BEIJING — Chinese tourism to the U.S. and Europe hasn’t been hit so far by the depreciation of the country’s currency or from potential fears emanating from the recent terrorist attacks in the regions, but some analysts say they’re already seeing signs those markets could experience a substantial impact.
This week, the Chinese yuan fell to 6.46 to the dollar, its weakest level since the summer of 2011. Economists say they believe the yuan will continue to weaken further into 2016 after China’s central bank said last week that it would loosen the yuan’s peg to the dollar, instead linking it to a basket of currencies.
Some economists forecast it falling by up to 6 percent or more next year.
But those working in China’s travel sector and analysts monitoring consumer trends say mainland Chinese tourists have not yet been deterred by the fact that a trip to the U.S. will cost more. That is because many Chinese tend to plan major trips overseas far in advance, often locking in prices months before they travel. Thus a trip planned to, say, Los Angeles over the upcoming Chinese New Year holiday in February may have been paid for up to six months ago when currency issues had not come to the fore.
Chinese travelers “don’t book things on short notice,” Torsten Stocker, a partner at management consulting firm A.T. Kearney in Hong Kong, said. “Unless there is more than a 10 percent adjustment [to the yuan], I don’t think it will have much of an impact.”
In terms of shopping — and despite the Chinese government’s announcement earlier in December that it would lift tariffs on a number of imported products, including bags and garments — Stocker said purchases, in particular of luxury goods, in the U.S. and Europe may still be more affordable than back home.
Yet he and other analysts have observed that amid a slowing economy and changing buying habits, Chinese consumers are choosing more affordable brands, occasionally budgeting for a pair of luxury shoes or a bag. Stocker said he expects such budgeting to extend to travel but added that many tourists save up for a big trip overseas so an extra $1,000 because of a weakened yuan will not make that much of a difference — yet.
“Price elasticity is relatively low,” he said.
According to the Germany-based China Outbound Tourism Research Institute, Chinese who can afford to travel to the U.S. are “simply affluent enough for small changes in currency exchange rates to not make any significant difference.”
But U.S. retailers have already seen signs of a pullback by Chinese tourists due to the government’s anticorruption crackdown and changing attitudes toward consumption, which hit their results for the second and third quarters.
The U.S. remains a top destination for Chinese but other countries, including Japan, Korea and Australia, are vying for mainland Chinese tourist dollars because they are perceived as cool, are closer to home, shopping is on par with Western destinations — and because they are cheap.
HSBC luxury analyst Erwan Rambourg said these destinations are already competing with the U.S. and Europe and could soon start to have more of an impact.
“Clearly there is a skew towards the countries that are the cheapest and the coolest,” Rambourg said. “South Korea is the cool place to go to. Japan, there is a novelty effect. Then there are bragging rights. If you go to Japan, South Korea or Australia, you have bragging rights because not very many people have been.”
He added: “Going to the U.S. will give you bragging rights, but going to the U.S. will also put a big hole in your wallet.”
Plus, against the backdrop of recent terrorist attacks in the U.S. and Europe, Chinese feel safer elsewhere. Chinese feel “more comfortable” in such destinations, Rambourg said. “Security will always be an overhanging issue,” he added.
Will Zhang, an upper-middle class entrepreneur from Chengdu, a city in southern China, said his friends and family now opt to travel in Asia over the West. Infrastructure, such as high-end hotel offerings, has improved, travel time is shorter and luxury goods are now cheaper than in the U.S., Zhang said.
“My parents used to travel to Europe and to the U.S., but now it is not safe in Europe and the flight takes too long to the States,” Zhang said. “They prefer destinations like Japan, Thailand, Myanmar, Indonesia and Malaysia.”
Rambourg noted that some luxury brands such as Tiffany & Co., are already reporting diminishing spend from tourists in U.S. retail locations. With a weakening euro and yuan, the rollout of special domestic duty-free zones and the Chinese government potentially lowering taxes on imported luxury goods, Rambourg forecasts that luxury consumption could actually begin to shift back to mainland China.
“Investors are a bit negative about the prospects of mainland China for luxury,” he said. “We are cautious about Hong Kong but we are not cautious about mainland China. We think it has pretty positive prospects.”