If the first wave of China’s travel recovery story was about short-haul flights to cities that gave people immediate relief after three years of cabin fever, the second wave is a more nuanced affair. Still motivated by escapism following the lifting of zero-Covid restrictions, mainlanders are now starting to travel further afield but mostly within the Asia-Pacific region, often to familiar but decadent destinations.
While Hong Kong became accessible to mainland Chinese late last year, and Japan was especially popular during last month’s cherry blossom season, Chinese travel agency Trip.com has also identified Thailand, Singapore, Australia and South Korea as some of the most-booked outbound destinations for Chinese travellers in March. In a McKinsey survey from the same month, 40 percent of Chinese travellers said they wanted their next trip to be international.
But it’s not until this quarter or the second half of the year that most destinations will see a bigger wave of outbound visitors, said the China Outbound Tourism Research Institute (COTRI). It’s forecasting 110 million outbound trips from the mainland this year which is just two-thirds of the traffic seen in 2019.
What do the latest travel patterns mean for global luxury brands and especially those reliant on tourists in their European stores?
Global Blue, the tax free retailer, said that in March mainland Chinese spending in Europe had reached nearly half of what it was in 2019, a big rise from the 22 percent seen in the first two months of the year. While this is encouraging, it is still a far cry from the pre-pandemic levels brands enjoyed when throngs of Chinese shoppers regularly filled stores along Paris’ Avenue Montaigne and Milan’s Via Montenapoleone.
The recovery is expected to gradually strengthen in the months ahead but the COTRI predicts that Chinese outbound travel won’t overtake pre-Covid levels until next year. Capacity issues will continue to hinder progress until then. A significant backlog in Chinese passport renewals and fewer flights have made it difficult or, at the very least, more expensive to travel.
A shortage of routes into China means global inbound flights for March are at 15 percent of 2019 levels, according to aviation data firm Cirium. While Chinese carriers were able to ramp up capacity relatively quickly after China reopened earlier this year, European airlines have been slower to relaunch routes into the country because a Russian ban on using its airspace forces them to use longer routes, increasing fuel and staffing costs.
But luxury brands with a global footprint could potentially recoup some of the foregone Chinese sales in Europe and the US elsewhere. In addition to their retail networks in the mainland which are likely to continue to benefit from the repatriation of spending in the short-term, brands with stores in other regions could help satisfy some of the pent-up demand for overseas shopping.
Routes from China to the Middle East, especially via UAE-flag carrier Emirates Airlines, are recovering fast, according to a Barclays report predicting Chinese tourists will provide a boost to Middle East luxury sales this year.
“Looking at flight data, it is clear that travel from mainland China towards Dubai is recovering at a much faster pace than towards Europe since year to date, thanks to higher flight capacity and targeted marketing campaigns from the city towards Chinese tourists,” Barclays analyst Yasmin Clark, said in a note.
Pre-pandemic, Chinese tourists drove around 10 to 15 percent of luxury sales in Dubai, the note estimates. “Daily flights have resumed from Guangzhou since February 1st, from Shanghai since March 1st, and from Beijing since March 15th. Still facing very limited flights towards Europe, we think the UAE presents itself as an attractive alternative destination in coming months for Chinese travellers,” Clark said.
Dubai Tourism has been proactively courting the Chinese traveller again and the UAE is a country where Chinese tourists can enjoy visa-free travel. In other popular shopping destination countries, visas can be a significant barrier.
The UAE has a strong relationship with China, said John Zhang, the UAE representative for the Shanghai Chamber of International Commerce. This has helped Chinese tourists feel welcome and secure there at a time when geopolitical tensions with the US and some European countries have been on the rise. But it’s not all about the bigger picture; practical initiatives at company level help too.
“Emaar recently launched a Chinatown in Dubai Mall complete with Haidilao and other famous Chinese brands,” Zhang said.
The colossal mall, where Balenciaga, Balmain and Burberry are present alongside dozens of other luxury brands, signed a deal with Alibaba’s digital wallet Alipay in 2018 to make itself more attractive to inbound Chinese. In neighbouring Saudi Arabia, the tourism authority’s new partnership with Unionpay, the dominant Chinese card provider, has also led to more interest from the mainland.
The Middle East offers impressive landmarks and novel experiences to Chinese tourists, while providing a degree of familiarity at retail and hospitality establishments. Shopping can be done efficiently under one roof at megamalls like those back home and the scale and aesthetic of leisure facilities like water parks are often similar too.
Australia’s Gold Coast is another destination that is rising in popularity among the Chinese.
Although it’s a much smaller contribution in spending compared to the nation’s two largest cities Sydney and Melbourne, the tropical environs of Surfers Paradise so close to major brands like Chanel, Gucci and Louis Vuitton at Pacific Fair Shopping Centre, where many of retail store staff have been selected for Mandarin speaking skills, has caught the attention of Chinese travellers. Meanwhile, nearby Harbour Town is a go-to for outlet shopping.
