Chinese tourists are landing everywhere – hard or soft

“After some 20,000 kilometres travelling Westbound the week before last, Asia was the next long distance destination - covering innovation, sustainability and Chinese growth plans. Via Singapore, where we kicked of the regional sustainability approach, I visited Asian and international corporate clients in Hong Kong and Shanghai. Timing was great as premier Li Keqiang addressed the Chinese National People's Congress on the next five year plan.”

A blog by Jeroen Plag, head of Client Coverage Americas, Asia & UK at ING, on a business trip in Asia

Jeroen Plag

A hard landing of the Chinese economy has been widely discussed as excess capacity across sectors, labour disputes and mounting corporate debt have been capturing headlines. The scale of overcapacity in China’s steel, aluminium and cement industries is quite mind boggling as local steel production is now more than double the  combined production of the four next leading producers: Japan, India, the US and Russia. In China's aluminium industry 60% of production capacity has negative cash flow, and according to data from China’s National Bureau of Statistics and the US Geological Survey, in just two years - 2011 and 2012 -  China produced as much cement as the US did during the entire 20th century!

Asian ING economist Tim Condon still expects that the Chinese leadership will be able to avoid a hard landing as corporate cash flow support and ample bank liquidity should lead to 2016 growth of 6.5%. This is also exactly the rate of growth premier Li mentioned; he went even further as he stated that growth falling below 6.5% was "impossible".  Innovative policy tools, like cutting taxes and red tape, will be applied to fuel the necessary expansion. The much touted One Belt, One Road or OBOL, will also provide for much needed investment from the local overcapacity as infrastructure will be required along the belt and roads.

Other local innovation included a new phone which is very popular for its capabilities to take very special selfies. Retailing at EUR 900, easily a couple of monthly salaries for the average Chinese worker, it is a hit everywhere. The camera automatically adjusts skin colour: lighter, the shape of ones face: thinner, and eyes: larger. The camera, called zipai shenqi, or 'magical weapon to take selfies', and other apps like Pitu and Meitu also offer options to remove zits or adjust make-up to look better. No means are spared to perfect the Chinese beauty looks!

During various discussions with Asian corporates a possible Brexit, lacklustre growth and negative interest rates, as well as the ongoing European immigration crisis were topics of interest. But it doesn’t seem to worry them too much as Chinese enterprises continue to gobble up European companies across industries. Especially in the leisure sector aggressive moves have been making the headlines to support the growth in overseas travel as Chinese tourists spent 54% more in 2015 than the year before: EUR 191 billion. Favoured destinations include Australia and Europe and growth is forecasted to continue with some 65 million people (in)directly owing their jobs to Chinese tourism worldwide.

The big spending spree is not benefitting across geographies as I learned local Hong Kong luxury retailers and hotel operators have been witnessing a downturn, on the back of the ongoing crackdown on corruption in China. This has led to a sharp decrease in purchases of luxury goods as the majority of inbound travellers in Hong Kong are mainland Chinese. Occupancy rates of local Hong Kong hotels have dropped as well to below 80% still healthy, as European capital cities like London and Dublin witnessed a peak at 81% last year.

Hard or soft landing, across sectors clearly there are big differences as became further clear when we met with local subsidiaries of international corporates in Shanghai. While they echoed the challenges that certain Chinese base industries are facing, they are still showing healthy growth rates of 10-15% across automotive, healthcare and other retail segments provide for ample reasons to stay optimistic on long term perspective for the country. 

Whether a mix of increased flight activity or pollution and challenging travel conditions, my flight arriving into Shanghai had to divert just minutes before landing as the fog was too much. While circling around Shanghai, our diversion provided for great footage as half of the Pudong skyline was clearly visible above the low hanging clouds. After finally receiving the ok to try again, the pilot could not avoid a hard landing, yet I am still hopeful on the back of the conversations we have had we will witness a soft landing for China!

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