It's hardly a surprise that China's economic slowdown is spreading across the region, weighing on the economies of many of its neighbors and closest trading partners across Southeast Asia, according to Bloomberg.
One of the industries hardest hit by the downturn in the world's second largest economy is tourism, and the slump is expected to endure through 2020 - that is, unless the trade war between Washington and Beijing is resolved more swiftly than anticipated.
The downturn has left beaches in Bali eerily quiet, and hotel rooms in Hanoi empty.
From quiet beaches in Bali to empty rooms in Hanoi’s hotels, pangs from China’s economic malaise and weakening yuan are being felt across Southeast Asia’s vacation belt A boom in Chinese outbound travel in recent years that stoked tourism across Southeast Asia is now in reverse gear.
The abrupt decline of Chinese travelers is becoming a painful lesson for nations such as Thailand and Indonesia that had become overly dependent on Asia’s top economy.
“The slump in Chinese arrivals and tourism spending is being felt throughout the region,” said Kampon Adireksombat, Bangkok-based head of economic and financial market research at Siam Commercial Bank Pcl. "There’s always a concentration risk when relying on one market, and many countries may not be able to find a replacement for growth fast enough."
Climbing incomes over the past decade fueled a boom in Chinese tourism as middle-class Chinese were finally able to fulfill their wanderlust, transforming China into the world's largest outbound market, according to a report by McKinsey.
Southeast Asian nations attracted the largest share of outbound Chinese tourists, given their proximity to the mainland and the similarities in culture and cuisine.
According to McKinsey, the total number of outbound trips from mainland China more than doubled from 57 million in 2010 to 131 million trips in 2017.
"Southeast Asia is usually the first destination for Chinese travelers when they opt for farther destinations," said the report. McKinsey’s 2017 China Outbound Traveler Survey had shown that the highest number of package trips were booked to Southeast Asia.
To accommodate Chinese travelers, a whole new travel industry sprung up featuring Mandarin-speaking tours, Chinese eateries and Chinese mobile payment services stretching from Danang to Yogyakarta. However, these companies are now struggling with a severe pullback after companies and local governments doubled down and poured millions of dollars into expanding resorts, hotels and travel facilities.
Chinese tourists watch a flyboard show by the beach of Hon Tam Resort in Nha Trang, Vietnam.
Some hotel companies are already seeing evidence of the pullback reflected in their results. Thailand’s Central Plaza Hotel reported a softening of its hotel business in Q2 due to decreasing Chinese demand, according to SVP Ronnachit Mahattanapruet, who spoke at an investor briefing last month.
Companies are nervously hoping for a turnaround as several new hotels are expected to open in Thailand over the next half-decade. In Singapore and the Philippines, casino operators Las Vegas Sands and Genting Singapore are planning to open new casinos and hotels.
The Thai capital is also expecting a new Ritz Carlton by 2023 as part of a $3.9 billion development, while Hilton will manage two hotels due for 2022 opening. On Phuket island, a favorite for beachfront weddings and scuba diving, there will be 18% more hotel rooms by 2024, according to consultancy C9 Hotelworks Ltd. International arrivals in Thailand this year so far have grown only 2%, data from Thai tourism ministry show.
"The supply was based on people’s unrealistic expectations," said C9’S managing director Bill Barnett.
In Singapore, casino operators Las Vegas Sands Corp. and Genting Singapore Ltd. announced a $9 billion expansion of their resorts earlier this year after the country’s skyline was beamed across cineplexes as the setting of the Hollywood hit "Crazy Rich Asians."
Marriott International Inc. has 140 hotels in the pipeline across the region, with plans to more than triple its portfolio by 2023 in the Philippines, whose white-sand beaches and turquoise waters are such a draw that the island of Boracay had to close last year for upgrades to its sewage system.
Here's a breakdown of how the slowdown in Chinese tourism has impacted Thailand, Indonesia, Vietnam and Singapore, courtesy of BBG, which relied on data from Thailand’s Ministry of Tourism and Sports, Indonesia’s central statistics agency, Vietnam National Administration of Tourism’s website, Khanh Hoa province’s department of tourism website, Singapore Tourism Board.
Chinese tourists became the largest group to travel to the region in 2019, adding $403.7 billion to the region's GDP, according to BBG estimates. This is particularly critical for Thailand and the Philippines, as tourism now accounts for over one-fifth of national GDP, twice the global average.
Looking ahead, economic contraction likely won't be the only factor to contribute to slowing tourism: As we noted earlier, tourism and foreign business visitors to Hong Kong have severely contracted due to the protest movement in the Chinese SAR. Tensions between Beijing, Hong Kong and Taipei could intensify, creating more problems for the tourism industry in the region.
While the weakening of the yuan, falling consumer confidence and the ongoing trade war are some of the biggest issues impacting the regional tourism industry, domestic issues are also contributing to the slowdown. Among EM currencies, the Thai baht has strengthened the most vs RMB this year, making travel more expensive. Meanwhile, a boat accident that killed 47 Chinese tourists off the island of Phuket last year made travelers wary of visiting the island.
The rise in tourism from other countries like the US and India has helped offset the decline, but the hole left by Chinese consumers is too large to fill.
"Chinese tourists are the largest group of visitors by numbers," said the Bali Promotion Board’s Wijaya. "Even the rise in holiday makers from other countries cannot compensate for their absence."
As of April, the IMF had downgraded global growth forecast three times within the prior six months. Now, with China's economy anticipated to grow by less than 6% this year, the damage to tourism could worsen. Going forward, the impact of this slowdown likely won't be limited to SE Asia, as the global tourism industry contracts.