29 de mayo de 2020 | Publicación: Fitch Solutions - Industry Reports

Industry Forecast (Tourism Report China Tourism Forecast - China - Q3 2020)

The Chinese tourism market will severely contract over the short term as the Covid-19 pandemic ravages the industry. We note that the international tourism landscape will not
be able to recover from the 2020 downtrend over the coming years as the scale and scope of the Covid-19 shocks will have far-reaching consequences. While a recovery is
projected from 2021 onwards, with risks primarily weighed to the downside, it is weak and fragile.

Key View: The Chinese tourism market will severely contract over the short term as the Covid-19 pandemic ravages the industry. We note that the international tourism
landscape will not be able to recover from the 2020 downtrend over the coming years as the scale and scope of the Covid-19 shocks will have far-reaching consequences.
While a recovery is projected from 2021 onwards, with risks primarily weighed to the downside, it is weak and fragile.

Latest Updates

We forecast international arrivals to decrease by 70.7% to reach just 9.3mn, down from a high of 31.9mn in 2019. The Covid-19 outbreak and subsequent flight
restrictions, border closures and depressed demand will weigh on travel for much of 2020.
Our core outlook envisages a modest return to growth from 2021 onwards, with the industry set to grow at an average annual pace of 15.9% y-o-y. That said, we
forecast just 16.8mn international visitors by 2024, down from 31.9mn in 2019.
Chinese international arrivals and outbound tourism face the downside risk of protests in Hong Kong, geopolitical tensions with Taiwan and the ongoing US-China
economic and diplomatic tensions.
The Lunar New Year holiday celebrations in 2020 garnered 73% fewer tourism trips compared to the 2019 levels, based on latest data from the Chinese Ministry of
Transport. The y-o-y decrease is strictly due to the viral outbreak.
Industry estimates suggest that China's hotel construction pipeline stood at over 2,250 with around 405,000 rooms under construction. We expect the Covid-19 crisis to
result in weak a economic outlook and depressed investor sentiment. As a result, a number of projects could face construction delays, while others could see their soft
openings beings pushed back.
In Q319, Wyndham announced that it plans to open another 500 hotels in China over the coming three to four years, to add to its existing 1,500+ property portfolio in
the country.
China's outbound tourism will continue to present a solid long-term growth for many international markets dependant upon tourism related growth. Arrivals have been
steadily trending upwards over the past 15 years and we expect the trend to remain pronounced out to 2024. Income growth will bolster international departures.

Structural Trends

The Chinese international tourism market is set to face a very challenging period as the Covid-19 crisis will significantly damage the short- and medium-term outlook. In light
of flight suspensions, border restrictions and social distancing measures, we presently expect the Covid-19 pandemic to continue to depress international arrivals for much of
9M20. Furthermore, the country has a smaller inbound travel market than some regional travel destinations, such as Thailand and Vietnam. This is a reflection of years of
restrictions on international travel, which have only started to be relaxed in recent years.

While the industry saw only modest positive growth over the past five years, with arrivals rising from 25.9mn in 2015 to 31.9mn by YE19, the next five-year outlook is much
more challenging. For now, we are of the view that the APAC tourism recovery will be focused largely in key tourism-friendly markets such as Thailand and Vietnam, which
have a better reputation among regional and international visitors, once prospects begin to improve from Q420 onwards. Over the coming years, we do not see air travel and
holiday demand reaching the peak of 2019 and a number of secondary tourism destinations such as mainland China are likely to suffer from the protracted downtrend.

Covid-19 To Alter The Industry Landscape

Tourist Arrivals & International Tourism Receipts (2017-2024)

