East Asia: Economic and Travel Forecast

East Asia: Economic and Travel Forecast

BY IAN K PERKIN*

The potential for growth in the travel industry in the East Asian region is so great as to be all but unstoppable in the medium and long term, barring a full blown global recession. This ostensibly reckless general statement applies whether the subject of discussion is inbound, outbound, or merely intra-regional travel. Inevitably, there will be temporary setbacks to growth and they may come from unexpected quarters, as the negative impact of the September 11 terrorist attacks in the US, the subsequent "war on terror", the Iraq war and the onset of the Severe Acute Respiratory Syndrome (SARS) have all shown. Life must inevitably go on and, despite the uncertainties that continue to abound in the world (and East Asia) today, there are some virtually irresistible forces that are combining to ensure the future growth in the East Asian region.

These include some basics like population size, growing economies (despite the ravages caused by the Asian financial crisis of 1997 and 1998), greater personal wealth (especially amongst the expanding middle class), far better global knowledge and a greater desire to travel, for business and pleasure. Indeed, one of the great drivers of travel growth in the East Asian region has been business itself, the opening of new sources of supply (e.g. China) and new markets. This has led to greater access for all types of travel, once a new region has been opened for the business of doing business.

Viewed from a medium-to-longer term perspective, only a truly calamitous event like a major war or global recession/depression would cause a total collapse of the prospects for growth in the travel industry in the East Asian region. All too often events, whether it is the war on terrorism or the SARS crisis, that have devastating short term impact on the industry, blind us to the longer term prospects. This natural urge to be completely absorbed by the short-term negatives (or positives for that matter) must be resisted.

Last August I stressed the need to look at the bigger picture in a presentation to attendees of the ACTE Regional Training Workshop in Singapore. Particulalry the following elements of the bigger picture:

First, that East Asia had been devastated by the economic meltdown that followed the regional financial crisis of mid-1997, but that recovery had followed and would continue in near term, producing positive benefits for the travel and tourism industry.

Second, that a similar though less severe, downturn had affected the region (and the travel and tourism industry) in 2001, but that again recovery was underway.

Third, that the economic expansion and opening to the world of the People's Republic of China was beginning to transform travel and tourism in the region and that this impact would spread further afield as China (and its people) became richer.

Fourth, that although the rise of China (in the economic, political and travel senses) was hugely important in the East Asian region and to the world, it was "not the only game in town" as far as East Asian is concerned and that there were still huge opportunities elsewhere.

North America, Western Europe and Asia are the three dominant economic regions of the world, accounting for almost two-thirds of total world output the US 22 per cent of the total, Europe a little over 20 per cent and Asia a little more than 21 per cent. On a per capita basis, of course, Asia generally, with its greater population, ranks far behind the US and Europe, with the notable exceptions of Japan, the small "city states" Hong Kong and Singapore, perhaps Taiwan and the odd anomaly, such as oil-rich Brunei. But Asia, especially East Asia, remains the world's fastest growing region economically, led by Mainland China, and that means its people are getting wealthier. And barring any unusual upsets (like those we have seen recently with the Iraq war impact and SARS) greater wealth means greater travel.

Both business travel and tourism have been historically important in the industry's growth in the region (as they have elsewhere in the world) and this remains the case today, with business travel into and out of China being particularly important because of the economy's huge importance in global trade. This is not to say it has been problem-free in recent years. The Asian financial crisis devastated economies and the travel industry in 1997 and 1998 and the impact of that economic meltdown still linger although there was something of a recovery until 2001. Then the global (and US) economic slowdown, as well as the aftermath of the terrorist attacks in the US hit growth. The region was barely beginning to overcome these adverse developments when it had to deal first with the potential impact of the Iraq war and the very real impact of the SARS crisis. The positive side for the East Asian region was that the two big economies of the region, outside of the poor performing Japan that is, China and India, were barely affected by the 1997 crisis and the 2001 slow down. SARS was/is, a far different matter as far as China is concerned and its effects on both the economy generally and travel in particular, may linger beyond the immediate containment of the outbreak.

Looking back over the past six years or so since the Asian financial crisis hit, it is abundantly clear that overall economic growth in the region has been slower than it was before the crisis hit. However, there has been a recovery much better than many had expected during the worst of the economic meltdown. Some countries have done better than others, with the two big emerging economies of China and, to a slightly lesser extent, India standing out. Unless Japan pulls out of its decade-long economic malaise, these are the two countries that are likely to drive Asian growth economically in the future. China will be especially important in both inbound and, increasingly, outbound travel for both business and leisure purposes.

However, there is still overwhelming reliance on the state of the US economy and the general global economic performance, for Asia to continue to recover and do well in the future. Before the 1997 financial crisis hit the region, there had been quite an active debate amongst economists about whether the East Asian region could be an engine of growth in its own right. That debate has abated at least until it becomes apparent that China can act as an engine for growth, with India in support. Recovery in Japan, which seems unlikely at this stage, would also be positive for the region's own ability to generate economic growth in its own right.

But perhaps the most important message is that we musn't fail to overlook the importance of the emergence of the Mainland of China, not just as a huge and fast-growing economy, but also as a big and growing force in terms of travel, inbound and outbound. Business travel growth has, in particular, been clustered around this big and emerging economy as more and more global enterprises have expanded their activities in the country. Chinese business leaders can now also travel more easily and far more widely than they did in the past. China's middle class" is expected to reach 400 million by 2010, up from perhaps 250 million today. They have - and will - travel widely. China will not, therefore, just be an inbound market but an increasing outbound one as well.

As an example of how China's outbound travel can transform a market in a short period, I used the example of Hong Kong (now part of China itself, but with a high degree of autonomy and its own special standing in the world), where China arrivals now dominate the market. Yet 20 years ago Mainland China visitors were virtually unheard of. In terms of inbound arrivals, the Mainland of China now accounts for something like 40 per cent of all arrivals in Hong Kong compared with less than 1 per cent before its opening to the world began in 1979. Greater China (which includes the Mainland, as well as Taiwan and Macau) now accounts for 60 per cent of all visitors to Hong Kong. In the past decade alone, arrivals in Hong Kong from China have grown six-fold, whereas arrivals from all other source markets around the world have grown by less than 40 per cent. Business departures account for one-third of inbound traffic from China to Hong Kong.

A good example to use in judging the potential of China as an outbound market is to compare Japan in the 1950s and 1960s. At that time of Japanese development, rebuilding after the Second World War, global travel out of Japan, especially was extremely limited. In later decades, however, travel numbers expanded exponentially as Japanese, with newly acquired discretionary spending power, decided they wanted to travel and see the world. As China and its citizens get richer, the Japanese experience will be repeated in that market. China is not the only game around in the East Asian travel industry, but it is the potentially dominant player in the future, for business travel, inbound and outbound provided its spectacular economic growth over the past two decades continues.

Ian K Perkin* is an independent business economist and journalist based on Australia's Sunshine Coast. He was formerly Chief Economist at The Hong Kong General Chamber of Commerce and is a member o f the ACTE Faculty. Ian will deliver keynote addresses at ACTE's inaugural events in Australia.

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