Businesses hopeful as China lifts group travel ban to Korea

Diplomacy

Published: 10 Aug. 2023, 18:29 Updated: 10 Aug. 2023, 18:50

Businesses hopeful as China lifts group travel ban to Korea

Visitors queue at a Chinese visa service center in downtown Seoul on Thursday. The visa requirements for short-term Korean travelers to China were to be simplified starting Friday. [YONHAP]

Chinese tour groups may flood the streets of Seoul from as early as Friday with China lifting its ban on group tours to Korea for the first time in six years.

The Chinese Ministry of Culture and Tourism announced Thursday that it had reinstated 78 countries, including Korea, the United States and Japan, to its list of overseas group tour destinations.

This ends the Chinese ban of group tours to Korea effectively in place since March 2017, after Seoul decided to allow the U.S. to deploy its Terminal High Altitude Area Defense (Thaad) antimissile system on Korean soil. China claims Thaad is a U.S. scheme to spy on China.

Korea's Foreign Ministry confirmed their Chinese counterpart's announcement in a statement Thursday.

“We have received communications through diplomatic channels,” it said. “Korea and China have been in constant communication regarding the importance of vitalizing people-to-people exchanges.”

The visa requirements for short-term Korean travelers to China will also be simplified, according to the Chinese Embassy in Seoul.

Starting Friday, the fingerprint collection required for all Koreans applying for a travel visa to China will be scrapped for those visiting to conduct business, tours or visit a relative. The new measure will be effective through Dec. 31 this year, after which Beijing may make further adjustments to its policy.

Shares of tourism-related companies seemingly welcomed China's move with a collective surge in the stocks of cosmetics, duty-free shops and casinos.

Hotel Shilla, which operates duty-free retail and hotel businesses, closed Thursday at 86,800 won ($66), up 17.30 percent from the previous trading day. Lotte Tour Development hit its daily price limit, reaching 13,350 won, while Paradise rose 18.13 to reach 17,070 won.

Within the cosmetics sector, LG Household & Health Care's share surged by 13.31 percent, and Amorepacific closed with a 7.76 percent increase.

This contrasted with the benchmark Kospi, which on Thursday dipped 0.14 percent or 3.56 points compared to the previous trading day.

While Chinese independent tourists have increased since the Covid-19 endemic, tourism-related businesses have yet to make a full recovery, mainly due to independent tourists spending just around one-third of what group tourists typically spend.

According to the Korea Tourism Organization (KTO), 917,519 Chinese tourists came to Korea in July 2016. However, that figure plummeted to 360,782 in March 2017 due to the suspension of visas for Chinese group tourists to Korea.

With the added impact of the Covid-19 pandemic, the number dwindled to 24,946 in January this year, but managed to rebound to 168,035 in June.

However, the Korea Duty Free Shops Association reported 854.3 billion won in foreign sales at domestic duty-free shops for June, a 35.8 percent decrease in contrast to the same month the previous year.

The absence of Chinese group tourists particularly hurt duty-free shops. Previously frequented by the Chinese group tourists known as youke, these spaces are now occupied by daigong merchants, or bundle dealers who buy tax-free goods in Korea to sell them back in China. However, local duty-free businesses faced challenges in profitability due to the considerable commissions they were required to give to such merchants.

Foreign tourists shop at Lotte Duty Free Shop in Jeju on Thursday. [NEWS1]

"There was high hope as the restrictions have been lifted after 6 years and 5 months following the Thaad deployment in 2017," a Lotte Duty Free spokesperson said. "This is undeniably positive news, and we anticipate it will have a constructive impact on the duty-free industry."

The continuing restrictions on Chinese group tourists had also posed challenges for Korean cosmetics brands.

Amorepacific's second-quarter domestic business recorded an 11.6 percent year-on-year sales decline, totaling 555 billion won, primarily attributed to decreased duty-free sales. Similarly, LG Household & Health Care witnessed a 5.9 percent year-on-year dip in domestic business sales of cosmetics and household goods, amounting to 1.28 trillion won.

The cosmetics sector also exhibited a positive reaction from Thursday's news, as not only duty-free outlets but also key commercial zones like Myeong-dong and Hongdae were integral to the itineraries of Chinese tour groups.

Local businesses are now reevaluating their offerings and marketing strategies targeted at Chinese tourists to align with shifting consumption trends in China during the pandemic.

Companies such as Lotte and Shinsegae Duty Free are actively discussing expanding partnerships with Chinese payment platforms like Alipay. Additionally, they are exploring collaborations with Chinese inbound travel agencies.

In the cosmetics sector, companies like Amorepacific and LG Household & Health Care are tailoring products for Chinese group tourists in partnership with major distributors and travel agencies. They are also deploying Chinese-speaking staff.

Nonetheless, the cosmetics industry has observed a shift in Chinese consumer preferences towards international luxury brands such as Chanel and Lancôme as well as local Chinese brands, instead of Korean beauty brands.

"Amidst the absence of Chinese group tourists, we have seen an influx of visitors from other nations and have tailored promotions targeting them," an Amorepacific spokesperson said. "We have to keep an eye on the new financial performance given the recent changes in Chinese cosmetic consumption trends."

"The comeback of Chinese tourists, especially via the duty-free route, is definitely a positive development that's generating high hopes," an industry insider said. "However, the real sales lean towards daigong merchants instead of youke. The industry expects the influx of group tourists to enhance the favorable perception of Korean products within China, which could eventually lead to bringing in more daigong."

The industry anticipates a two-to-three month timeline for full sales recovery after Chinese group tourism resumes.

Factoring in the time required for travel agencies to conceptualize and promote tour packages, improvements in sales will likely manifest in the fourth quarter of this year.

Meanwhile, starting Friday, Chinese group tours can also travel to Turkey, India, Mexico, Colombia, Peru, Germany, Poland, Sweden, Australia, Algeria and Mozambique.

China had lifted the group travel ban to 20 other countries in January, including Thailand and Indonesia; and in March to 40 countries, including Nepal, Vietnam, Iran, Jordan, France, Spain and Brazil.

BY SEO JI-EUN, ESTHER CHUNG [chung.juhee@joongang.co.kr]