e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

Tourism Arrivals: Severe Challenges Ahead

We have negatively revised our short- and medium-term outlook to account for the severity of the Covid-19 pandemic that emanated in Wuhan, China and spread across the
world. Global tourism demand is set to plummet to an unprecedented low in 2020, and we expect the Chinese international tourism industry to suffer the most since China was
the first country to face flight suspensions and impose far-reaching social lockdowns. Much like the rest of the world, the pandemic in China resulted in substantial disruption to
business activity and led to tens of thousands of domestic and international flight suspensions, as millions of citizens strict faced travel restrictions.
At present, we expect that international tourism arrivals will contract by 70.7% y-o-y to reach 9.3mn in 2020, down from a peak of 31.9mn in 2019 (+4.4% y-o-y). Our outlook
is predicated upon the fact that China has remained isolated from the international community since early Q120 and any potential APAC leisure tourism recovery in Q320 and
Q420 will be centred around key destination hubs such as Thailand, Vietnam and Philippines. We currently see no significant interest for leisure travel to mainland China from
any of the notable source markets. Once flights to mainland China resume with greater frequency, we expect limited business and commercial travellers to drive demand over
Q420-Q121.

The medium-term outlook is modestly better as we forecast the tourism industry to recover at a mild pace of 15.9% y-o-y over 2021-2024, with total arrivals growing to 16.8mn
by 2024, up from 9.3mn in 2020 but well below the 31.8mn seen in 2019. We reiterate the view that the unprecedented collapse in global demand for travel and tourism will
have a significant medium-term ramification as leisure tourism demand will remain very weak and any unlocked pent-up demand will largely support tourism titans such as
Thailand and Vietnam over the next 12-24 months.

For now, the risks to our short-term forecasts are weighed largely to the downside given the fact that the risk of a second wave of Covid-19 infections cannot be ruled out.
Secondly, the US-China trade tensions have escalated into a diplomatic spat between both sides as the Trump Administration continues to blame Beijing's mishandling of the
pandemic. Furthermore, the rising levels of economic uncertainty as the global economy enters a sharp recession will further compound consumer spending powers. Additional
downside risks to tourism include the geopolitical friction between Beijing and Taipei and the anti-Beijing sentiment in Hong Kong.

Foreign Tourism To Face An Unprecedented Collapse

Total Arrivals (2017-2024)

f = Fitch Solutions forecast. Source: National Bureau of Statistics of China, Fitch Solutions

China's main regional source markets are Asia and Europe. The regions contributed 49.9% and 17.8% of inbound arrivals respectively (2019 estimated). Geographic proximity
is an important draw for Asian countries, but China's role in the global supply chain and as a financial hub additionally makes it a major business destination, attracting large
numbers of business visitors to the main cities. There is unlikely to be a significant shift from this trend over the medium term. Several Chinese cities, such as Shanghai and
Beijing, already play major roles as regional transport hubs, and the government continues to invest in air travel capacity, which will support a modest recovery.

While South Korea is expected to remain the largest source market, we see the number of South Koreans visiting China diminishing significantly. Approximately 4.2mn South
Koreans visited China in 2019, a number we see falling to under 1.0mn in 2020 before recovering to just 1.8mn by 2024. Arrivals from all major source markets will plummet
in 2020 owing to the Covid-19 pandemic and will recover modestly over the 2021-2024 period.

Russia is another market that is showing signs of improvement. Previously a major market accounting for almost 2.5mn arrivals in 2011, arrivals from Russia had rapidly
declined since 2014 when the country started on a downward economic slide. We expect arrivals from Russia to fall once again in 2020 (745,000 estimated) due to travel
restrictions. However, the close ties between the two countries will encourage a degree of growth over the medium term, and we expect 1.4mn Russian visitors to China by
2024. Russia will remain the second largest source market after South Korea for the foreseeable future.

We note that the US makes it to the top 10 list of source markets for China, owing to the large Chinese diaspora in North America. The US is set to export around 0.5mn (fourth
largest market) visitors to China in 2020, whereas Canada is no longer in the top 10 owing to India's rise. We expect these trends to remain pronounced but note that downside
risks stem from prolonged tensions between Beijing and Washington.

We reiterate that the revised short- and medium-term forecasts are predicated upon a market recovery beginning in late Q320 if the pandemic is contained and significant
underlying health concerns are adequately addressed. Given the fact that the coronavirus outbreak is a very fluid situation, we will continue to monitor the situation and amend
our forecasts and revise our short- and medium-term views accordingly.

