Squeeze in Chinese tourists starts to bite
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The Chinese government’s forced reduction of tourists visiting Korea by 20 percent is already dealing a blow to businesses.
“Even today, tourism offices in several provincial governments are acknowledging they are lowering the numbers of tourists going to Korea,” said an insider working in China’s tourism industry on Tuesday. “In several areas, there were even orders to send visitors to the Philippines instead of Korea.”
Relations between China and the Philippines, which were sour for some time due to a territorial dispute in the South China Sea, recently softened after President Rodrigo Duterte visited China last week.
Seoul’s ties with China have gotten frostier after it decided to deploy a U.S. missile defense shield that Beijing opposes.
Businesses that rely on Chinese visitors are worrying that the decision will hit them hard. It hasn’t been long since they overcame the aftermath of last year’s Middle East respiratory syndrome (MERS).
The first signal came from the stock market: shares of companies that could be hurt posted sharp declines Tuesday as news spread. Cosmetics leader AmorePacific fell 7.12 percent to 345,500 won ($305.06). LG Household and Healthcare lost 8.34 percent to 846,000 won. The impact was evident in tourism shares as well: Hotel Shilla lost 6.94 percent and HanaTour retreated 8.04 percent. All shares failed to recover Monday’s closing prices on Wednesday. Companies running group tours were most vulnerable.
“If Chinese group tours fall by 20 percent, the annual loss in relevant industries may reach a minimum of 2 trillion won,”
According to the Korea Tourism Organization, 2.4 million Chinese tourists came on group tours last year, 41 percent of the total number of Chinese tourists to Korea, which was approximately 6 million. As group tours are organized two to three months before departure, the decline is expected to really show by year’s end.
“If Chinese group tours fall by 20 percent, the annual loss in relevant industries may reach a minimum of 2 trillion won,” said researcher Shen Jia at the LG Economic Research Institute. “If the decline spreads to individual tourists, the economic damage will deepen even further.”
Duty-free shops are nervous. Last year, the top five duty free operators – Lotte, Shilla, SK Walkerhill, Dongwha and Korea Tourism Organization’s Duty Free Korea – earned 5.4 trillion won in revenues from Chinese tourists, 62 percent of total sales of 8.6 trillion won.
Through September of this year, Chinese tourists spent 3 trillion won at Lotte Department Stores. As soon as the news of the cutback spread Tuesday, duty-free stores organized emergency meetings with Chinese partners to devise some kind of a backup plan.
There are currently nine duty-free shops in Seoul, with four more waiting to open next year. Competition in the duty-free industry is fierce, as it is one of the most robust retail markets in Korea. “A sudden drop in Chinese shoppers will cause considerable impact to both current and future duty-free operators,” said a spokesperson for Shilla Duty Free.
Mid-priced hotels are nervous too. They are popular with group tours. “Half of the guests at business hotels in Myeong-dong or Dongdaemun are Chinese, and most are from group tours,” said Park Jong-mo, manager of the Ramada Hotel and Suites Seoul Namdaemun. “The market supply is rising, with new mid- and low-priced hotels being built in the city center. We’ll be seeing more vacant rooms.”
Questions & Answers
Q.Which specific companies were mentioned as being negatively impacted by the news on Tuesday?
Which specific companies were mentioned as being negatively impacted by the news on Tuesday?
AmorePacific and LG Household and Healthcare saw their share prices decline. Hotel Shilla and HanaTour, in the tourism sector, also experienced losses.
Q.What proportion of all Chinese tourists visited Korea as part of a group tour last year?
What proportion of all Chinese tourists visited Korea as part of a group tour last year?
Approximately 41 percent of the total number of Chinese tourists to Korea last year were on group tours, which amounted to 2.4 million visitors.
Q.What is the estimated financial loss for relevant industries if Chinese group tours fall by 20 percent?
What is the estimated financial loss for relevant industries if Chinese group tours fall by 20 percent?
If Chinese group tours decrease by 20 percent, the annual loss for related industries could reach a minimum of 2 trillion won, according to one researcher.
Q.Why are mid-priced hotels particularly concerned about the reduction in Chinese tourists?
Why are mid-priced hotels particularly concerned about the reduction in Chinese tourists?
Mid-priced hotels are popular with group tours, with half the guests in some city centre business hotels being Chinese group tourists. A reduction in these tours will lead to more vacant rooms.
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