Chinese tourist destination has set a GDP target but Covid has put it on hold

Chinese tourist destination has set a GDP target but Covid has put it on hold

Sanya, on Hainan’s south coast, was the top destination for couples flying from three of China’s biggest cities for Chinese Valentine’s Day last week, according to booking site Trip.com.

Lucas Schifres | News from Getty Images | Getty Images

BEIJING — China’s tourist-heavy province of Hainan continues to fall short of the lofty growth targets it set in January.

At the time, the island said it was targeting 9% GDP growth this year. But like China’s economy as a whole, growth is well below initial targets – thanks in large part to outbreaks of a far more easily transmissible strain of Covid.

A surge in Covid infections this month has forced Hainan’s coastal city of Sanya to order tens of thousands of tourists to stay in their hotels and local residents to stay home. Haikou, the provincial capital, also issued stay-at-home orders.

Airlines canceled flights and left tourists stranded on Hainan Island since Saturday. In recent days, some people have been able to return to the mainland on state-organized charter flights.

But questions remain — about the uniform implementation of hotel stay subsidies, the cost of groceries, and how quickly most tourists can return to their homes.

“Hainan’s public image and reputation has been damaged in the short term,” said Jacques Penhirin, partner in Oliver Wyman’s Greater China office. “When I talk to the customer, everyone looks at the bookings [the upcoming fall holiday] which are still quite resilient. People haven’t canceled yet, but it doesn’t look good. Probably less than last year.”

It’s going to be bad for luxury brands and hospitality “at least until next year’s Chinese New Year,” he said, referring to the Lunar New Year holiday at the end of January 2023.

Hainan’s economy

In late July, China’s leaders hinted that the country could miss the GDP target of around 5.5% set in March. Beijing has signaled neither large-scale stimulus nor a change in its “dynamic zero-Covid” policy.

According to official figures, the economy grew by just 2.5% in the first half of the year. Even at this sluggish pace, Hainan’s economy lagged behind, growing just 1.6% in the first half of 2022.

That’s a sharp slowdown from the island’s 11.2% GDP growth for all of 2021.

In fact, Hainan’s growth last year was only surpassed by that of Hubei province, said Ying Zhang, a research analyst at the Economist Intelligence Unit.

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“Due to international travel restrictions, Hainan has benefited from tourism revenue, which grew nearly 60% last year,” she said. Zhang estimates that tourism accounts for more than 80% of Hainan’s economy.

Sanya, on Hainan’s south coast, was the top destination for couples flying from three of China’s biggest cities for Chinese Valentine’s Day last week, according to booking site Trip.com.

The island has one of the few beachfront locations for international luxury hotels like Mandarin Oriental and Hyatt in mainland China.

Hainan is also building duty-free malls as part of the central government’s effort to transform the island into a free trade hub and international shopping district.

According to official figures, sales at duty-free shops on the island rose 84% to 60.17 billion yuan ($8.93 billion) last year.

During a consumer goods fair in Hainan in late July, sales at four duty-free shops rose 27% year-on-year to 330 million yuan, the customs bureau said.

Another blow to confidence

So far, cosmetics brands have relied far more on Hainan for sales than affordable luxury brands — potentially as much as a third of their China business, Oliver Wyman’s Penhirin said. He said Hainan generally accounts for less than 5% of China’s affordable luxury brand sales, while high-end luxury products have yet to conquer this market.

An Oliver Wyman survey in May found that after around two months of lockdown in metropolitan Shanghai, respondents from luxury and premium consumer brands scaled back their growth expectations for China for the year by 15 percentage points.

Tens of thousands of tourists were stranded in the resort town of Sanya, Hainan, this week as local Covid outbreaks prompted airlines to cancel flights.

St. | AFP | Getty Images

“The question is definitely when consumers will regain confidence and calm in traveling and shopping, which is further delayed by this incident in Hainan,” Penhirin said, noting he expects this month’s lockdowns to ease into one or two years will be forgotten.

“It’s more about confidence than income itself, especially in luxury goods,” he said.

In the meantime, he said brands should make more efforts to track their inventory in China to ensure products aren’t selling at levels that could trigger a price war.