While much of the draw of going to Europe is getting the best prices for luxury in brands’ home markets, Australia is a popular option “if you’re looking for a more holistic trip where you can… shop but you can do things outdoors [and] all of that,” said Katie Thomas, who leads the Kearney Consumer Institute.
The country’s famous beaches, unique wildlife, natural landscapes, fresh cuisine and reputation for a healthy lifestyle provide a compelling mix, especially since wellness became top of mind to many Chinese after enduring the pandemic.
It’s not just short-term sightseeing in Australia that is spurring spending but stays for higher education or even relocation that can provide a longer-term boost. Upper- and middle-class Chinese with the means to do so have been looking to invest or emigrate outside of China after a tough three years under strict zero-Covid measures.
Typically, Canada would feature as a top alternative but at the start of the year it implemented a two-year ban on foreign property buyers, including the Chinese, aimed at cooling its housing market. Escalating tensions between the China and the US on everything from microchips to TikTok and mainlanders’ fears over American gun violence have deterred many from going there. Australian destinations are closer to China than most in North America and it provides a larger Chinese diaspora than Europe which means Chinese culture is also more prevalent in some of its cities.
But Singapore, by far, is the most popular place for Chinese looking to transfer their wealth. The city-state, often dubbed “Asia’s Switzerland” offers a low tax rate with both geographical proximity and Mandarin as an official language, in addition to permanent residency for anyone investing 2.5 million Singapore dollars ($1.8 million). As a hub for both investment and wealth management, Singapore’s number of family offices surged to about 700 in 2021 from 400, driven mainly by an uptick in mainland Chinese.
As wealthy mainlanders poured into the real estate market snapping up second or third homes, Singapore’s home prices soared 14 percent in 2022, according to data from real estate brokerage Knight Frank, while prices in Hong Kong fell by single digits. Traditionally, Hong Kong provided many of the same benefits and it still captures a lot of the transfer of assets but Singapore has been catching up to its appeal because of the political protests seen in Hong Kong in recent years.
According to the Hurun Report, which tracks the habits of wealthy Chinese, the “preferred overseas investment destination has moved from London to Singapore and Hong Kong” in the last year. Among ultra-high net worth individuals, it found that Dubai and Singapore were among the fastest growing trip destinations.
China’s reopening has already started to force the pendulum of Chinese luxury spending to swing back from the extreme position of 90 percent domestic sales in 2020 and 2021 during zero-Covid measures, but it will not return to the pre-pandemic starting position, suggests Flavio Cereda, head of luxury research at Jefferies.
Over time, brands will most likely see “a reversal of the pre-pandemic dynamic” where the majority of luxury spend took place overseas. In other words, while overseas purchases made up around 65 percent of the overall luxury spend by the Chinese in 2019, he expects domestic purchases to account for 65 percent by 2026.
This underscores an important point for brands tracking shifts in Chinese travel patterns. However important it is to anticipate new traffic to cities like Dubai and Singapore, especially in the short-term, brands should not lose sight of the investments they need to make longer-term to capture domestic spend rising in the mainland.
THE LATEST NEWS FROM CHINA
FASHION & BEAUTY
China Recovery Drives Rebound at LVMH
LVMH reported a 17 percent rise in first-quarter sales, more than double analysts’ expectations, thanks in part to a sharp China rebound. Its sales in Asia, excluding Japan, rose 14 percent, compared with an 8 percent decline in the fourth quarter of last year. The group said it also expected China to lead growth in 2023. Similarly positive signals of Chinese consumer strength were seen at Hermès and Uniqlo. The former noted an upsurge in Hong Kong and Macau in the last quarter of 2022, while the Japanese retailer raised its forecast for the full year driven in part by a strong sales trend in China starting from January. (BoF, BoF, BoF)
MyTheresa Plots China Market Expansion
The luxury e-commerce platform is stepping up its investment in the Chinese market, which CEO Michael Kliger said he expects to grow by 40 percent in the coming years. The company is also launching a new Chinese designer collaboration with designers Susan Fang, Didu, Jaques Wei and Xu Zhi, each selected to produce capsule collections. (BoF, Press Release)
Dior Accused of Racism Over Pulled Eye Advert
Commenters on Chinese social media have slammed the French brand after it ran a makeup advertisement showing an Asian model pulling up the corner of her eyes, accusing the brand of racism and perpetuating harmful stereotypes. Although Dior retracted the post, the topic trended on Weibo with “Dior makeup advertisement suspected of discriminating against Asians” garnering over 37 million views. (BBC)
Shenzhen Fashion Week Kicks Off
The eight-day event, which launched on April 14, includes more than 80 brands and designers from 10 different countries such as German fashion label Laurèl, owned by the Shenzhen-based clothing giant Ellassay, and designers like Matty Bovan, Di Pepsa, and Chet Lo. (SZNews)
CONSUMER & RETAIL
Flights Shortage Hampers China Inbound Travel
