China's Covid stance has created a US$280b black hole for global tourism

[NEW DELHI] After 2 long years, piazzas and shopping boutiques across Europe are again welcoming tourists, with one big difference: Chinese travellers - some of the biggest spenders before the pandemic - are nowhere to be seen. It's the same in South-east Asia, where tourism-dependant economies are throwing open their doors, but the white-sand beaches of the Philippines and night markets of northern Thailand are all but deserted.

China's borders remain effectively sealed as the country continues to pursue a zero-tolerance approach to a virus that other parts of the world have accepted as endemic. For the country's 1.4 billion people, international travel is basically off the table with weeks-long hotel quarantines on return and flight options severely limited. Fear of Covid, which is stamped out aggressively when it flares in China, is also a factor.

For the world's tourist hotspots, that's a problem. Chinese travellers spent US$277 billion overseas in 2018 and another US$255 billion in 2019, accounting for almost 20 per cent of all international tourism spending, data from the United Nations' World Tourism Organisation (UNWTO) show. As the virus emerged in 2020 - with the first cases in the central Chinese city of Wuhan - their expenditure slumped to US$130.5 billion, most of which would have come in the months before March, when much of the world went into lockdown.

Revenue is now a fraction of that. UNWTO reported a 61 per cent drop in spending by Chinese tourists from 2019 levels in the 9 months through September last year.

"It's impossible to make a prediction about when we'll see Chinese travellers again," said Imke Wouters, a Hong Kong-based partner at consultancy Oliver Wyman who covers greater China and South-east Asia. "Even when borders reopen without quarantine requirements, tourism will take some time to fully recover as only a small group of travellers will jump on a plane right away."

As places like Australia, which just reopened to international tourists, and Singapore get on with living with Covid-19, accepting that high vaccination rates provide adequate protection, China and Hong Kong are holding fast.

While there are signs Beijing is at least considering its exit strategy from Covid Zero, border kerbs and other restrictions are unlikely to be eased meaningfully before 2023, given the need for stability in a politically important year for President Xi Jinping.

McKinsey & Co said in a report in August that outbound travel from China may remain muted for as long as 18 months, while Goldman Sachs Group predicts border restrictions could remain in place for the whole of this year and may even extend until the spring of 2023 considering transmissions are typically higher in winter months.

Nowhere is the impact as visible as in Hong Kong, itself hewing to the mainland's isolationist approach even at the risk of losing its status as a global business hub. Some 51 million tourists, or more than 3-quarters of total visitors to the city, came from China in 2018, data from UNWTO and the Hong Kong Tourism Board show.

Globally, Hong Kong was the No 1 destination for Chinese tourists in 2018, playing host to 33 per cent of the almost 145 million Chinese who travelled overseas that year. They poured about US$27 billion into the economy, according to the city's statistics department.

Macau, known for its casinos, wasn't far behind, receiving 25.3 million, or more than 17 per cent of all China's outbound tourists. Thailand was the third-most popular destination in 2018, the year prior to the pandemic with the most complete data available. Some 16.9 million Chinese travelled to the South-east Asian nation, spending around US$16.1 billion.

Prior to Covid, South Korea, home to K-pop and a cutting-edge cosmetics scene, was attracting Chinese at a breakneck pace. In 2018, almost 4.8 million people visited, a 15 per cent jump on 2017, outlaying about US$8.9 billion, according to Bloomberg News calculations based on government data on spending.

Things are very different now.

"Before the pandemic, nearly 70 per cent of all Chinese tourists came to Korea through group travel packages. Now, revenue is zero," said Cho Il-sang, a representative for Hana Tour Service, Korea's largest travel agency. "I saw someone quit and start working as a delivery man."

In Cambodia, Christian de Boer, managing director of the Jaya House hotel in Siem Reap, doesn't think Chinese visitors will return until 2023. He estimates they used to account for 40 per cent of all travellers to Cambodia. Jaya House has closed 2 of its sister hotels and is keeping one open at reduced capacity.

The reverberations are being felt on the other side of the world, too.

In Venice, a city where flocks of tourists pre-Covid were causing water pollution and congestion, Caffe Florian is missing a key group of patrons.

Chinese visitors were a "constant and significant" inflow before the virus, said Renato Costantini, a director of the Italian coffee house that dates back to 1720. Most came in big groups and were high spenders, he said.

Filippo Frank, owner of the Hotel Villa delle Rose in Rome, a family-run business that's been in operation since 1979, said Chinese tourists pre-pandemic spanned solo travellers, the middle class and the young.

"But after 2020, they disappeared," Frank said. "We reopened in September 2020 after the lockdown, and since then no more Chinese citizens are coming from China. Chinese tourists weren't as many as Europeans or American of course, but it was a pretty good and growing community."

China has become "notoriously efficient at turning off the flow of outbound travellers", according to Doug Lansky, an independent tourism consultant and author of 10 books, including 2 for Lonely Planet and 3 for Rough Guides. And the Chinese population "respects official travel warnings more than many others".

It was a trend even before Covid, Lansky said, citing the 2018 arrest of Huawei Technologies Co.'s Chief Financial Officer Meng Wanzhou in Canada. The move prompted China to issue a travel advisory against the nation, quickly drying up tourism.

"Because of this, any country catering to Chinese visitors doesn't just need to be 'China Ready'," Lansky said. "They need to be 'China Un-Ready', that is, they need to have a strong plan in place in case Chinese visitors suddenly disappear."

Some spots are doing just that. The Maldives, for example, has doubled down on its marketing efforts to consumers in places like Australia and India. The latter has emerged as the archipelago's top source of visitors for 2 years running.

"When you look at a place like the Maldives, China was the biggest supplier of tourists," said Bill Heinecke, the founder and chairman of Minor International, one of Asia's largest hospitality, restaurant and lifestyle companies. "Today it's setting new pre-Covid highs and they're doing that without the Chinese. Dubai is also seeing higher hotel rates."

But for every success story there are many more tales of woe. Pockets of Thailand's tourism sector, which used to account for about a fifth of the country's gross domestic product and 20 per cent of employment, have cratered.

The chairman of Thai Airways International Pcl's restructuring plan, Piyasvasti Amranand, said that most of the international traffic to Thailand currently was from Europe. "We're not counting on China this year in our plan," he said in an interview during the Singapore Airshow in February.

In Phuket, only around 30 per cent of hotels are open - the majority that relied on Chinese visitors are still closed. The island was "heavily reliant on Chinese arrivals, especially in the years leading up to the pandemic", said Angkana Tanetvisetkul, president of the Kata Karon Business Association, which represents more than 40 locally-owned hotels on Phuket.

After the release of the 2012 Chinese comedy Lost in Thailand, the popularity of Chiang Mai surged and the northern city famous for white-water rafting and jungle treks also made it onto the bucket list of many Chinese travellers, said Amnart Daungsing, who owns 2 guest houses and helps run the Chiang Mai Tourism Business Association.

Chinese tourists were 80 per cent of his business and he even hired a tutor to help teach him and his staff Chinese so they could communicate better. The influx also spurred a mushrooming of small businesses around the area. Now more than half have closed. Amnart has also been forced to shut his guest houses and pick up odd jobs, like selling durians online.

"Covid was really a nail in the coffin for many businesses," he said. "I want to go back to running the guest houses, but we can't expect Chinese travellers to come back anymore." BLOOMBERG