Welcoming China

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The world may be going to China for the Olympics this summer, but a much more enduring reverse migration has begun, as well, as Chinese tourists begin visiting what for many is the destination of their dreams: the United States.

Hoteliers in U.S. gateway cities and staff at major destinations might want to brush up on their Mandarin, because few source markets for U.S.-bound tourists have exceeded China's potential.

In fact, said Bruce Bommarito, executive vice president and COO of the Travel Industry Association, the coming influx of Chinese tourists, prompted by a new tourism agreement between China and the U.S., "really doesn't compare" with previous waves of tourists from newly opened markets.

"We're talking about a market that ... could dwarf everyone," Bommarito said.

Chinese tourist arrivals to the U.S. might seem like a trickle at first, but the trickle is expected to become a steadily growing stream over time. Within three years, according to industry and Commerce Department forecasts, some 579,000 Chinese arrivals are expected annually in the U.S., vaulting China to 10th among source markets, from 16th today.

Such growth predictions could turn out to be only the beginning -- that is, unless they are derailed by political developments or visa restrictions imposed by the U.S., or unless they are simply overly optimistic to begin with.

Chinese citizens have been traveling abroad in significant numbers for years. They accounted for more than 34 million outbound trips in 2006, according to the TNS research firm. (By comparison, U.S. visitors took nearly 64 million international trips the same year.) But Chinese residents did not visit the U.S. in significant numbers as tourists, mostly because of Chinese government restrictions, compounded by the frequent difficulties Chinese citizens have experienced obtaining visas from the U.S.

Travel to the U.S. for government, business or family visitation, along with small-scale tourism, has been enough to foster gradual growth in Chinese visitors to the U.S., but the 397,000 who came last year pale in comparison with future potential.  

Now, the wall between Chinese tourists and U.S. destinations is tumbling. The key change came in December, when China and the U.S. struck a tourism agreement known as a "memorandum of understanding," or MOU, under which China agreed to grant the U.S. a modified form of approved destination status, or ADS. Such status is crucial, since China approves large-scale tourist travel by its citizens only to countries given ADS.    

When the bilateral accord took effect last month, the event was marked by the arrival of some 250 Chinese tourists in Washington, where they were greeted with considerable fanfare. 

The MOU permits leisure travel from China by tour groups, which must be organized by designated Chinese travel agencies in conjunction with U.S. tour operators from an approved list.

Initially, only residents of nine Chinese provinces (including populous urban centers such as Beijing and Shanghai) will be eligible, and the agreement would allow the U.S. to withdraw should a significant number of Chinese tourists overstay their visas.

But the climate on both sides appears oriented toward ensuring that implementation of the MOU goes smoothly and leads to an increase in Chinese visitors to the U.S.

"The program will be evaluated in six months, and we anticipate full implementation across China after that time, assuming that no significant issues arise in the first implementation phase," said Matt Englehart, a spokesman with the U.S. Commerce Department's Office of Travel & Tourism Industries.

In a statement issued in conjunction with the MOU's implementation last month, the Commerce Department cited projections of substantial growth in Chinese visitation, including a forecast from Tourism Economics that visits could reach 755,000 by 2017.

To put that in perspective, the No. 1 overseas source of U.S. visitors last year was the U.K., which accounted for 4.5 million arrivals. Though the number of Chinese visitors appears unlikely to approach that scale even a decade from now, some tourism officials believe that today's projections might be too conservative.

China's burgeoning economy, they say, already has produced a middle class approaching 200 million people, and China has more millionaires than all but four countries: the U.S., Japan, the U.K. and Germany. The number of Chinese entering the consuming and traveling class will continue to swell rapidly in the years ahead. 

In addition to gaining the economic ability to travel, China's citizens are yearning to experience the U.S. According to a TIA-sponsored survey of 7,000 residents of Beijing, Shanghai, Guangzhou and several other Chinese cities, the most frequently cited "dream destination" was the U.S., named by 13% of respondents. France was second at 10%, followed by Australia at 7%, Japan at 5% and the U.K. at 4%.

Another factor that promises to fuel rapid growth in Chinese inbound tourism is the decline in value of the dollar against the Chinese yuan. "It's not the only factor" supporting tourism growth from China, noted Ken McGill, executive vice president and executive managing director at the financial and economic analysis firm Global Insight, "but it's going to be a positive for some time."

Already, the buying power of the yuan is evident in the fact that Chinese visitors spend more per trip to the U.S. -- $6,459 in 2007, according to the Commerce Department -- than visitors from any other country. (Analysts note, though, that this figure is somewhat misleading given that most Chinese visitors to date have been businesspeople; as more tourists come, spending per visit is expected to moderate.)

But some in the industry caution that enthusiasm could easily get ahead of reality. There can be a tendency "to start fantasizing that this is the El Dorado of origin markets," said Tom Jenkins, executive director of the European Tour Operators Association.

Jenkins said that figures on Chinese outbound travelers often are inflated by the inclusion of Macau and Hong Kong as destinations and that most Chinese outbound trips actually are to "near Asia." Even by 2020, he estimated, the long-haul Chinese outbound market might number only 10 million or so, of which the U.S. would be "trying to get a portion."

Predictions aside, the MOU itself is crucial to encouraging Chinese travelers to visit the U.S., both by conferring an official stamp of approval on such travel and by allowing U.S. destinations and tourism-related companies to market themselves in China, an activity that until now has been largely prohibited.