Despite opening up its borders to all kinds of outbound travel, including leisure tourism last month, a shortage of flights into the country means inbound flights are at 15 percent of 2019 levels. Chinese carriers are still allowed to fly through Russian airspace but Western carriers have been banned and therefore are reluctant to relaunch routes, claiming unfair competition due to increased fuel and staffing costs. (NYT)
China’s Middle Class Is Expected to Swell by 80 Million by 2030
Nearly 40 percent of China’s total population will be either middle class or a higher income group, according to consulting firm BCG, supporting a resilient consumer market. More than 70 percent of the new middle-class people will come from third-tier cities and below, it added. (FooDaily)
Chinese Spending in Europe Has Reached 49% of Pre-pandemic Levels
Duty-free tax refund company Global Blue said that March mainland Chinese spending in Europe had recovered to 49 percent of what it was in 2019. That compares to 22 percent seen in the first two months of the year. It anticipates a ramp-up in spending pending an increase in flight capacity. (Luxe.Co)
SUPPLY CHAIN & TECH
US Seizes Nearly $1 Billion in Goods Tied to Forced Labour
Since June, US authorities have seized $961 million worth of goods over suspected ties to forced labour under the Forced Uyghur Labor Act. Electronics were the top product type seized, totalling $841 million but apparel, footwear, and textiles worth nearly $30 million came in second. To date, just over a thousand, or a third of those detained shipments, have been released. (CNBC)
China Creates Sustainable Fibre Platform
The Chinese government has unveiled a new platform to identify sustainable textile products jointly run by the China Chemical Fibres Association and the National Advanced Functional Fibre Innovation Centre. The new body called “Reborn-China Fibre Zero Carbon Action 2023 – Sustainable Textiles Credible Platform” will promote eco-friendly practices and is part of an effort to establish China’s standard certification system for recycled fibre. (Sourcing Journal)
Alibaba Confirms Leadership of Restructured Business Units
Following the announcement that Alibaba Group will be spun off into six separate companies, the group has confirmed the leadership team of those relevant to the fashion sector. The unit which includes most of Tmall and its divisions, Tmall Apparel and Fashion, Tmall Beauty, Tmall Global and Tmall Luxury Pavilion, will be led by the group’s current B2C retail business group president, Alvin Liu. The current head of Tmall Luxury Pavilion, Janet Wang, will continue to report to Liu. (WWD)
Montana Passes Law to Fully Ban TikTok
Following partial state-level bans of the app from government devices, Montana is set to become the first American state to fully ban the Chinese-owned social media platform. Its lawmakers passed a bill that would make it illegal for app stores to allow users to download the app and prohibit ByteDance from operating in the state. Scheduled to come into effect in January of next year, it would not affect those who already have the app installed. (Newsweek)
Douyin and Tencent Sign Content Sharing Partnership
Ending years of antagonism including multiple lawsuits for copyright infringement, the two sides have agreed to share video content. Clips from Tencent, which makes some of the country’s biggest TV shows, were often published on Douyin, the domestic version of TikTok. Before the deal, Douyin had been slapped with $430 million in damages since 2021 and forced to take down thousands of videos. (Dao Insights)
POLITICS, ECONOMY & SOCIETY
Chinese Economy Beats Expectations in Q1
China’s economy grew 4.5 percent in the first three months of the year compared to the same period a year ago, exceeding analysts’ estimates. Retail sales, up 10.6 percent in March from a year earlier, drove the expansion. The first quarter numbers are a healthy acceleration from the 2.9 percent pace in the last quarter of 2022, when China experienced a large Covid-19 wave following the sudden lifting of strict pandemic controls. (NYT)
China’s Property Slump Shows Tentative Signs of Easing
Prices of new homes in China in March rose at the fastest pace in 21 months, increasing 0.5 percent compared to the previous month. It follows a 0.3 percent increase seen in February. The property sector, which accounts for roughly a quarter of China’s economy, underwent a regulatory crackdown targeting developers’ high debt levels. While the market may be improving thanks to government support policies, uncertainty about the strength of the recovery remains. (Reuters)
China Lifts Mask Mandate on Public Transport, Offices and Schools
China will no longer require masks to be worn on public transport or at workplaces and schools, another milestone in the relaxation of its pandemic measures after it suddenly pivoted in December away from a zero-Covid policy. A mask mandate is still in effect in hospitals and nursing homes. (Bloomberg)
WTA Ends China Boycott Over Peng Shuai
The governing body of professional women’s tennis will resume hosting tournaments in China this fall after suspending all events in the country in 2021 over concerns for tennis player Peng Shuai’s safety. The whereabouts of the former doubles number one player have been unknown following her public accusations that China’s former vice premier Zhang Gaoli coerced her into sex during a years-long on-and-off relationship. (SCMP)
Hong Kong’s Labour Force Sees Biggest Drop in 40 Years
The financial hub’s working population fell by 94,100, down 2.4 percent in 2022, according to government census data. It is the largest drop since record keeping began in 1985. Many locals and expatriates have soured on the city after the passage of the national security law and enduring some of the globe’s strictest zero-covid measures. (Bloomberg)
China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to our Senior Correspondent Tiffany Ap at [email protected]