Crippling Headwinds For International Tourism

China - Top 10 Source Markets By Inbound Arrivals, '000 (2020f)

f = forecast. Source: National sources, Fitch Solutions

There are some significant regional risks for China's tourism industry. The ongoing trade dispute with the US government under President Donald Trump significantly
impacted the Chinese economy over 2018-2019, and the chances of a headline economic recession in 2020 cannot be ruled out as the pandemic will lower investments and hurt
key economic verticals across China. Furthermore, the US and leading policymakers have also voiced their concerns regarding China's handling of the viral outbreak in the
early days in Wuhan. As a result, the chances of the diplomatic spat escalating into greater hostility cannot be ruled out.

Regional tensions, such as the international dispute over islands in the South China Sea (known as Diaoyu in Chinese and Senkaku in Japanese) and nationalistic rhetoric
between the Chinese government and Japan has set nerves on edge. Any escalation may harm tourism throughout the region as consumer confidence and economic activity
declines. We note that the ongoing geopolitical tensions in the region - including North Korea's nuclear ambitions, and repeated live-fire rocket and hydrogen bomb tests in
2017 - have the potential to continue, subsequently deterring travel and tourism prospects in the region as a whole. Furthermore, China-Taiwan tensions in the cross-straits
region over the issue of Taiwanese sovereignty also pose downside risk to our forecast, as they could potentially escalate into larger regional political crises.

Another potential source of risk is terrorism. This threat is primarily based in the Xinjiang region, and terrorists have not generally targeted foreign tourists. On a more local
level, travel to specific destinations, such as Beijing and Shanghai, may see a downturn following record levels of air pollution, which led to the shutting down of major
transport routes and schools in Beijing in December 2015.

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Inbound Tourism (China 2017-2024)

Indicator 2017 2018 2019 2020f 2021f 2022f 2023f 2024f

Total arrivals, '000 29,165.30 30,540.00 31,880.00 9,331.57 11,255.97 13,070.91 14,885.57 16,825.40
Total arrivals, '000, % y-o-y 3.6 4.7 4.4 -70.7 20.6 16.1 13.9 13.0
Arrivals by region, Latin America, '000 77.31 82.16 87.27 43.74 50.99 57.98 65.09 74.09
Arrivals by region, Latin America, % y-o-
6.3 6.3 6.2 -49.9 16.6 13.7 12.3 13.8
y
Arrivals by region, Asia Pacific, '000 15,370.33 15,665.27 15,906.67 4,709.52 5,739.89 6,696.86 7,673.80 8,718.04
Arrivals by region, Asia Pacific, % y-o-y -1.5 1.9 1.5 -70.4 21.9 16.7 14.6 13.6
Arrivals by region, Europe, '000 5,406.94 5,510.72 5,682.26 1,815.77 2,155.06 2,488.26 2,805.32 3,141.95
Arrivals by region, Europe, % y-o-y 7.9 1.9 3.1 -68.0 18.7 15.5 12.7 12.0

Marketing Strategies: Appealing To The APAC Mix

China's large and increasingly affluent population is increasingly being targeted by overseas markets keen to attract a share of the country's growing outbound travel market.
China's own tourism industry continues to market itself albeit arrivals growth has been modest. The government has invested heavily in transport infrastructure to allow it to
flourish. The China National Tourism Administration (CNTA) is the national agency in charge of tourism, but most provinces manage their own regional tourism campaigns.

The CNTA has a broad reach and has set up 20 offices in 15 countries globally (including Japan, Singapore, the US, Canada, the UK, France, Spain, Australia, Russia and
India). These offices are tasked with developing tourism relations. One of the largest is the China National Tourism Office in the US - a key market for inbound tourism to
China and the target of extensive investment. In 2016, China and the Association of Southeast Asian Nations undertook a series of tourism cooperation drives whereby they
promoted each others' tourism sites and encouraged a greater flow of visitors. Both sides have continued such efforts over 2017-2019 and we expect bilateral tourism promotion
to remain a key trend out to 2024. Looking ahead, we expect the CNTA to become more active in soliciting visitors from prospective APAC countries once the pandemic
shocks subside and the global economic landscape is more supportive from 2021/22 onwards.

