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27 May 2009

International Economy

CEPA Chance for China/Hong Kong Service Business: Thai Tourism May be Affected (Business Brief No.2517)

The Closer Economic Partnership Arrangement (CEPA) between China and Hong Kong that was signed on May 9, 2009, has enhanced liberalization in trade and services between them. Twenty-nine liberalizing measures were imposed covering 20 service sectors – including R&D and rail transport services. This agreement between the mainland and Hong Kong should help stimulate Hong Kong's economy by boosting the service business – vital to Hong Kong's economy – now constituting a share of 92.3 percent of their GDP in 2008.
However, the global recession caused Hong Kong's economic expansion last year to slow, particularly in 4Q08 when their economy contracted 2.6 percent YoY. In the first quarter of this year, unemployment in Hong Kong also shot up to more than 5 percent, forcing the Hong Kong administration to implement job creation stimuli, and to inject over USD38.46 billion into their economy to stimulate domestic consumption.
Although the CEPA brings mutual benefits to the service business of both sides, especially tourism, its adverse consequences may include the impact to Thailand's tourism industry that is now deteriorating seriously due to political instability. Moreover, the sluggish global economy has hampered international tourist arrivals into Thailand, particularly Chinese tourists that have practically disappeared. During January 2009, the number of Chinese tourist arrivals to Thailand fell more than 35 percent, and in February 2009, the change was 53.41 percent lower respectively, against 12.6 percent growth in the first quarter of this year.
In 2H09, Hong Kong's tourism business will likely continue growth with increasing Chinese tourist arrivals that now account for more than 50 percent of all international tourist arrivals into Hong Kong. It is projected that in 2009, Chinese tourist arrivals into Hong Kong may grow 10 percent, against 8.8 percent growth in 2008 due to the positive factor of CEPA tourism liberalization, which has facilitated tourism travel via more aviation routes. However, Hong Kong's tourism industry has been adversely affected by the global economic downturn, thus leading to a decline in long-haul foreign tourists from the USA and Europe this year and the outbreak of H1N1 Influenza (H1N1 cases have been found in Hong Kong). Chinese tourist arrivals to Thailand over the rest of 2009 will likely contract more than seen during the first-two months of this year due to the political unrest and the affect of the CEPA treaty.
KASIKORN RESEARCH CENTER (KResearch) views that the decline in Chinese tourists travelling to Thailand will not affect only Thai tour guides, but also other service businesses such as hotels, restaurants, retail business, spas, traditional massage parlors and air transport. To create tourism strategies that proactively market Thailand and attract Chinese tourists to the country, the government and other related agencies should:
- Follow up on the H1N1 Influenza and implement strict preventative measures; restore confidence toward tourists' personal safety and enhance public awareness toward prevention of the spread of H1N1.
- Restore the confidence of Chinese tourists and the tourism climate that has been damaged by the political unrest.
- Publicize our major tourist attractions and festivals in China in order to broaden the Chinese target group.
- Conduct research on the behavior of Chinese tourists in order to customize tour programs for them.
- Build business networks and seek alliances for business expansion that would cover the entire Chinese tourist market, and strengthen our operating efficiency in the Chinese market.

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International Economy