Explainer: How China's cash-strapped youth worsen Korea's tourism deficit

Economy

Published: 13 Jul. 2024, 07:00 Updated: 13 Jul. 2024, 16:00

Explainer: How China's cash-strapped youth worsen Korea's tourism deficit

A sign on a shop in Myeong-dong, central Seoul, a popular shopping spot for tourists, reads “Chinese OK, welcome to the shop.” [YONHAP]

Korea’s economic and business scenes unfold in such an intricate way that the headline numbers and official statements fall short of explaining what is really happening and why it matters. The Korea JoongAng Daily’s Explainer series aims to address the largely-unmet yet crucial need with an angle relevant to our readers across the globe. — ED

Post-Covid tourists coming to Korea are younger, trendier and value independence — a shift that has unexpectedly contributed to the country's wider tourism deficit.

These travelers, mostly Japanese, Chinese or American, want to make memories, but not necessarily through souvenirs. They go big on individualized experiential spending but spend much less on other things, and are reluctant to give in to impulse buys.

In this year’s first quarter, Korea recorded a $3.28 billion tourism deficit, the biggest in five years. This deficit is primarily due to the slow recovery of Korea-bound travelers compared to outbound Korean travelers, but it is also related to consumption.

Travel imports in this year’s first quarter amounted to $3.45 billion, down 29 percent from five years ago. Foreign tourists, on average, spent $1,868 per person during their stay in Korea in this year's first quarter, according to the Korea Culture and Tourism Institute’s June report. In the same period in 2019, it was $1,267.9 and $2,313 last year. The average amount increased from 2019 due to higher flight expenses from more tourists from farther destinations such as the United States.

From a shift to a younger demographic that prioritizes experiential spending to economic stagnation in neighboring China — Korea’s previously largest source of tourists — here are the shifting tourism trends that impact the country's business and economy.

Korea's tourism deficit reached a five-year high in this year's first quarter. [KIM JEONG-HEE]

Are the tourists coming to Korea the same as before?

No. The biggest and most substantial change came from the mainland Chinese demographic. The number of Chinese tourists who came in 2023 was around 81.5 percent of pre-Covid levels, while their spending recovered to 74.1 percent. Once the biggest spenders in Korea, with 50.7 percent of revenue having come from Chinese tourists in 2019, they placed third in 2023, only making up 12.8 percent of sales.

Travelers are also younger and willing to spend on experiences — such as eating fried chicken by the Han River or wearing hanbok in front of Gyeongbok Palace — but not shopping.

Travelers aged 30 or younger accounted for 35.6 percent of all tourists to Korea last year. Young tourists steadily rose from 27.6 percent in 2013, 10 years ago, to 34.5 percent in 2019. Those aged 31 to 40 made up 20.6 percent in 2023.

Of the foreign tourists who came to Korea in this year’s first quarter, 57 percent came to Korea to shop, compared to 61.7 percent in 2023 and 66.2 percent in 2019. Those who participated in shopping when they came dropped from 92.5 percent in 2019 to 78.3 percent in 2023.

Group tourists from a cruise ship that set sail from Japan arrive at Busan Port in May. [JOONGANG ILBO]

The trend toward less shopping is linked with reduced group tours, which tend to spend heavily in stores.

The brightly colored banners that signaled a crowd of Chinese group tourists are now a rare sight on Korean streets, with travelers opting to come as individuals or in small groups. The number of tourists from Chinese group tours, which had previously accounted for the lion’s share of industry sales due to the inclusion of shopping programs at duty-free and department stores, dropped from 15.2 percent of all Chinese tourists in 2019 to just 2 percent in 2023.

There are some similarities with the pre-Covid era, however. Tourists from Asian countries still make up the majority, with Japanese and Chinese neighbors leading the way. But the numbers -— both in quantity and proportion — have drastically dropped.

A total of 8.2 million people came from Asia last year, 56 percent of the 14.3 million that came in 2019. Once making up 81.9 percent of all travelers coming to Korea in 2019, Asian tourists accounted for just 74.3 percent in 2023.

Korea-bound Chinese tourists are younger, more informed through digital social networks and prefer individualized experiences over group tours. [YOO YOUNG-RAE]

What’s happening in China, and how does this affect Korean tourism?

China’s stagnant economy, weighed down by a collapse in the real estate market, trade disputes and record-high youth unemployment levels, has affected tourism worldwide, not just in Korea. Before the pandemic, the mainland’s citizens were the biggest spenders among travelers, but after the country opened its borders in 2023, its overseas travelers have not reached their previous level.

With weaker consumer confidence, their spending habits have changed, too, to prioritize experiences such as dining. They've become selective in their shopping, too. While 72.5 percent of tourists said they came to Korea to shop in 2019, this decreased to 49.5 percent in 2023; and when they actually came to Korea, 68.2 percent — compared to 95.1 percent in 2019 — participated in shopping activities in 2023, according to KCTI’s survey.

The average Chinese tourist in 2023 spent more on food, cultural experiences or medical tourism than in 2019 but spent 30.3 percent less on shopping, from $1,030 in 2019 to $717.74 in 2023.

The KCTI determined that the drop in shopping expenses was due to the improved online retail scene in China, which made shopping for international goods easier on the mainland, and the sluggish recovery in group tourists.

