

Paul Jin saw firsthand how hard it is to travel when he attempted to lead a tour group of 8 people across the grasslands in western China in four-wheel drive vehicles.

When the tourists from Guangzhou arrived on Aug 7 in Xinjiang’s capital of Urumqi, the city reported 2 new Covid cases. Other cities in the region also recorded infections. To prevent getting caught in a lockdown, Jin decided to leave Xinjiang and head to the adjoining provinces of Gansu and Qinghai. Yet wherever they stopped, the spread of cases meant their smartphone health-code apps - a key part of tracking cases and enforcing Covid Zero in China - showed they had been to “risk zones”. As a result, no hotel would let the group stay. Instead, the tourists slept in the cars and tents, before ultimately abandoning the trip.

“It’s such a tough time for tourism,” said Jin. “All my clients told me that the experience would scare them off from going anywhere again before the Covid Zero policy is ended.”

The industry was already under pressure before the summer disruptions. Spending on travel in the second quarter was half that of the first 3 months of the year, while total expenditure on accommodation and food fell 5.3 per cent from a year earlier. Domestic tourism revenue was 2.1 per cent of gross domestic product in the first half of the year, down from almost 6 per cent in 2019, the year before the pandemic broke out in China.

“The best and the simple solution is to lift the Zero Covid policy, but that doesn’t seem very feasible in the short run, considering the political reality,” said Natixis’s Ng. The “bigger question is whether people are comfortable in terms of the future so that they are willing to consume and spend more,” he said.

President Xi Jinping has made China’s zero tolerance to the virus a key tenet of his rule, saying the nation has avoided the massive death tolls of places like the US, despite the disruption caused. Xi is expected to secure a precedent-breaking third term in office at the party congress later this year.

The summer outbreaks has worsened investor sentiment towards the sector in the stock market. A gauge of Chinese hotel and leisure companies has fallen 13 per cent since the end of June as cases in Hainan and elsewhere spiked. An index of casinos in Macau is down more than 30 per cent from its peak this year in February as an outbreak prompted the former Portuguese colony to shut down, although China has since reopened the border.

The bigger hit will be to provinces reliant on tourism. Hainan, famed as China’s Hawaii with sandy beaches and tropical weather, had a budget deficit of 60 billion yuan (S$12.1 billion) in the year through June, the biggest in at least 4 years, according to official data. The city of Sanya, at the southern tip of Hainan, suffered a 40 per cent drop in tourism income during the first 5 months this year, figures from the city’s statistics bureau show.

Bobo Zhou, a 33-year-old civil servant in Sanya, said the government bureau she works for failed to pay bonuses in the past 2 years because of the tight budget. The bonus previously accounted for about a quarter of the total compensation package.

“I don’t even complain as I know the local government has become very poor now with the endless fight against Covid,” said Zhou. “How long will we have to suffer?” BLOOMBERG