Other ongoing national marketing campaigns include China Like Never Before and Discover China, which are both led by the CNTA. The country invests extensively in
marketing China's attractions abroad, participating in a range of trade events and setting up dozens of exhibitions and marketing events annually. CNTA is also currently
working on the 515 Strategy for Tourism Development, which encompasses five objectives, 10 actions and 52 measures to promote tourism. The focus is largely on expanding
awareness of China's many tourism destinations and facilitating travel by partnering with airlines and tour operators. Programmes such as these are supported by extensive
government investment in transport infrastructure alongside plans to complete 500 new airports in the country by 2022, targeting scenic tourism destinations as well as major
agricultural regions. Other projects include the expansion of cross-border rail connections, which will improve accessibility for regional markets.

International Tourism Receipts: International Tourism Revenues To Plummet

International tourism receipts and tourism related revenue is set to fall by 73.7% in 2020 to reach a value of USD10.5bn, with significant downside risks. We note that Covid-19
will continue to disrupt domestic and international tourism within mainland China as hotel revenues, retail sales and airlines face severe disruptions to business operations. For
now, if the outbreak is contained and health issues resolved by end of Q320, there is a possibility of a very modest revival in Q420, which will potentially limit a virtual total
collapse.

Over the medium term, we expect international tourism arrivals to gradually trend upwards once again, albeit at very low rates compared to 2017-2019. Over the 2021-2024
period, we expect international tourism revenues to recover at a rate of 18.7% y-o-y. Total international tourism receipts will rise to USD20.8bn by YE24, down from
USD40.0bn in 2019 but above the 2020's lows of USD10.5bn.
Over the next five years, we forecast a notable slowdown in demand for international tourism to mainland China; we have noted that an APAC tourism recovery will be centred
around key hubs such as Thailand and Vietnam. Furthermore, we do not expect organic growth for leisure tourism from overseas markets to be unlocked in China. Domestic
tourism will likely remain the hallmark of the Chinese market. The Chinese government will remain committed towards bolstering transportation and infrastructure, including
new shopping malls, theme parks and related attractions across the country.

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Tourism Receipts (China 2017-2024)

Indicator 2017 2018e 2019e 2020f 2021f 2022f 2023f 2024f

International tourism receipts, USDbn 35.34 37.62 39.98 10.52 13.42 15.87 18.41 20.78
International tourism receipts, USDbn, % y-o-y -26.9 6.5 6.3 -73.7 27.5 18.2 16.0 12.9
International tourism receipts, CNYbn 238.83 249.47 275.99 73.13 95.28 113.46 133.45 151.70
International tourism receipts, CNYbn, % y-o-y -25.7 4.5 10.6 -73.5 30.3 19.1 17.6 13.7
International tourism receipts, transport services, CNYbn 18.38 2.45 2.71 0.72 0.93 1.11 1.31 1.49
International tourism receipts, transport services, CNYbn, % y-o-y -29.5 -86.7 10.6 -73.5 30.3 19.1 17.6 13.7
International tourism receipts, travel items, CNYbn 220.45 247.02 273.28 72.41 94.35 112.34 132.14 150.21
International tourism receipts, travel items, CNYbn, % y-o-y -25.33 12.05 10.63 -73.50 30.30 19.08 17.62 13.68

Hotels: Accommodations Investments On Solid Footing

China has a well-developed hotel market, with huge domestic hotel chains and international developers acknowledging the high potential of the tourism market in the country
and investing accordingly. Most of the top global hotel groups have already entered the market, many in conjunction with local partners, and the project pipeline is extensive.
Latest results suggest that more than 2,250 new hotels were at various stages of the construction process as of Q120.

There is a strong emphasis on luxury branding, with InterContinental Hotels Group (IHG) showcasing its Hualuxe brand specifically for the country. IHG has stated that
another 22 Hualuxe properties will be constructed in the country over the coming years. Bulgari opened a landmark property in Beijing in Q417, and Marriott and Hilton have
been showcasing their high-end brands in the country as well. The trend of top-line four- and five-star premium hotels is to remain on an uptrend over the medium term to 2024,
as spending powers rise and status-conscious consumers look to splurge on luxury stays.

