Rural migration, emerging middle class to buoy Chinese outbound tourism
04/13/2016|2:32:06 PM|Bloomberg

China's overseas tourism bonanza is starting to resemble the unleashing of Japanese visitors on the world following the yen's appreciation in the mid-1980s.

Except, unlike the Japanese boom that began to deflate with the economy in the 1990s, China's outbound push -- already 120 million strong a year -- shows no signs of abating.

A vast rural population still to urbanize and a rapidly expanding middle class will underpin a dramatic expansion of overseas travel, according to analysis by Natixis SA.

In both the Japanese and Chinese cases, rising household wealth has been the catalyst for a shift in spending "to more sophisticated goods and services, with overseas tourism being one of the preferred ones," Natixis economists led by Alicia Garcia Herrero wrote in a note. "A strong currency has also supported'' this. 

Around half of China's 1.38 billion people are classed as poor, with an annual income between zero and $3,000, and most live in rural areas. The government wants to move an additional 81 million residents into urban zones by 2020, a policy set to further bolster demand for outbound travel.

Similar to China, Japanese tourism took off as the middle class expanded and incomes rose; the yen's appreciation after the 1985 Plaza Accord accelerated the process. But the bursting of Japan's real estate and stock market bubbles that led to deflation and stagnation diminished the travel bug.

Natixis points out that China's bonanza is also no sure thing. A slowing economy, a turn away from travel abroad due to Europe's refugee crisis and the threat of terrorism are among the risks, while China's own aging population could also cool the ardor to head abroad. But the push to expand Chinese cities suggests any slowdown is likely to be short-lived, according to the economists. 

"We are already starting to see Chinese tourism becoming increasingly interested in traveling further away,'' the Natixis economists said. "The reality is that such growth starts from a large base given China’s massive population."

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