Data: China's big spenders

November 19, 2018 10:57 AM

In the past few years the Chinese government has loosened restrictions on foreign travel, enabling millions of its citizenry to visit foreign lands. Along with a greater ability to travel is the enhanced prosperity Chinese consumers have reaped at home — and now bring with them on vacations to purchase foreign goods.

This growing affluence, and the willingness to spend it, has not gone unnoticed by retailers and tourism boards around the globe. Merchant acquirers and payment processors have worked to attract Chinese tourists' spending. Ultimately, this has meant enabling Chinese payment schemes such as Alipay and WeChat Pay at the point of sale.

The sheer magnitude of Chinese travelers and their spend, along with the upward trend, is a significant opportunity.

When it comes to overseas travel spending, Chinese tourists are the leaders by a wide margin. According to the 2018 UN World Tourism Organization (UNWTO) 2018 Highlight report, Chinese tourists as a group outspent visitors from the No. 2 and No. 3 nations (U.S. and Germany, respectively) combined in 2017.

Last year there were 130 million outbound trips made from China to other countries, according to Ctrip, the largest online travel agent in Asia, and the China Tourism Academy (CTA), a specialized institute under the China National Tourism Administration (CNTA). The 2017 figure represents a 7 percent increase over 2016’s figure of 122 million travelers.

Morgan Stanley noted in a recent report that the number of ordinary passport holders in China has tripled between 2012 and 2016. This is a clear indication of a country’s population gearing up to travel the world.

Rapid, sustained growth in the Chinese economy for the last few decades has led to dramatic changes in the financial well-being of the average Chinese citizen. Just last year the Chinese economy grew at 6.9 percent rate, as reported by the BBC News.

According to the World Bank, China is the world’s second largest GDP, after the U.S. with $12.3 trillion in GDP created in 2017. This is larger than the next three country economies (Japan, Germany and the U.K.) combined. China overtook Japan as the second largest economy back in 2011, according to The New York Times. Last year, Japan’s GDP stood at only $4.9 trillion, according to the World Bank.

The main impact of the continued industrialization of China is that it is reshaping Chinese society. Once known as an agrarian economy with large swaths of low and low-to-middle income consumers, China is rapidly becoming much wealthier. Morgan Stanley predicts in its China Outbound Travel Takes Flight report that the upper-middle class and high income segments of Chinese society will compose 35 percent of the population by 2030, up from only 10 percent in 2015.

Travel exports from the U.S. to other nations grew to $251.4 billion in 2017, according to data from the U.S. National Tourism and Trade Office. The figures include all travel-related expenses as well as education from students visiting the country as the U.S. deems this to be an export activity.

China represented the largest buyer of travel exports from the U.S. in 2017 with a 14 percent share and a value of $35.3 billion. The next largest foreign tourism buyer from the U.S. in 2017 was Mexico with $20.9 billion, or an eight percent share, followed by Canada with $20.7 billion which is also an eight percent share.

The number of Chinese visitors to the U.S. is forecast to continue a strong growth trend for the next several years. The U.S. National Tourism and Trade Office predicts that Chinese tourists will grow in number by over seven percent annually through 2022. Almost 3 million Chinese visitors traveled to the U.S. in 2016 and this number is expected to grow to over 4.5 million in 2022.

China's outbound tourism has the fastest rate among the top 21 countries with visitors to the U.S. The average CAGR for the increase of visitors for the group of 21 countries through 2022 is only 2.7 percent.

In 2016, China ranked fifth in terms of total visitors traveling to the U.S. by any country. China is predicted to overtake Japan in 2019 for fourth place and will be close to parity with the U.K. in 2022 for third place. Canada, followed by Mexico, sent the most visitors to U.S. shores in 2016 by a wide margin.

The success of some of the world’s biggest wallets, WeChat Pay and Alipay, demonstrate massive followings that virtually blanket almost the entire 1.4 billion person population in China. Why China’s mobile wallets have grown so rapidly may have to do more on the population's reliance on older, dated technology to reach ubiquity faster, rather than waiting for new technology to be put into place.

PayPal reports show that it added roughly three million net new accounts per month to reach 254 million active users at the end of September 2018. Meanwhile Alipay claims to have 520 million of its online and mobile payment service. Tencent Holdings’ WeChat app, which includes WeChat Pay, reported a monthly active user base of almost 1.06 billion in August 2018.

Based on the popularity of using mobile wallets at home, it should come as no surprise that when Chinese consumers travel overseas that these travelers are more likely to make a mobile purchase than non-Chinese travelers. About 65 percent of Chinese tourists reported to have used their phone to complete a purchase on their most recent trip compared to just 11 percent of non-Chinese tourists according to the Nielsen 2017 report, Outbound Chinese Tourism and Consumption Trends.

Breaking down the overseas purchases by payment method, Nielsen found that Chinese travelers were almost as likely to use cash as they were to use a mobile device – 28 percent of transactions were made with a mobile phone compared to 30 percent completed with cash. In comparison, non-Chinese consumers were much more reliant on bank cards (52 percent) and cash (44 percent).

A major factor enabling Chinese tourists to be able to make those mobile transactions is that there is a massive push to cater to their needs. Earlier this spring, retail and hospitality software provider Veea partnered with cross-border provider Citcon to enable businesses using Veea services in the U.S. to accept Alipay and WeChat Pay mobile payments.

When Chinese consumers choose to pay with a mobile device on an overseas trip, it’s because they want to be able to reach for something that they are familiar with using at home.

The Nielsen report explored the top reasons why Chinese tourists reached for their mobile phone to make a payment. The top factor on the list was convenience/speed/familiarity. This was followed by pride in using a Chinese brand to make the payment. The third most important reason was that there is no need to exchange currency at point sale, unlike the usage of cash.

For Chinese consumers increasingly accustomed to making mobile payments at home, the expansion of Alipay and WeChat into U.S. and other markets has been instrumental in allowing them to shop as if they were in their home market.

Alipay struck a deal with First Data to bring its familiar brand to 4 million merchants covered in the deal in 2017. This was quickly followed by another deal to expand the First Data relationship and add Freedom Pay, which serves airports, toll plazas and sports venues.