Travel

Coronavirus expected to hit Chinese travel, global economy

Key Points
  • Oxford Economics is now forecasting that the U.S. will experience a loss of 1.6 million visitors from mainland China this year.
  • That's a loss for big metropolitan cities like New York City, San Francisco, and Los Angeles that have long benefited from the rise in Chinese tourism over the past decade.
  • Europe's growth prospects may be challenged, too.
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Significant economic impact of decrease in Chinese visitors around world

2020 was supposed to be the year the Chinese traveler returned in full force thanks to an improving trade backdrop and signs of stabilization in the world's second largest economy.

Coronavirus and the travel restrictions to and from China have drastically changed those expectations, and the implications for global economies could be significant.

Oxford Economics is now forecasting that the U.S. will experience a loss of 1.6 million visitors from mainland China this year.

That's a loss for big metropolitan cities like New York City, San Francisco, and Los Angeles that have long benefited from the rise in Chinese tourism over the past decade.

Even with the 4.7% decline in Chinese travel to the states in the first nine months of 2019 due to trade tensions, the Chinese still remain the third largest source of travel for the country.

A volunteer measures a passenger's body temperature. In light of a coronavirus outbreak in China, Hong Kong district councillors and residents formed makeshift quarantine stations, screening passengers arriving from China, Feb. 4, 2020.
Willie Siau | SOPA Images | LightRocket | Getty Images

The Chinese are also the biggest spenders, on average shelling out $6,500, compared to the $4,000 spent by other foreign tourists in the U.S.

Without these high-spending Chinese tourists, international governments in South Korea, Japan, and Thailand are bracing for a sharp drop in demand for tours, lodging, food and beverage.

"Visitor numbers from China have seen a massive surge over the past decade or so and now account for the largest number of inbound tourists in most countries across the [Asia] region," said Alex Holmes, chief economist at Capital Economics, in an interview with CNBC.

In the past two years, emerging economies in Asia have invested in offering customized tours and lodging options for Chinese travelers. Hilton, Marriott and Hyatt have built up new properties to accommodate the surge in demand.

Holmes points to Thailand, which saw 10.5 million Chinese tourists in 2018, a 13-fold increase from 2008. And spending by tourists in Thailand is equivalent to roughly 11% of the country's GDP.

Other countries in Asia that are highly dependent on tourist spend include Cambodia, Malaysia, Vietnam and Indonesia.

Indonesia warning this morning that it could see a $4 billion hit to its economy this year if the travel restrictions remain in place for the foreseeable future.

"There is clearly a great deal of uncertainty over how things will play out over the coming weeks, but it now looks as though regional growth will slow sharply in the first quarter," said Holmes.

Economists are betting on central banks in Asia-Pacific to unveil a round of interest rate cuts in the next two quarters to offset the negative impact of the virus, which has already dented business and shutdown major factories across the region.

However, it's not just in Asia. Benn Steil, senior fellow and director of international economics at the Council on Foreign Relations, told CNBC a rate cut by the Federal Reserve is now in the cards this year.

Next week, earnings from major travel companies Hilton, Expedia and TripAdvisor could provide more clarity on how much occupancy rates and demand for hotels have fallen due to the outbreak.

Oxford Economics is estimated that a reduction in Chinese visitors means that 4 million hotel room nights in the U.S. will be lost in 2020 alone.

Europe's growth prospects may be challenged, too. The continent has become an increasingly popular destination for Chinese travelers, especially amid fractured U.S.-China relationship in 2018.

In the first half of 2019, Chinese travelers made 3 million visits to European countries, up 7.4% versus the same period a year ago, according to Chinese tourism academy.

"Assuming that there would be a sharp drop in Chinese tourism throughout the entire year, many European economies would see consumption weaken," said Carsten Brzeski, chief economist at ING to CNBC in an email.

"Obviously, countries like Greece and France would be hit most. This drop in tourism could add to a weakening of domestic demand, adding to existing problems stemming from the manufacturing sector, and in turn delaying the timing of a rebound of the entire Eurozone economy to the second half of the year," noted Brzeski.

However, some experts see demand bouncing back as soon as the virus is contained and the travel ban is lifted.

"The Chinese I speak with in China are going stir crazy. Once restrictions (are) lifted, floods of Chinese will travel for business and leisure. Non-Chinese may be reluctant to return to China immediately. Depends on what happens over the next several weeks ," said Stephen Orlins, president of the National Committee on U.S.-China Relations to CNBC.

-CNBC's Faheimah Al-Ali contributed to this report.