Return of Chinese tourists could boost Korean economy

Economy

Published: 11 Mar. 2023, 07:00 Updated: 12 Mar. 2023, 15:13

Return of Chinese tourists could boost Korean economy

Tourists pose for pictures at Gyeongbok Palace in central Seoul on March 5. [YONHAP]

The reopening of China’s economy, and the return of Chinese tourists, is projected to help boost Korea's economy as it struggles with slow growth.

The number of travelers from China is estimated to reach around 2 million this year, almost 10-fold jump from a mere 230,000 last year, according to the Bank of Korea. Though the figure is far below the 6 million before the pandemic in 2019, the gradual recovery is expected to contribute to Korea’s GDP.

“China’s reopening is projected to have a positive impact on our economy through a recovery in exports to China and the influx of Chinese travelers,” according to the central bank in a report late last month. “The inflow of Chinese travelers is expected to contribute to enhancing the domestic service sector, like transportation and travel.”

“The government has to repair the infrastructure in full swing this year to be able to recover the number of incoming travelers next year to the level seen in 2019,” said Suh Yong-gu, a professor teaching business at Sookmyung Women’s University.

The requirement to take PCR tests after the arrival of a Chinese traveler to Korea was lifted at the beginning of the month. The government also plans to increase the number of flights between Korea and China from 62 per week last month to 200 by the end of the month.

Uncertainties remain as Korea was not one of the 40 countries on China’s list of officially permitted destinations for group tour packages for Chinese people announced Friday. But the Korean government will start considering measures to boost domestic demand, including attracting foreign tourists, ahead of China's Labor Day in April, according to local media reports Sunday.

“The Korean population last year was down by 120,000 people, so activating the visitor economy is needed to be able to maintain the economy,” Suh added.

Economic impact

Tourism was one of the hardest hit industries during the pandemic.

Korea’s travel income in 2022 was $11.78 billion, up 11 percent on year, according to the central bank data. But the figure was down 43 percent from 2019.

In some Asian countries, the number of foreign entries recovered in December to pre-pandemic period, but the recovery in Korea has been relatively weak as the number of Chinese travelers hasn’t increased much.

The number of foreign entries last December was just 37.0 percent of the number in the same month in 2019, according to CEIC Data.

That is much lower than 65.0 percent in Indonesia, 62.5 percent in Malaysia, 56.8 percent in Thailand, 55.9 percent in the Philippines, 54.2 percent in Japan and 41.3 percent in Vietnam.

Entries from China to Korea last December only accounted for 5.4 percent of the total number of travelers in the same month in 2019.

Recovery of Chinese travelers is seen as a crucial element to boosting Korea’s economy.

Korea’s economy grows 0.08 percentage points for every million Chinese travelers, according to the Bank of Korea.

They spent an average of $1,689 per individual during their visit in 2019, which is far higher than $1,106 by U.S. and $675 by Japanese travelers.

An estimated 1.96 million Chinese travelers are expected to enter Korea this year, according to the central bank data. The number is expected to return to the level seen in 2019 by next year.

“China’s resumption of issuing short-term visas for travelers from Korea on Feb. 11 and Korea’s lifting of the requirement for travelers from China to take PCR tests after their arrival on March 1 raise the possibility of the inflow of Chinese travelers in a full swing starting in March,” the central bank said.

“But falling inflation could be disrupted by the rise in inflation pressure caused by an increase in oil and raw material prices in China from expanded demand.”

Travelers flying to China wait for boarding procedures at Incheon International Airport Terminal 1 on March 5. [NEWS1]

Obstacles hindering growth

Some say it’s too early to forecast a rosy future as obstacles are hindering the recovery of related industries.

They say the key to a recovery in the number of Chinese travelers is the political relationship between the neighboring countries.

“Improvement in relations between Korea and China will be the premise that could bring meaningful impact,” said Lim Chae-woon, a professor of business at Sogang University. “China is using the ban on group tours as a tool to pressure Korea.”

China prohibited the country’s tour groups from visiting Korea as part of its retaliation against Korea’s deployment of Thaad missiles in 2017. It hasn’t been fully lifted since.

“The atmosphere of the duty-free industry isn’t bad followed by a gradual relaxation of regulations by both countries,” said a source from a duty-free shop operator who spoke with anonymity. “But as for duty-free businesses, Chinese travelers in group tours are the key. Earnings are expected to recover if the regulations on the group tour are lifted.”

Chinese travelers on group tours accounted for between 60 to 70 percent of a local duty free shop earnings.

Uncertainties also remain in the airline industry.

The Ministry of Land, Infrastructure and Transport said earlier this month it agreed with its Chinese counterpart to raise the number of routes connecting the two countries.

The number of flights will be increased from 62 weekly as of the end of last month to 200 by the end of this month.

The routes will largely center on connecting to Beijing, Shanghai and Qingdao.

The ministry plans to gradually increase the routes to other destinations starting in summer.

“The airline industry is indeed welcoming the change,” said Yang Chang-sup, a spokesperson for Korean Air Lines. “But it will be difficult to immediately see the number of flights jump to a level before the pandemic. There are uncertainties as it hasn’t yet been decided which airlines will be flying which routes”

Korean Air Lines weekly flew around 230 flights on 30 Korea-China routes in February 2020, before the pandemic started to spread widely.

Routes to China accounted for only 3 percent of the airline’s revenue in the fourth quarter of 2022 compared to 11 percent three years earlier. The figure shrunk to 2.2 percent from 17 percent for Asiana Airlines in the same period.

External factors may also hurt their profitability.

The won broke 1,320 to the dollar on Wednesday after it stabilized to the low-1,200 won-range in January.

“When the foreign exchange rate falls, airlines incur losses due to the rise in operating cost for fuel and maintenance,” said Park Su-young, an analyst at Hanwha Investment & Securities, in a report on Thursday. “The price of jet fuel is stabilizing, costing $100 per barrel. But the crude oil price is projected to rise from China’s reopening and the normalization of Chinese international flights.”

Even if the influx of Chinese travelers arrives earlier than expected, it will take some time before the effects are reflected into the real economy.

“The primary effect of Chinese travelers is businesses making profit from the traveler spending in Korea,” said Park Seong-ha, a senior economist at the Bank of Korea. “The secondary effect will take place when the money is circulated from the businesses.”

He added, “that could take some time before visible impacts are seen in the economy. So the timing of when the 0.08 percent growth in the economy will be reflected from Chinese traveler arrivals is uncertain.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]