Interestingly, data shows that their average spending per capita actually increased by 37.6 percent, from $1,632.6 in 2019 to $2,246.1 in 2023.

China’s worsening income polarization may have to do with the fewer tourists coming in, yet spending more. Beijing’s National Bureau of Statistics in 2023 showed the widest income gap in China since it began collecting data in 1985. An academic study published in the Tourism Management Journal in 2022 showed that young middle-class Chinese generally possess a higher level of individualism, value independence and flexibility in travel, and are disinterested in conventional package tours. Such travelers have the funds to seek more individualized and pricier experiences overseas but at the same time seek to maximize their expenses and crave an aesthetic edge, while Chinese nationals with less than lower middle-class income tend to travel domestically.

Tian Gaojing, 20, and her friend left empty-handed after browsing a clothing store in Seongsu-dong, eastern Seoul.

“We came to Seongsu to eat at a popular restaurant we’ve heard a lot about. For shopping, I’ll mostly be stopping by and buying products from brands Matin Kim and Ader that we searched online beforehand, and have shops in the neighborhood,” Tian said.

Two friends from Shanghai enjoy a day in Hongdae. [KIM JU-YEON]

For tourists Xu Mengyu and Li Kunyi, Hongdae, western Seoul, and Hannam-dong, central Seoul, were ideal locations for easy browsing, but not spending. They also did their research on the Chinese social media platform Xiao hongshu beforehand to compare prices and select specific Korean brands.

“We bought Gentle Monster sunglasses at a Shilla Duty Free department store and not from the flagship store because it was cheaper,” Xu said. “We went to Hannam-dong just for the Mardi Mercredi brand but didn’t buy much else.”

Boy band NCT's Taeyong as brand ambassador for Loewe, as pictured on an advertisement in a store in Seongsu-dong, eastern Seoul. [KIM JU-YEON]

Where are younger tourists spending their money?

The trend of selective spending isn’t just a Chinese trend. The K-pop and K-beauty boom has led tourists to center their travels around related experiences such as concerts and makeovers.

Eri, 19, came from Indonesia in time for HYBE’s annual Weverse Con music festival in mid-June and scheduled multiple concerts over her two-week stay in Korea. Her two friends, Geo and Azi, had also centered their trip around K-pop festivals, with only Azi leaving for a short trip to Busan while the other two planned to spend their whole time in Seoul.

“We came for Enhypen’s Sung-hoon,” they said in front of domestic cosmetics brand Hince’s pop-up store in Seongsu-dong. The trio each “bought 30,000 won ($22) worth of Hince products to get merchandise of Sung-hoon,” the brand’s ambassador, and were in line for another run.

Tourists in Hongdae took advantage of the cheaper beauty services offered in Korea.

“A haircut that costs $145 in America costs $20 in Korea,” said U.S. tourist Bea, 29, who had visited a hair salon with her four friends.

Meanwhile, Stefanie and her sister, also from the United States, booked manicures in advance on Naver.

The interest in Korean beauty is reflected in shopping statistics: 67.7 percent of all products bought by tourists in this year’s first quarter were cosmetics, and the interest in locations highly populated with beauty-related standalone such as Myeong-dong, Hongdae and Seongsu-dong rose.

On the retail scene, there were clear winners and losers in the eyes of the younger crowd. Individual cosmetics brand franchise shops, as well as duty-free shops, were neglected. Duty-free shops saw a 240 percent jump in foreign visitors in March on year, but revenue dropped by 9 percent. The difference is more stark compared to pre-Covid levels, with foreign tourist purchases at duty-free shops made by card in 2023 only reaching 54 percent of the amount made in 2019.

An Olive Young store in Hongdae, western Seoul [KIM JU-YEON]

On the streets, pop-up stores that put K-pop idols on the frontline got attention and sales for their exclusive goods, but the favorites were undoubtedly the multibrand retailer Olive Young for its one-stop-shop experience, convenience and variety, as well as budget shops like Daiso. Olive Young’s first quarter revenue from foreigners this year was up 263 percent on year, and half the customer base at Daiso’s Myeong-dong branch, which opened in March last year, are from overseas.

“We’ve been to, like, five Olive Youngs since we got here,” said Stefanie, who was on her second day in Seoul.

“Because they have multiple brands in Olive Young, you get to test out the different products in one place. They’re big and busy so you’re left alone to try them out without having an attendant by your side. They also have labels that show the rankings in popularity for specific products, such as in skin care — this makes it seem like they’re being selective of the best in each brand.”

Similarly, Bea's group of friends had also left Olive Young with bags filled to the brim but hadn’t stopped at individual cosmetics brands or planned to go to duty-free shops.

Though Korea’s soft power in the entertainment and beauty industries has brought in younger tourists, it also shows limitations for the country’s tourism growth engine.

“While I’ve enjoyed my time here, I think it would be harder for someone who wasn’t interested in either K-pop or makeup to choose Korea as a travel destination,” Stefanie said. “Especially coming from the United States, people want more immersive cultural sites and experiences for the far distance to be worth it.”

BY KIM JU-YEON [kim.juyeon2@joongang.co.kr]