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01 May 2013

Red carpet for tourist yuan

Louisa Cheang

by Louisa Cheang

Group General Manager and Regional Head of Retail Banking and Wealth Management, Asia-Pacific, HSBC

Street scene in Beijing, China

Global retailers are starting to lure Chinese shoppers

Global retailers and travel companies are vying to capitalise on a surge of Chinese tourists, one of the most visible symbols of the country’s increasing wealth. These shoppers are now a frequent sight at the world’s retail hot spots, armed with their UnionPay cards and laden with luxury goods.

The Chinese overtook the Germans to become the world’s top overseas spenders last year, according to the United Nations World Tourism Organisation. In just over a decade, China has moved from near the bottom of the rankings to the very top, a remarkable achievement in a short period of time.

The Chinese government is keen to promote
the currency beyond
its borders

Last year, the Chinese spent USD102 billion, up 40 per cent on 2011. But based on China’s total population of 1.3 billion, this works out at about USD78 per head and suggests there is huge untapped spending power.

Average incomes in China are likely to increase sevenfold between now and 2050, from their current level of USD2,500. This means that discretionary spending is likely to jump as incomes rise and more Chinese citizens join the middle class.

Global retailers are starting to lure Chinese shoppers by hiring Mandarin-speaking sales staff and installing UnionPay. The increasing acceptance of UnionPay is a marker of the internationalisation of the renminbi.

The Chinese government is keen to promote the currency beyond its borders and has also been encouraging workers to take more holidays as part of a bigger policy to shift the economy from a reliance on investment towards greater consumption.

In February, the State Council issued its Outline for National Tourism and Leisure for the next seven years. One of the key parts was to reinforce existing regulations covering paid leave and to encourage companies to promote the benefits of holidays among staff.

The number of overseas trips made by Chinese tourists is expected to continue to grow, from 83 million today to 130 million in 2015 and 200 million by 2020. To put this growth into perspective, annual tourist departures account for only 4.3 per cent of China’s population, compared to 20 per cent in the US. This will have big implications for global retailers as the Chinese have different motivations for travelling overseas compared to Europeans and Americans. Market research indicates that shopping surpasses sightseeing as the most favoured activity.

The Chinese also account for 25 per cent of the global market for luxury labels, a larger share than any other country. About 60 per cent of these purchases are made abroad, partly because of concerns over counterfeiting on the Mainland and because domestic consumption tax and value-added tax can add 60 per cent to the purchase price. To counter this, many shop in Hong Kong, Macau and Taiwan. But as the Chinese travel more, other destinations continue to open up.

Europe is likely to be the top region this year, according to the Hurun Research Institute, with France the number one destination, because of the popularity of brands such as Louis Vuitton and Chanel.

China offers growth for the world’s retail and travel sectors. Increasing numbers of Chinese travellers will shape these areas as Americans and Europeans did before them. Soon the tourist yuan may be just as recognisable and welcome as the tourist dollar.

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