Suitcase – Train Station – Russia

Despite the People’s Republic’s sluggish economic growth, the number of Chinese tourists traveling the world continues to grow exponentially. So far, Russia has been losing at the global competition for the hearts and wallets of the growing class of Chinese tourists, so to be able to stake a claim in this exceedingly attractive market, we would have to build modern infrastructure and bring the industry’s regulation system in line with Chinese and global standards.

Not so long ago, many experts predicted that because China’s economic growth is slowing down and the value of the renminbi continues to drop, the level of tourist activities among the Chinese will inevitably follow suit. In 2015, European analytical agencies recorded an eight percent drop in airline ticket sales from China following the summer season and forecasted an industry-wide recession the following year.

However, research conducted by Fung Business Intelligence Center and China Luxury Advisors, both consulting companies, shows that it is certainly too early to talk about any protracted long-term drop in tourism from China. On the contrary, an analysis of overseas tourism dynamics in China shows that the overall trend remains positive and is predicted to stay the same in the next five years – while in 2014, a total of 100 million Chinese traveled abroad, their number may grow two-fold and reach 234 million by 2020.

By extension, their total spending on overseas travel is expected to increase as well. We are talking about figures that are quite significant. Even though only four percent of China’s citizens have a passport that enables them travel outside the country, according to the United Nations World Tourism Organization (UNWTO), Chinese tourists spent between $215 billion and $284 billion abroad in 2015, which made them world leaders in this respect.

The growing trend of overseas tourism is a result of many years of economic growth made possible by China’s middle class who really want to travel. According to Bloomberg, China’s working population is 770.4 million, which is more than any other country can match. To draw a comparison, the same figure in Russia for 2016 is 10 times smaller – a mere 75.8 million people, according to Russia’s Federal State Statistics Service. China’s middle class accounts for roughly 20% of the country’s working population – or 146 million Chinese, which is comparable to the entire population of Russia.

According to Goldman Sachs and China’s National Statistics Bureau, middle-class Chinese citizens earn an average of $11,800 per year. Ordinarily, each of them spends around $2,500 for their trip to Europe and the United States (and half of that for their trip to Russia). Since China’s economy continues to grow (albeit at a slower pace), so will the flow of China’s tourists and, by extension, their level of spending, which according to forecasts, is likely to reach $442 billion by 2020.

Who will be able to get the best piece of that pie will depend on who can offer Chinese tourists a product that will be most attractive from their perspective. Today, Chinese tourists prefer to travel over short distances. The lion’s share of them visit the neighboring countries in Southeast Asia, with Hong Kong, Macao, Thailand, and South Korea being some of the most popular destinations. However, a report published by China’s Tourism Academy and the National Tourism Administration’s Research Institute showed that in 2015 Chinese tourists were most satisfied by their trips to such faraway lands as New Zealand, Singapore, the United States, Canada, and Australia. These destinations are popular predominantly because they are widely advertised in the Chinese media and offer a well-developed tourist infrastructure. For instance, one can find a good Chinese restaurant virtually anywhere in the US. For Chinese tourists, that is one of the key criteria in choosing their next destination.

Another important requirement is the availability of a payment infrastructure that the Chinese are familiar with. Citizens of the People’s Republic prefer to spend their money using cards issued by UnionPay, their national payment system. When abroad, they use these cards to pay for their purchases not only at large department stores but also in amusement parks, taxis, and airports. Therefore, the availability of UnionPay in a foreign country or otherwise will directly affect the choice of destination for Chinese tourists. For example, in Russia, which holds a modest 12th place among the most attractive tourist destinations in China, UnionPay was only added as one of the official payment operators in 2013.

Still, the Chinese continue to show a fast-growing interest in Russia as a tourist destination. In the last five years, there has been a 4.5-fold increase in the number of Chinese tourists that visited Russia, reaching up to 1.2 million in 2015. In the first half of 2016, the number of Chinese tourists has increased 50% compared to a similar period one year before.

Attention to Infrastructure

What could account for this boom? The growing demand for trips to Russia can be clearly traced back to a period when the simplified visa procedure was introduced for Chinese citizens. According to an agreement signed by the governments of Russia and PRC in 2000, the Chinese may opt for a simplified procedure and apply for a group visa-free entry list. This service is offered to groups of five to 50 tourists and entitles them to stay in Russia for up to 15 days. Today, the countries are discussing possible amendments to the agreement: The minimum number of people in a group is expected to be reduced to three while the maximum stay in Russia would increase to 21 days. This measure is slated to stimulate tourist traffic because most of the Chinese prefer to travel around the world with their families or friends.

The ruble devaluation that started in 2014 turned Russia into an even more appealing destination for Chinese tourists while one of their favorite pastimes – shopping – has become highly attractive too. Prices for goods sold in Russian shops have become 30% cheaper if converted to foreign exchange, which made Russia the most popular country for shopping in China in 2015, leaving Japan, South Korea, Thailand, and the United States behind. Mobile phones, famous sports shoes brands, cosmetics, and amber are among some of the most sought-after items.

Moscow was and remains an absolute leader in terms of the number of tourists that visited the city in visa-free groups – according to various estimates, visitors from China brought the city between $800 million and $1 billion in revenue. Other than Moscow, the Chinese favor St. Petersburg, the Amur and Irkutsk oblasts, and Primorsky Krai.

