China’s Tourism SOEs Girding to Tackle Challenges and Opportunities in the National Travel Market

 

NOVEMBER 10, 2015 [EMERGING MARKETS, CHINA, TOURISM]


Private-sector competition, rising costs and investment demands, along with regulated prices, push state-owned companies to up their game.

At this time of year, popular tourist destinations around the world are increasingly visited by Chinese travelers, boosting seasonal sales in those locales significantly. Outbound Chinese tourism has been growing more than 30% annually in recent years. Visa relaxation, particularly in neighboring countries, and rising incomes among Chinese nationals are the fundamental drivers.

Within China, too, domestic tourism has been growing around 15% to 17% annually over the last three years, even as the economy has slowed in the period. Walking around Beijing and Shanghai between company visits, I found chartered buses packed with domestic tourists. China is vast, filled with people from smaller and mid-sized cities who increasingly visit the national capital, Beijing, and the big commercial centers. Also, with its long history, China has many attractive tourist destinations. Some have great historical relevance, such as the ancient Ming Dynasty capital of Nanking, while others are geared toward scenic landscapes and national parks.

 

Nanking Confucius Temple
Great Wall of China

 

Chinese state-owned enterprises (SOEs) have been playing major roles in the sector and many are publically listed in China’s A-share market. Some are pure resort operators; others are also engaged in the travel agency business and packaged travel programs. Private tourism companies, including online giants, are engaged in downstream travel services, such as hotel bookings, airline ticketing, and similar types of retail distribution. SOEs take care of the upstream side, including tourist park operations and wholesale provision of travel packages.

The SOEs are facing challenges with growing competition, as well as operating and investment cost increases. As ticket prices are government regulated, these state firms have to increase non-ticket sales by hosting festivals and conferences, providing better services to hotel guests, or managing restaurants more efficiently. They aggressively market online, just like the private companies, and develop premium tour packages with better research on tourist destinations. Last year, government reform initiatives provided incentives to increase their profitability. More importantly, though, the real driver of reforms for SOEs, especially in the consumer sectors, is market-driven competition from private firms.

As China opens Western-style theme parks, such as Disneyland and Universal Studios, it will be very interesting to see how these SOEs become more competitive, leveraging their invaluable tourism assets and potential.

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