We also note that there are strong growth prospects in the quality, mid-range segment as the price-sensitive consumers are also travelling a lot more. According to the latest
estimates from Q120, all major global brands had a high number of budget-conscious hotels under construction. These include Accor's ibis, Hampton and DoubleTree by
Hilton and IHG's Holiday Inn Express. Wyndham also continues to make significant inroads into China and the chain had over 1,550 properties in China as of Q419, with an
additional 500 hotels expected to open by 2024. Wyndham has placed significant emphasis on the budget and value Super 8 and Days brands in the country in addition to its
luxury line.

We are seeing the closure of many small budget hotels and motels, primarily domestic brands that are phasing out ageing infrastructure, hence leading to an overall contraction
in the number of hotels in the country. We expect the Covid-19 pandemic to result in the closures of a number of smaller hotels, while all the major players will suspend
operations to minimise cash burn. As a result, we see the total number of hotels decrease by 7.5% in 2020 to reach 19,190. However, we forecast the total number of hotels to
grow to 22,760 by YE24 as greater investor sentiment returns to the market over 2021-2024.

The total number of hotel rooms will jump from almost 4.0mn in 2020 to over 4.8mn by 2024 as the range of different hotel properties continues to expand, with both luxury
hotels in major cities and tourism hotspots combined with business hotels and economy offerings. We expect a focus on investment in secondary cites and less traditional areas
of the country as the government seeks to expand tourism across the whole country. The total overnight stays will also improve over the coming years, jumping from 24.6mn in
2020 to over 44.3mn by 2024 but well below the 84.0mn seen in 2019.

The average length of stay will remain static at 2.6 nights throughout the forecast period, which is indicative of China receiving a large number of visits from neighbouring
countries for business travel compared with other regional areas, such as beach holidays, which attract longer stays. Weekend breaks to the country are popular and will remain
so. As the country continues to attract a diverse range of tourists, there is likely to be an increase in occupancy rates across the different tiers of hotels. We expect to see the
total number of overnight stays increase steadily throughout the forecast period, which is a positive sign for the industry.

Hotel Revenues Set To Plummet In 2020

Overnight Stays (2017-2024)

e/f = Fitch Solutions estimate/forecast. Source: National Bureau of Statistics China, Fitch Solutions

As the availability of high-end hotel options, which command higher room rates, improves, we forecast a steady uptick in hotel spending, especially from domestic visitors over
the 2021-2024 period once the economy returns on stronger footing. While concerns about the stability of the Chinese economy remain, growth will continue over the 2021-
2024 period and the value of domestic tourism to the wider economy will recover. We highlight that the robustness of the Chinese domestic tourism market remains a crucial
driver in the uptick in domestic hotel and restaurant spending, as more than 782mn Chinese visitors were active during the week of National Day in 2019. The May Day holiday
in 2020 suggests that domestic tourism recovery may be on the horizon as the social restrictions are relaxed. For now, we see domestic tourism as the major avenue of growth
in the Chinese market. It is highly likely that these figures will continue to climb steadily out to 2024 and beyond, adding further upside to our forecast.

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Hotel Accommodation (China 2018-2024)

Indicator 2018e 2019e 2020f 2021f 2022f 2023f 2024f

Hotels and food sector annual wages, USD 8,172 8,698 9,334 10,387 11,424 12,564 13,837
Number of hotels and establishments, '000 20.01 20.74 19.19 20.31 21.39 22.38 22.76
Total overnight stays, '000 80,473.6 84,002.9 24,588.8 29,659.5 34,441.8 39,223.5 44,334.9
Average length of stay, nights 2.6 2.6 2.6 2.6 2.6 2.6 2.6
Hotel rooms, '000 4,076.73 4,282.41 3,958.56 4,172.32 4,309.99 4,553.13 4,802.48

Domestic Tourism Markets: Short-Term Challenges To Hurt Key Tourism Destination Economies

As well as an enormous outbound travel market, China is also home to the largest domestic travel market in the world. The country has a huge population - more than 1.4bn -
and there is a strong tradition of internal travel, particularly around national holidays, cultural and religious events, and major festivals - such as the Chinese New Year. China
has no shortage of attractions to ensure that domestic travel remains popular. The CNTA remains actively committed to expanding the number of domestic trips in the country
and is very aggressive in its national park marketing and campaigning efforts. Furthermore, the organisation is investing in expanding domestic tourism to rural areas (such as
mountainous regions in the west of the country) in order to spread the benefit of tourism-related spending. A relatively small share of the population is in possession of a
passport, and only around 50 countries globally allow for visa-free travel (or visa-on-arrival) to Chinese passport holders. This means that demand for domestic travel is likely
to remain strong despite the increase in outbound travel.

