Optimists have upper hand with tourism

The number of Chinese outbound tourists has surged beyond expectations, and there is every reason to think that trend will continue

To say Chinese outbound tourism grows fast would be a huge understatement.

Between 1994 and last year the number of outbound trips by Chinese mainland citizens rose 16 fold, and China is now the largest tourism source market in terms of visits and spending. Last year about one out of ever 11 border crossings in the world was made on the Chinese mainland. Underpinned by the world's largest economy and population, China is set to change international tourism.

Despite its spectacular performance, the potential and sustainability of the Chinese travel market has been constantly underestimated. In 1995 the United Nations World Tourism Organization made what many at the time regarded as an outlandish prediction: China would generate 100 million visits by 2020. Some of the skeptics were in China itself. That milestone has been reached recently - more than five years ahead of schedule.

When China and the United States signed an agreement on promoting Chinese group leisure travel to the US in late 2007, the official estimate was that 578,000 Chinese would arrive in the US in 2011. That forecast was off by a little under 90 percent: 1.09 million Chinese visited the US that year.

Recently, when a new China-US visa agreement was announced, amid all the hoopla, the same skepticism again surfaced. This agreement extends the one-year limit on visas between the two countries to up to 10 years. A White House announcement predicts that this change will result in 7.3 million Chinese traveling to the US by 2021, a fourfold increase on last year's figure.

Despite all the enthusiasm about the agreement among the public and travel trade, some experts question how much longer the strong growth of Chinese outbound tourism can continue. After all, the momentum has kept up for more than 20 years. A bit of healthy skepticism never hurts, yet there are quite a few reasons to remain optimistic.

First of all, a huge market remains untapped. Last year, 98.2 million outbound trips were made by the tourists in the Chinese mainland. A common misinterpretation is that these 98.2 million outbound trips were made by 98.2 million separate tourists, hence the conclusion that more than 7 percent of the Chinese mainland population is traveling abroad. The percentage is likely to be much lower than 7 percent because many Chinese tourists make more than one trip a year - for example, some Guangdong residents frequently visit Hong Kong and Macao.

This observation is corroborated by the country's low passport possession rate. Although an accurate number on Chinese passport holders is hard to find, the consensus is that about 3-5 percent of those in the Chinese mainland population have one. Contrast that with New Zealand, where the figure is about 75 percent, Canada, where it is 70 percent, and the US, about 40 percent. Considering a market of at least 1.2 billion people completely untouched, the Chinese outbound tourism growth we have seen may be just an appetizer, with the main course yet to come.

Further, understanding the cultural importance of travel helps instill more confidence. According to some researchers, travel is not merely for fun for Chinese; rather, it is considered an investment in oneself, family and social network, practically an alternative education. Our research shows that "learning/discovery" is one of the top motivations for Chinese traveling abroad, dovetailing with the Chinese wisdom that knowledge comes from extensive reading and traveling. Travel is linked to broadening one's horizon, gaining insight about the world, and earning respect from peers as a result. This explains why many Chinese take their children abroad at a very young age, and why much shopping that Chinese tourists do is for their friends, colleagues and relatives. The elevated importance of travel in the Chinese value system bodes well for continuous growth in the market.

Finally, for real optimists, the stage is already set but the curtain has not even been hung up yet. According to the Boston Consulting Group, a country's economic growth will not be fully translated into long-haul travel demand until its GDP per head reaches about $15,000 a year. China's GDP per head is now about $6,000 so there is a long way to go. Notably, this rule of thumb seems to hold true in some of China's wealthiest regions, where outbound travel is racing ahead at full speed.

A similar S-shaped curve can be found in global aviation. China's air passenger penetration rate is still fairly low, corresponding to a fairly low income level. The country's demand for air travel is likely to accelerate, Goldman Sachs says, once "a certain income threshold is crossed". A report last year by Airbus said Chinese are only making 0.26 trips a year by air per head now, but that this will grow to 0.95 trips per head by 2032.

If history is any indication of the future, China's outbound travel is still at the starting point of the evolution curve. The new visa deal between China and the US government could shake things up in China's outbound tourism development. It could signal a fundamental shift of Chinese outbound tourism from being partly supply-driven to entirely demand-driven. For foreign destinations and services, the preseason is over, and the real competition for Chinese outbound tourists is about to begin. For long-term Chinese outbound tourism growth, I remain optimistic.

The author is an associate professor with the School of Hotel, Restaurant and Tourism Management at the University of South Carolina, Columbia. He is also director of the China-US Tourism Research Center at Nankai University in China.