Chinese tourism aids our transition from mining boom

With the overwhelming pessimism lately about Chinese economic growth prospects, a bright spot emerging last week was that the number of Chinese tourists visiting Australia had surpassed the one million mark in the 12 months ending November 30. This was an increase of just under 22% from the previous year.

Recently, we published a scenario analysis considering what a sustained one percentage point reduction in Chinese GDP growth from 2015 to 2035 would be on Australian economic welfare.

The answer was, for every Australian and in today's terms, an income reduction of $509. This was driven by falling in investment, employment, and exports of iron ore as the Chinese economy slowed.

This analysis considered our recent relationship with China being driven mainly through iron ore exports. The evidence suggests that our relationship with the world's second largest economy is changing, and that we are benefitting from a tourism boom as China transitions to a more consumption based economy.

Chinese tourism growth has been stronger than expected

In 2011, Tourism Australia produced a strategy document targeting international tourism growth by key markets to 2020. The main aim of the strategy was to increase tourism spending, in nominal terms, by up to $140 billion by 2020.

Of course, growth in Chinese tourism was to play a key part in that strategy. If all went well, according to the upper bound target, Australia would be welcoming around 860,000 Chinese visitors in 2020.

This target has been surpassed four years early.

We'd suggest that any time an upper bound target in a strategy document is passed well before the expected date, something is going better than planned.

What does this mean for our economy today?

It is clear that while the Australian economy is slowing, sectors like tourism are playing a critical role in our own transition from the mining boom.

Our estimate is that, in 2016, higher than expected Chinese tourism growth will contribute an additional $1.15 billion to the Australian economy, equivalent to $48 of additional income per Australian in today's terms (compared with the lower bound estimate in Tourism Australia's Chinese strategic plan).

This additional tourism expenditure is estimated to increase Australia's employment by 1,668 full time equivalents and is helping Australia maintain relatively strong labour market outcomes in the face of what the World Bank describes as 'anaemic' global growth.

What could this mean for our economy going forward?

At about a million visitors (aged 15+), 0.07% of the Chinese population is currently visiting Australia. This compares with 0.17% of US residents, 0.24% of Japanese and 1% of Malaysians visiting Australia. If Chinese visitation grows on average at around 5% per annum, by 2035 the proportion of Chinese population visiting Australia would be around that of the United States currently, with 2.4 million Chinese visitors to our shores.

If that growth were to be realised, we estimate that Australian income would be $3.7 billion higher in today's dollars in 2035, with an additional 3,900 full time equivalent employees, compared with our own extrapolation of Tourism Australia's lower bound Chinese tourism forecast beyond 2020.

In income per person terms, this would claw back $114 from the projected $509 reduction we estimated from the general slowdown in the Chinese economy.

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