Influence of new tourism law felt in Chinese outbound tourism

Destinations see more self-organised travellers replacing package tour groups

26^th November, 2013

Heide

Germany

Destinations around the world have reported lower arrival numbers for Chinese visitors in the weeks following the introduction of the new Chinese tourism law. Many Chinese outbound tour operators raised their prices especially for their cheapest products as once again they have to pay their tour guides.

The new Chinese tourism law, which came into effect on October 1^st, 2013, rules out the common practices of forced shopping or involuntary payments for activities outside fixed itineraries for Chinese package tours. Under this business model, tour operators would not only save on the cost of paying tour guides but would often even receive money from the tour guides for the right to earn commissions from the tourists’ shopping and sightseeing.

Taiwan reported only two third of last year’s number of arrivals for the month of October 2013, but already saw a return to normalcy in the first half of November. New Zealand registered a decrease of monthly arrival numbers from China for the first time in since 2010. The 12% blow was however softened by the fact that the average length of stay increased at the same time. South Korea also suffered a setback of about 20% during the Golden Week period, the first week of October, for which it blamed the new Chinese tourism law. In July the South Korean capital Seoul has however already introduced a certification programme for inbound tour programmes to shield Chinese visitors from fraudulent practices such as forced shopping.

In all three destinations the tourism officials recognised that the decrease in package tour arrivals was partly compensated by increases in self-organised travellers, who on average spend more and stay longer in the country.

Prof. Dr. Wolfgang Georg Arlt, editor of the C.O.M.I. China Outbound Market Intelligence magazine, sees his analysis vindicated. He says:

“In the current issue of C.O.M.I. we argue that higher prices for organised tours will reduce the price difference between a package tour and a self-organised trip, increasing the appeal for Chinese outbound travelers to venture outside of their neighbourhood on their own. The tourism law will therefore bolster the already growing segment of the self-organised travellers and will also make this kind of travel organisation more attractive for less affluent travelers. The first experiences of the new tourism law point to this trend.”

Prof. Dr. Arlt however also mentioned that the market for cheap outbound trips has not disappeared. “There is a long queue of Chinese who want to spend as little money as possible to be able to say after the trip that they also have been abroad. They do not mind much about the quality of the trip and they certainly want to do some shopping on the way.”

So with customers complaining about higher prices and tour guides reported to be ignoring even the most explicit wishes of tour members to visit shopping centres, the brouhaha about the new regulations is likely to die down in the coming months and to be supplanted by new ways of catering both for the growing self-organised travel market and the price-sensitive package group tourists from China.

C.O.M.I. China Outbound Market Intelligence magazine is a quarterly online publication of COTRI China Outbound Tourism Research Institute. C.O.M.I. provides in-depth market intelligence, insights and background information about current and future developments of the Chinese outbound tourism market.

Press contact:

COTRI China Outbound Tourism Research Institute, desk1@china-outbound.com

Tel. +49 481 8555 523, www.china-outbound.com

On October 1st, China, while celebrating its National Day, will begin to implement the New Tourism Law of the People’s Republic of China, (adopted on April 25, 2013). This law has been a growing concern for tourism operators and travel agencies for the last few months as it may lead to a reshuffle in the tourism sector. (English.news.cn:  Good news China has a tourism law). What are exactly the implications of this law and how will the tourism industry, tourists and the environment be affected? Since National Day is one of China’s ‘Golden Weeks’ for outbound travel, the timing has led to increased prices and reduced demand for group packages and as such as elicited strong reactions from travel agencies and receptive operators alike. 

China’s very first aim is to “protect the legitimate rights and interest of” Chinese tourists who usually suffer a position of weakness compared to tourism operators. (China Daily : New law to Protect tourist’s interest). By compelling domestic and outbound tour operators to be more transparent about what is included or not in the packages they sell, this law will improve the quality of the tourism products being offered. “Tourists have the right to get the true information on the tourism products and services they buy.” states Article 9; hence no more forced group purchases, unplanned stops in overpriced shops or restaurants, or unexpected add-on fees during the trip. In addition, a whole chapter devoted to dispute settlement elucidates the legal consequences of violating the rights and interests of tourists.

