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China tourist destination set a GDP goal, but Covid locked it down

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Sanya, on the southern coast of Hainan, was the highest destination for couples flying from three of China’s largest cities last week for China’s version of Valentine’s Day, in accordance with booking site Trip.com.

Lucas Schifres | Getty Images News | Getty Images

BEIJING — China’s tourist-heavy province of Hainan is falling further behind lofty growth goals it set in January.

Back then, the island said it aimed for 9% GDP growth this yr. But like China’s economy overall, growth is running far below initial targets — due in a big part to outbreaks of a way more transmissible Covid variant.

A surge in Covid infections this month forced Hainan’s oceanside resort city of Sanya to order tens of 1000’s of tourists to remain put at their hotels, and native residents to remain at home. Haikou, the province’s capital, also issued stay-home orders.

Airlines cancelled flights, leaving tourists stranded on Hainan island since Saturday. In the previous couple of days, some people have been capable of return to the mainland on government-organized charter flights.

But questions remain — about uniform implementation of hotel stay subsidies, the associated fee of food and the way soon most tourists can return to their homes.

“The general public image and fame of Hainan is broken for the short term,” said Jacques Penhirin, a partner within the Greater China office of Oliver Wyman. “After I confer with the client they’re all taking a look at the bookings for [the upcoming fall holiday] that are still quite resilient. People haven’t cancelled yet, nevertheless it’s not looking good. Probably down on last yr.”

It’s “going to be bad for luxury brands and hospitality at the very least until Chinese Latest Yr next yr,” he said, referring to the Lunar Latest Yr holiday in late January 2023.

Hainan’s economy

In late July, China’s top leaders indicated the country might miss the GDP goal of around 5.5% set in March. Beijing didn’t signal any large-scale stimulus, or any change to its “dynamic zero-Covid” policy.

The national economy grew by just 2.5% in the primary half of the yr, in accordance with official figures. Hainan’s economy underperformed even that sluggish pace, only growing by 1.6% in the primary half of 2022.

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

In truth, Hainan’s growth last yr was second only to that of Hubei province, identified Ying Zhang, research analyst on the Economist Intelligence Unit.

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“Due to international travel restriction, Hainan has benefited from the tourism revenue, up by nearly 60% last yr,” she said. Zhang estimates tourism accounts for greater than 80% of Hainan’s economy.

Sanya, on the southern coast of Hainan, was the highest destination for couples flying from three of China’s largest cities last week for China’s version of Valentine’s Day, in accordance with booking site Trip.com.

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

Hainan can be constructing out duty-free shopping malls as a part of central government’s push to show the island right into a free trade hub and international shopping area.

Sales at duty-free stores on the island surged by 84% last yr to 60.17 billion yuan ($8.93 billion), in accordance with official figures.

During a consumer goods expo in Hainan in late July, sales at 4 duty-free stores rose by 27% year-on-year to 330 million yuan, the customs agency said.

One other hit to confidence

To date, cosmetics brands rely way more on Hainan for sales than inexpensive luxury brands — potentially as much as a 3rd of their China business, said Oliver Wyman’s Penhirin. He said Hainan generally accounts for lower than 5% of China sales for inexpensive luxury brands, while high-end luxury has yet to enter that market.

An Oliver Wyman survey in May found that after roughly two months of lockdown within the metropolis of Shanghai, respondents from luxury and premium consumer brands cut their China growth expectations for the yr by 15 percentage points.

Tens of 1000’s of tourists were stranded within the resort city of Sanya, Hainan, this week as local Covid outbreaks prompted airlines to cancel flights.

Str | Afp | Getty Images

“The query is certainly when will consumer regain confidence and peace of mind of travel and shopping which is further delayed by this Hainan incident,” Penhirin said, noting he expects this month’s lockdowns shall be forgotten in a single or two years.

“It’s more concerning the confidence than the income itself, especially for the posh goods,” he said.

Within the meantime, he said brands should put more effort to trace their inventory in China, to ensure products aren’t being sold at levels which may induce a price competition.

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