China’s reopening lifts tourism recovery prospects in APAC Economies

Saturday, January 28, 2023

China’s move away from restrictive policies designed to curb the domestic spread of COVID-19 increases the likelihood of a swift recovery for tourism sectors in the Asia-Pacific region that had relied heavily on outbound Chinese travellers before the pandemic, says a study.

However, recoveries will continue to face several other constraints and risks, and we expect upside risks for government ratings to be limited in the near term.

The study had already expected a strong recovery for tourism in APAC over 2023, as for much of last year many countries maintained strict COVID-19 control regimes affecting inbound travel, creating a weak base of comparison.

However, China’s easing of COVID-19-related travel restrictions has occurred faster than we anticipated, and will create upside risks to our forecasts. China was one of the world’s largest tourism source markets before the pandemic, with total international tourism expenditure of USD254.6 billion in 2019.

Researchers expect a revival of Chinese outbound tourism to boost growth prospects in economies with substantial tourism sectors. Further upsides to government credit profiles could stem from its positive effect on domestic employment markets and the external services trade balance.

Hong Kong (AA-/Stable), Macao (AA/Stable), Thailand (BBB+/Stable) and Malaysia (BBB+/Stable) will probably benefit most from these trends.

The effects on Thailand may be particularly important, as several of its credit metrics, including fiscal ones, have deteriorated as a result of weak tourism activity and stepped-up fiscal efforts since 2019.

Chinese tourists could also provide varying degrees of support to macroeconomic performance in Singapore (AAA/Stable), Vietnam (BB/Positive) and Sri Lanka (RD).

However, Sri Lanka’s economic metrics would only influence its Long-Term Foreign-Currency Issuer Default Rating after the sovereign’s completion of a commercial debt restructuring that we judge to have normalised the relationship with the international financial community.

Chinese tourists comprised 16.7% of arrivals in the Maldives (B-/Negative) in 2019. However, the potential upside to the Maldives’ real GDP growth from China’s opening is limited by the tourism sector’s already-strong recovery and capacity constraints.

Still, stronger Chinese demand could improve the island country’s pricing power in tourism, which could lift nominal GDP and export earnings, partially easing external liquidity strains.

The Chinese outbound tourism recovery is likely to be slower in countries that have recently introduced additional requirements on travellers from China to limit risks associated with China’s sudden Covid spread, including Korea (AA-/Stable) and Japan (A/Stable).

The moves have prompted China to impose retaliatory travel restrictions. Nonetheless, the credit effects should be limited because of Korea’s and Japan’s strong external positions and low economic reliance on tourism, as well as our assumption that such restrictions will be short-lived.

Several factors will constrain the rebound in outbound tourism, in China and other regional markets. We continue to expect a slow recovery in APAC’s international air traffic capacity, as it will take time for airlines to resume routes – both within China and within APAC more widely – that were previously suspended during the pandemic.

Difficulties resolving staffing shortages in the air travel and tourism sectors will also play a role.

Capacity constraints and high global energy costs will contribute to high travel prices, which may further dampen tourism demand. In addition, consumer sentiment in China’s early reopening stages could be fragile.

The tourism rebound that we anticipate in APAC in 2023 remains vulnerable to risks outside of our baseline assumptions. If economic growth across the region falls below our forecasts or consumers’ purchasing power is eroded further by higher-than-expected inflation, for example, this could set back demand for travel.

There is also still a danger that new COVID-19 variants or waves could disrupt or reverse tourism recoveries.

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