If you want to gauge how Chinese consumers are reshaping the world, look at how many of them are leaving China.
For vacation, that is. Outbound Chinese tourism has enjoyed explosive growth over the past decade and there’s plenty more where that came from: only 5 percent of the Middle Kingdom’s citizens hold a passport, compared with 40 percent in the U.S. That’s a lot of ground to make up and suggests this boom has some staying power.
How did all this happen? Like many changes, it can be traced to Deng Xiaoping’s opening of the economy in the 1980s. But it didn’t really take off in force until 1995 when China launched the Approved Destination Status (ADS) program, which allowed for organized tours to a small but growing number of approved countries. The industry has had three distinct phases.
First, from the mid-1980s to early 1990s, trickles of outbound tourism to a few Asian neighbors were allowed for family visits only. Also permitted were government-paid or employer-paid business trips and cultural exchanges involving visiting scholars and seminar attendees.
Next, from the mid-1990s to 2010, under the ADS policy, some licensed travel agencies organized self-paid packaged group tours usually involving multiple destinations. Those trips often featured superficial sightseeing in iconic cities, photo snapping, and gift shopping for family and friends. Tourists still didn’t have much interaction with the local scene due to low income levels, rigid tour arrangements, rushed itineraries, language barriers and lack of overseas travel experience.
Lastly, from 2010 to the present, rising income, increasing travel experience, easier visa regulations and marketing efforts by destination countries made things a lot easier. Add to that, self-driving independent tours and off-the-beaten-track destinations with in-depth experience and lifestyle experiments.
The footprints of Chinese tourists are now found across Southeast Asia, Africa, North and South America and even the Polar regions. Millennials dominate the self-driving tourist group, whose interest shifted from merely sightseeing and shopping to learning about history and experiencing culture.
President Xi Jinping increasingly encourages outbound tourism to project soft power on the global stage. Chinese officials are also known to adjust the flow of tourists to destinations based on the temperature of political relations. All the while, rising Chinese incomes at home mean more is spent each trip.
The explosive growth of the internet, social media, mobile applications and mobile payment provides more convenience for tourists. This isn’t unique to China, but it underscores how uniquely the Chinese tourism industry is positioned.
What are the investment implications? This boom has just started and the best is yet to come. Investors should target destinations, industries and companies that can attract Chinese tourists. Multinational hotel chains like Marriott, travel service companies like Ctrip, airlines, and foreign luxury brand retails should all benefit from this trend. As shown below, the exchange-traded fund for PowerShares has been riding Chinese outbound tourism since 2010, substantially outperforming Standard & Poor’s 500 index.
Chinese outbound tourism is a precursor to Chinese overseas investment and consumption. It will help create a significant number of jobs in destination countries. According to the CEO of Ctrip, about 15 million Chinese outbound tourists chose the company annually. Their trips abroad have created up to 100 million jobs worldwide. That will make the greatest splash in small countries like Cambodia.
Despite investors’ skepticism about official Chinese economic data, the rising wealth of the population is reflected through the boom in outbound tourism. Can something go wrong? Sure. But the spending refutes, at least in part, the argument that China’s growth is a debt-fueled house of cards.
Keep your eye on that passport number and watch it grow.