The government's target to improve public utilities, road and domestic infrastructure, boost local tourism and reach a target of more than USD1.0trn in tourism revenue by
2020/21 still seems ambitious, but a large and growing middle class that is looking to make domestic visits to new attractions within the country could boost internal tourism
revenue towards the USD1.0trn mark.

Demand for international travel from Chinese citizens has increased massively over the last 20 years - more than doubling between just 2010 and 2015. This has been driven by
a growing middle class and a rising average wage and consumer confidence throughout the country. Despite a fall in the stock market and concerns about consumer confidence
in a slowdown of the economy, demand will continue to grow as wages continue to rise, and outbound departures are set to grow steadily over 2021-2024. A burgeoning middle
class with disposable income and cheaper international flights have driven this demand, and this trend will continue as other countries (such as the UK) decrease visa
regulations and other red tape in order to attract wealthy visitors from this potential source market.

Over the short term, we note that outbound tourism is currently projected to decline by 19.1% in 2020 to reach 114.2mn, down from 141.2mn the previous year. This is due to
the coronavirus outbreak, which has resulted in massive quarantines, flight suspensions and tour group cancellations in H120. We note that a possible recovery over Q320-Q420
will likely result in a stabilisation of the outbound market by 2021, but if the virus is not appropriately contained and international flights remain cancelled, the market will
likely remain under further pressure than currently envisaged. Key APAC tourism markets such as Thailand, Vietnam and Philippines have repeatedly stated that they intend to
welcome mainland Chinese tourists at some point in H220 once the initial shocks of the pandemic subside.

We forecast a number of growing trends supportive of a positive outbound tourism market. Over the medium term to 2024, the Chinese outbound visitor market will benefit
from a rising number of tourists and a greater degree of spending power. As China consolidates its status as the world's largest source market for international tourism, we
expect the average number of Chinese tourists making outbound trips to jump from 79.3 per 1,000 population in 2020 to 111.3 per 1,000 by 2024. While we are expecting
114.2mn Chinese tourists to make overseas visits in 2020, by 2024, there will be more than 161.9mn annual Chinese visitors travelling abroad, with risks to our medium-term
forecast to the downside. We note that a number of concerns will weigh on global tourism and these will include the risks of another wave of Covid-19 infections, the
heightened economic uncertainty around the world and increasing resentment against the Beijing government in Taiwan, Hong Kong and other major destinations.

According to the United Nations World Tourism Organisation, in 2018 the Chinese visitors were by far the largest source of overseas tourism revenue. Chinese visitors
collectively spent more than an estimated USD277.3bn in 2018 alone, up from just USD10bn in 2000 and significantly ahead of US overseas visitors who spent an estimated
USD144.2bn in the same year.

Many regional countries, such as Cambodia, Vietnam and Indonesia, will actively look to attract Chinese tourists. Furthermore, as incomes rise, the outbound departures to
other international destinations are set to increase as well. Besides local destinations such as Hong Kong and Macau, both of which will continue to remain the largest overseas
destinations, we expect other countries to tremendously benefit from the rise of China as an exporter of international tourists.

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Tourist Departures And Consumption (China 2017-2024)

Indicator 2017e 2018e 2019e 2020f 2021f 2022f 2023f 2024f

Outbound, total departures, '000 124,693.63 140,923.76 141,220.31 114,218.08 131,448.15 143,744.33 153,303.02 161,967.98
Outbound, total departures, % y-o-y 5.3 13.0 0.2 -19.1 15.1 9.4 6.6 5.7
Average Tourist departure per 1000 of the population 87.75 98.71 98.49 79.36 91.02 99.24 105.57 111.30

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