What accounts for their increased interest in Moscow and St. Petersburg is not just the fact that these are widely advertised tourist brands. What is also important is that these capital regions are quicker to respond to Chinese tourists’ needs and are more proactive than others when it comes to upgrading the municipal infrastructure to meet the requirements of foreign visitors. Signs and information displays in Chinese have been installed in key tourist attractions and public transport. There are hotlines for tourists along with adapted traveler’s companions and tourist guides. Many restaurants and coffee shops offer menus in Chinese.

Hotels develop a navigation system for visitors from China and equip rooms with special adaptors for Chinese devices as well as include Chinese TV channels in the list of available programs. They also provide around-the-clock access to hot water for tea and make sure that every room has sanitary items and slippers for each guest. One needs to know all of these nuances and follow them down to the letter when dealing with Chinese tourists.

Unfortunately, most of Russia’s regions do not have the capacity to improve their tourist infrastructure to such an extent, which is why visitors from China have shown little interest in the regions located in the periphery, even despite the great tourism potential these territories can offer.

In order to bridge the gaps in territorial development five years ago, the Russian government introduced a targeted federal program to stimulate domestic and foreign tourism that is scheduled to run until 2018. Today, there are 39 regions taking part in it, with 52 tourist, recreational, and car tourism clusters being built. Developing a new, high-quality infrastructure in the regions will enable them to create new jobs in the future and an enabling environment to develop small and medium-sized businesses providing services to tourists, including those from China.

The Guide’s Trade

Infrastructure, it appears, is hardly the only problem that needs to be monitored closely by the state when trying to attract Chinese tourists. Indeed, it may seem at first glance that the ‘pivot to the East’ must become an additional incentive spurring on the development of the tourism industry in Russian regions and bringing obvious benefits in the form of considerable revenue, new jobs, improved hotel occupancy, and greater numbers of visitors in museums, galleries, and parks. As a consequence, it should improve Russia’s image abroad as a tourist destination. However, in reality, things are far from straightforward. The problem is that the share of shadow economy in China’s overseas tourism remains high today. Not only does it cut into Russia’s budget revenues but it also damages its reputation.

For instance, during the high season, between 200 and 250 organized groups of tourists from China visit Moscow and St. Petersburg every week. On average, there are 40 people in each of them, and they stay in Russia from five to seven days. The cost of a standard tour, which includes visiting the two capitals, a flight, hotel accommodations, transfers, and board is between 4,000 and 5,000 renminbi ($580 to $870) if purchased from a Chinese travel agency. Only a small portion of this money ends up as payment to the Russian providers.

Why is this the case? The problem is that virtually all services required to receive and cater to tourist groups from the PRC are provided in Russia by the Chinese themselves and they do not pay any taxes to the Russian budget. This gives these Chinese operators an upper hand in terms of pricing compared to their Russian competition.

In addition, Chinese travel agencies operating in Russia prefer to use the services of ‘cheaper’ Chinese tour guides, who often have no specialized education that would entitle them to engage in the trade. Apart from a drop in revenues, this practice also leads to image losses for Russia, because visitors from China often receive inaccurate information about the country’s history and culture. Once back in their country, they in turn share the newly acquired knowledge, creating a distorted perception of Russia.

Russian regulators should interfere in this situation all the more so because the situation could not be any more different in China itself. For instance, in accordance with local laws, no foreign companies are allowed to operate as travel agents, while such companies can only be incorporated by citizens of the PRC. Also, only Chinese citizens are allowed to work as tour guides catering to foreigners, while groups of more than 15 visitors that enjoy the official tourist status cannot move around China without a local escort.

System tune-up

Efforts to improve the tourism regulation system in Russia are already underway. For instance, the issue of legalizing Chinese tour guides has been discussed lately at a very high level. An expert council on domestic and overseas tourism in Russia has held a meeting attended by Lee Hui, the extraordinary and plenipotentiary ambassador of China to Russia, Li Jinzao, head of the PRC’s National Tourism Administration, as well as other high-ranking representatives of China’s tourism industry.

Since 2015, thanks to the support from the Russian Federal Agency for Tourism, short-term programs are being run to train and accredit tour guide personnel for Chinese groups. Chinese students are also given an opportunity to join their ranks. This measure is designed to reduce the likelihood of spreading inaccurate information about Russia during guided tours offered by Chinese guides.

Once the system is fully tuned up for training professional guides to work with Chinese groups, we should take a lesson from other countries in implementing protectionist measures with respect to players operating in the domestic tourism market and set clear rules governing and restricting the operations of foreign tourist companies.

In parallel, we need to work to address the problem of service quality as well as that of the infrastructure adapted for Chinese tourists; provide opportunities to get medical help through health insurance plans; and offer the option to pay using UnionPay cards, which today are accepted far from everywhere. At the same time, we should launch a massive systemic advertising campaign in the Chinese media. This should make Russia more recognizable and promote the country’s image as one of the most attractive tourist destinations. High advertising activities are a key factor in attracting Chinese visitors to Russia.

All of these measures will ensure steady interest in our country for many decades to come. Most importantly, in the long run, they will enable us to receive stable and high revenue from tourism.

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