Surge in Chinese tourism to the Philippines

Oxford Business Group

Posted on March 03, 2017

WARMER TIES with China and increased investment may augur a period of sustained growth for the Philippine tourism sector, further bolstering its already significant contribution to the economy.

This year the Philippines expects the number of Chinese tourists to cross the 1 million mark, a 49% increase on the roughly 670,000 hosted in 2016, according to the Department of Tourism (DoT). If achieved, this will bring the country closer to the DoT’s full-year objective of 7 million arrivals, following a 2016 showing of just shy of 6 million.

Key to the increase in traffic was Beijing’s lifting of a travel advisory for the Philippines in October of last year following a visit by President Rodrigo R. Duterte.

The Chinese government had issued warnings in 2014, citing security concerns after Philippine authorities thwarted an alleged plot to target the Chinese embassy and airport in Manila.

Even with the advisory in place, China continued to be a major source of tourists. In 2016 it sent the third-largest number of visitors, at 11.3% of the total, after South Korea with 1.48 million (about 25% of the total) and the US with 870,000 (14.6%).

Data issued by the National Economic and Development Authority in late January showed a more than 250% increase in visa applications lodged by Chinese citizens, to 1,400 a day -- though part of this surge could be the seasonal impact of the celebration of the Chinese New Year on Jan. 28.

The expected jump in arrivals has already prompted a rise in investment in the hospitality segment. DoubleDragon Properties, a local developer, recently announced plans to spend P6.6 billion ($131 million) to double its room capacity to 2,000 by 2020.

Other hotel chains are likely to follow suit, stepping up investment in properties aimed at Chinese arrivals, which in turn supports growth in both construction and tourism support services.

Another factor that should help catalyze growth in the tourism industry is better infrastructure. As part of a state development program, the government set aside some P860.7 billion ($17.1 billion) for infrastructure in its 2017 budget, a 13.8% increase from the year before.

Over the six-year term of President Duterte, who took office in 2016, about $23 billion has been earmarked for tourism infrastructure specifically, which could make the sector an engine of the Philippine economy. According to a study issued in January by Hong Kong-based research firm CLSA, the sector’s contribution to GDP could double from its current 10.6% thanks to increased investment and the opening of the Chinese market.

While the report noted that the Philippines had not fully unlocked its tourism potential, infrastructure in particular was highlighted as a catalyst for growth.

“Efficient implementation of tourism infrastructure with easy access for foreign investment in tourism projects would turn this around, generating a tremendous number of jobs and shoring up the balance of payments,” it said.

Indeed, Chinese interest in the Philippines extends beyond tourism, and could have direct implications on infrastructure development and finance.

The Philippine government has already opened up the country’s infrastructure program to Chinese funding and plans to put forward 12 large-scale projects for Beijing to potentially buy into.

Many of these projects, valued at a combined $4.4 billion, will have a direct flow-on effect for the tourism industry, as rail and highway upgrades and extensions improve travel connectivity. Among these are plans to develop the tourism potential of the Pasacao and Balatan coastal regions in the province of Camarines Sur.

The CLSA report did, however, cite risks to a tourism growth strategy that relies too heavily on China as a source market. “The drawback of this... is that future political conflicts with China could disrupt tourism revenues. This reinforces the argument for tourism policy to have a multiple focus, rather than the exclusive objective of attracting more Chinese tourists.”