Noel Hentschel, chairman and CEO of AmericanTours International, underscored the importance of being able to advertise in China, calling it "the bottom-line difference" that will help foster the growth of Chinese tourism to the U.S.

Hentschel's company is among the U.S. tour operators that are moving aggressively to capitalize on the new opportunity.

"We're training about 100 Chinese-speaking tour guides right now," Hentschel said. She has obtained residence status in Beijing and has begun living there part-time.

She added that China holds the key to increasing ATI's footprint in Asia and ultimately will enable the company to achieve its goal of diversifying equally among Europe, Asia/Pacific and the U.S.  

More broadly, China represents "a great new market for the United States," Hentschel said. 

Although destinations will gain from the MOU, tour operators almost certainly will be the biggest beneficiaries in the near term. That's because under the terms of the agreement, Chinese tourists visiting the U.S. are supposed to be accompanied from start to finish by a tour guide from an approved tour operator.

The boon has already been felt by the National Tour Association, via its China Inbound Program.

Participants in the program are recognized by the Chinese National Tourism Administration, the government body that oversees China's tourism relations, including the MOU.

Lisa Simon, NTA president, said that 130 U.S. tour operators had already qualified under the China Inbound Program. What's more, interest in the program appears to be fostering significant increases in NTA membership: Simon said that tour operator membership has risen by more than 100 (about 12%) in the past six months, half of which she attributed to a desire to participate in the China Inbound Program. (Nonmembers may participate in the program, she said, though thus far all nonmembers taking part have opted to join NTA, as well.)

Simon noted that the opportunity to host Chinese groups is limited to tour operators that specialize in inbound groups or that handle both inbound and outbound groups.

Bob Hoelscher, NTA chairman and CEO, and president of Flemming Tours, said China should offer "outstanding benefits not just for tour operators but for all levels of suppliers -- for destinations, national parks, theme parks, restaurants and hotels." He said that as long as red tape and travel obstacles imposed by the U.S. are managed, "It'll be a big boost."

Gateway cities such as New York, Los Angeles, San Francisco and Washington are especially well positioned to capitalize on the arrival of Chinese tourists. Each offers airlift availability as well as iconic experiences and plentiful shopping opportunities, both of which rank high among Chinese visitors' priorities, research shows. 

Los Angeles saw the potential in China early, and two-and-a-half years ago got a valuable head start on the MOU when it became "the first and only city [in the U.S.] given a license to promote tourism with our own employees," said Mark Liberman, president and CEO of L.A. Inc., the city's convention and visitors' bureau.

For L.A. Inc., that meant establishing an office in Beijing, developing a Chinese-language website and taking other steps to market itself in advance of this year's warming of tourist relations.

Liberman's enthusiasm for China speaks to what other U.S. destinations are beginning to consider.

"We couldn't sit still knowing that the world's largest country in population was poised to be the largest source of international travel on the globe," Liberman said.

New York, the top destination for Chinese travelers to the U.S. last year, with 153,000 Chinese visitors, also got a head start on the MOU, in this case through its tourism representative, Marketing Garden, and an office in Shanghai.

George Fertitta, CEO of New York's tourism marketing organization, NYC & Company, said he expected Chinese visits to increase by 6% to 7% this year. "Our hope and expectation is that it will gravitate to double-digit growth over the next several years," he said.

Fertitta, like other travel and tourism executives, said marketing to China was not confined to direct approaches such as consumer advertising.

Given the pivotal role of Chinese travel agents and U.S. tour operators in developing tour packages, the key for many U.S. destinations will be marketing to those intermediaries.

New York's primary focus is on the trade in China, Fertitta said, supplemented with press outreach, which he said was particularly important, as well as a Mandarin-language website.

Similarly, Starwood plans to leverage its branding and direct presence in China (via its 40-plus hotels in the country), but Karen Hughes, Starwood's vice president of global leisure sales and distribution, said the company also recognized that "chances are, we'll be working with tour operators and with travel agents in China," as well.

Although U.S. tourism executives are optimistic that the initial wave of Chinese leisure travelers arriving under the MOU will lead to successive years of growth, there are some potential flies in the ointment.

One is airlift, with rising fuel costs posing an obstacle to providing enough capacity to support tourism growth.

For example, Delta said it intended to reduce frequency between Atlanta and Shanghai, and US Airways sought to delay implementation of Philadelphia-Beijing service.

Of equal if not greater concern are visa issues. U.S. tourism executives are watching closely to see if the U.S. will be able to process hundreds of thousands of visa applications, particularly since applicants must appear before U.S. officials in China in person to obtain a visa.

Another concern is visa denials. The TIA's Bommarito said that U.S. denials of Chinese visa applications might still run as high as 20%.

But he said there was reason to be optimistic given that rejection rates had fallen dramatically from what he estimated to be as high as 80% a few years ago.

While the U.S. can back out of the MOU if too many Chinese visitors overstay their visas, the general sentiment in the travel industry is that overstays will be negligible.

Ultimately, realizing the full potential of the Chinese source market will depend on several factors, said Jim Sailor, managing director for greater China at TNS.

Keys, Sailor said, include overcoming visa hurdles and undertaking enough marketing and advertising to compete with Europe, Australia and other destinations seeking to lure Chinese visitors. And, he emphasized, "The first phase has to go well. The first groups need to go back with good experiences."

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