A Global Giant Awakens

China's tourism industry continues to grow.

By: R. Scott Macintosh

China’s symbol for tourism is taken from a famous Han Dynasty sculpture of a galloping horse overtaking a flying sparrow.

The emblem, used by the China National Tourist Office, is a design that represents strength and speed. And it is an apt illustration for the rapid changes that are opening the country’s tourism market.

Recognizing the economic potential of travel and tourism, China has begun loosening its hold on the tourism market, allowing more foreign investment in the industry and easing travel policies for Chinese citizens.

The moves have prompted a flurry of new projects by foreign companies intent on tapping the country’s growing $62 billion tourism market, and an emerging Chinese middle class that is now taking to the road.

Top of The World

By 2020, the World Tourism Organization predicts China will receive 130 million tourists, propelling it to the No. 1 destination in the world.

To cope with the influx, a new freeway network is being built to crisscross the country. A high-speed railway system is planned to reduce travel time between Shanghai and Beijing. And 50 airports are to be built over the next five years for the domestic air market, reaching some of the country’s most inaccessible areas, including the Tibetan plateau.

“China is preparing for an onslaught of tourism,” said John Koldowski, the managing director of the Strategic Intelligence Center for the Pacific Asia Travel Association. “As with other things in China, it happens very quickly and with numbers that stagger the imagination.”

While China’s tourism industry took one of the biggest hits during the SARS outbreak losing nearly 12 percent of its international visitors and 42 percent of its U.S. visitors for the first half of this year experts say the crisis actually helped accelerate reforms in an effort to stimulate investment and travel.

Winds of Change

In parts of the southern Guangdong province, Chinese citizens can travel to Hong Kong without having to join a tour group. Shanghai and Beijing residents also can travel independently to Hong Kong.

The loosened travel restrictions have sent tourists flooding into the city, forcing many overbooked mid-range hotels to turn people away. After the travel restrictions were eased, Hong Kong had 36,000 visitors from the Guangdong region alone in just the first three days of July.

“Tourism has rebounded far more than anticipated or expected,” said Lillibeth Bishop, a publicity manager for the Hong Kong Tourism Board. “There has been talk about using vacant government housing buildings or floating hotels to keep up with occupancy.”

And outbound travel from China prohibited until just a few years ago is expected to be the next biggest growth segment in Asian travel.

The World Tourism Organiza-tion predicts that, with the loosened visa restrictions and increasing disposable income, more than 100 million Chinese will travel abroad by 2020, with increases of 12.8 percent each year.

Japan, the Philippines and Vietnam, in particular, have received more visitors from China this year compared with 2002, according to the Pacific Asia Travel Association. And Chinese travelers now are the largest group of visitors to Thailand, according to the World Tourism Organization.

“In the short term, in the next half decade or so, we expect to see increases in northeast Asia, Japan and Korea, and Southeast Asia certainly; and the South Pacific will gain substantially,” said Koldowski.

Kinks in The System

Still, China’s outbound tourism market faces challenges and has been one of the slowest sectors to open to foreign investment.

In 2001, after joining the World Trade Organization, China made its first commitment to loosening industry rules, making it easier for foreign investment in travel agencies.

“The Chinese government, in many sectors, is going WTO-plus,” said Chris McNally, a research fellow at the East-West Center, a research center in Hawaii focused on the Asia Pacific region.

Still, foreign-owned agencies are limited to selling inbound foreign travel and domestic Chinese travel, reflecting China’s primary purpose of attracting foreign visitors and stimulating its own domestic market. However, “it will bring more understanding of the demands and the needs of foreign travelers,” said Yan Wang, director of the China National Tourist Office in Los Angeles. “Quality needs to be improved.”

Jalpak International Co., a subsidiary of Japan Airlines, was the first foreign-owned travel agency approved by the Chinese government. German-based TUI AG and Business Travel International, a U.K. corporate travel firm, have announced majority-interest partnerships with Chinese organizations in recent weeks.

Meanwhile, as China’s need for management expertise and improved service has created more opportunities, companies that have had business relationships in China for some years also are finding new opportunities.

U.S. travel management firms American Express and Carlson Wagonlit recently benefited from their partnerships with Chinese organizations that regulate airline ticketing.

This summer, Carlson entered the hitherto tightly regulated outbound ticketing market by starting a first-of-its-kind business travel venture with China Air Services.

Last year, American Express was granted the first license for domestic ticketing through a venture with the Civil Aviation Administration of China and the International Air Transport Association.

With more foreign businesses seeking to enter other sectors in China, the U.S. travel management giants, with their Chinese counterparts, have become well-positioned to benefit from the burgeoning corporate travel both in and out of China.

Late last month, United Airlines and Air China signed a code-sharing deal that marked the first time a large Chinese airline agreed to extensive cooperation with a foreign carrier.

Marriott International Inc., Starwood Hotels and Resorts, InterContinental Hotels Group and Shangri-La Asia Ltd. are substantially increasing their luxury properties in China.

Marriott will open three new hotels in Shanghai this year, one in Tianjing, one in Wuhan and a new resort on Hainan Island. InterContinental Hotels wants to double the number of properties it operates in China, to 80, by 2005. And Starwood intends to open 45 hotels over the next three years.

But amid the progress there is caution: Although SARS has been contained, any new cases would almost certainly threaten the current momentum.

“We try our best to prevent it,” said Grace Zhu, an assistant at the China tourism office in Los Angeles. “Of course, there is worry but we hope it will be fine.”

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