As well as protecting its tourists from being ripped off during their holidays, China intends to change their reputation abroad for the better.(Business Insider: China Is Trying To Make Chinese Tourists Less Embarrassing). Indeed, some recent incidents and bad press involving Chinese tourists gained international attention and even lead some to  say that Chinese tourists would not be welcome. (The New York Times: Chinese Tourists Spend, and Offend, Freely). As a response Article 13 declares “Tourists shall observe public order and respect social morality in tourism activities, respect local customs, cultural traditions and religious beliefs, […], protect the ecological environment,…” .

The most concerned are obviously tourism operators which will have to review and adapt their offers so as to abide this new law and particularly Article 35 which states: “Travel agencies are prohibited from organizing tourism activities and luring tourists with unreasonably low prices, or getting illegitimate gains such as rebates by arranging shopping or providing tourism services that requires additional payment.” Their first observation is that such change as the ban of “zero-dollar tour” where they rely on commissions to make their profit, will compel them to increase their prices up to 80%, thus making customers think twice before buying. ( CCTV.com: China’s first tourism law makes holidays more expensive ; TTG Asia: Tour prices up with launch of China’s anti-zero-fare tour laws). Destinations are therefore afraid of the downfall in the number of Chinese Tourists . (Eturbonews: China outbound tourism expected to be down 40% as of October after new law). So far most travel agencies did not see any positive effect coming with this new law, only the disruption of their long established way of functioning. (Travel Link Daily: China’s travel industry not in favour of the new Tourism Law).

With its new tourism law, China aims at regulating the tourism market which is today one of the pillar of its economic growth. If in the short-term such disruption in the tourism sector will result in increased prices and in a drop-off in China outbound tourism, mostly for Southeast Asian destinations, in the long term experts agree that Chinese tourists will get used to higher prices since they will experiment more enjoyable holidays with better services and better quality. It is also worth noting that this new law will enhance the protection of the ecological environment (Art.4; 13; 21; 42) and the rational use of tourism resources, while promoting the “sustained and healthy development of tourism”.(Art.1) (Global Times: Tourism law to enhance cross-Strait cooperation: spokesman).

Download a PDF Interpretation of the new Tourism Law

Comment: Paving the way for a stronger FIT outbound market

Roy Graff, MD – ChinaContact

From speaking to China based travel agencies and reviewing the Chinese and global media coverage about the effects and consequences of the new Tourism Law, it is quite obvious that one law that has not been written but is directly related to this one, is the ‘law of unintended consequences’. Chinese group tourists have gotten used to extremely cheap package tours over the years. While this has certainly contributed to the amazing growth rate of domestic and outbound tourism, I do not believe that it was beneficial to destinations or provided a full experience to the tourists themselves.

The complaints by tourists about being pressured to shop, being charged unreasonable amounts for various optional activities and excursions is what led the government to enact this law. What is less easy to acknowledge is that Chinese WANT to go shopping abroad and spend more than 60% of their trip budget on shopping. This will not change because of the law, but it may lead to better choices in where and what to shop. We should not forget that the shopping business have massively contributed to this problem by offering generous commissions to tour guides and tour leaders that can earn an astute guide several times their actual salary of guiding fee.

In the short term, we can safely assume that travel agencies in China will try to follow the law and avoid discounting the tours, writing ‘free time’ in the itinerary instead of ‘shopping time’. When the consumers start evaluating the real cost of a tour and checking the alternatives, I believe that we will see big shift to self organised and independent travel. This trend is already happening in SE Asia and will be speeded up thanks to this law.

Destinations that can spot this opportunity and are able to capitalise on it quickly, will win the affections of the new breed of independent Chinese travellers. I am not speaking just about wealthy Chinese travel travel with handlers or business people. The new generation of FIT are backpackers, couples, professionals in white-collar jobs. They can figure their way around in English but prefer to use Chinese where possible.

What should destination do?

• Spot the opportunity (through research, consumer testing, social media insight and strategic review)
• Prepare the industry (have Chinese language information and signage, train consumer facing staff in Chinese culture, offer amenities in hotels)
• Engage with the new travellers at inspiration and planning stages (social media and associating known brands with the destination)
• Repeat…

 ChinaContact with China Edge will host a China outbound tourism workshop and networking reception during WTM week in London. To inquire about participation or sponsorship please contact Roy Graff.

Download a PDF Interpretation of the new Tourism Law

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