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The Chinese government’s restrictions on travel to Korea and its influences on Korean consumer goods industry

Author Imja Rhee, Youngwon Cho Date 2017.05.22 Issue No 19
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The number of Chinese tourists had been on the rise since 2010 until a dramatic drop in July 2016 due to the Chinese government’s restrictions on travel to Korea.

*The number of Chinese tourists in Korea has increased by 38% annually over the last 6 years, and shopping expense by Chinese tourists also has increased by 56.1% over the same period, stimulating growth of domestic sales of Korea’s consumer goods.

*However, the number of Chinese tourists in Korea recently recorded a year-on-year decrease of more than 60%, having negative impacts on Korea’s consumer goods and tourism industry due to a shopping expense reduction by Chinese tourists.

Since November 2016, stock prices of cosmetics and firms related to the tourism with a high dependency on China have plunged, raising concerns over a possibility of crisis bound from China.

*Since November 2016 when the restrictions were strengthened by China concerning travel to Korea, Cumulative Abnormal Returns, which is relevant to Korean cosmetics and accommodation industry, has significantly dropped, causing negative impacts on relevant industries.

It is estimated that measures by Chinese government preventing from selling Korean travel products in Chinese market will cut the number of Chinese tourists visiting Korea, and will reduce shopping expenses of Chinese tourists in Korea from 52% up to 80% in 6 months to 1 year.

It is expected that direct and indirect losses from the sales prohibition of Korean travel products on Korean economy will worth from 5.6 trillion won up to 15.2 trillion won.

*In regard to direct effects, reduction of shopping expenses of Chinese tourists visiting Korea will lead to a sluggish pace of consumer goods purchase in the distribution sector. In regard to indirect effects, reduction of shopping expenses will bring about production cuts of major consumer goods in Korea.

*By item, cosmetics and clothing ranked to be the most and the second most likely to be damaged by the recent Chinese measures, followed by foods, footwear, and bags, etc.

Domestic tourism and consumer goods industry with a high dependency on Chinese market need to actively seek for measures to cope with a high dependency in the long term.

*In order to minimize short-term damages, it is necessary to increase the number of Chinese tourists through the development and promotion of travel products, customized for an increasing number of Sanke, Chinese tourists who travel freely and individually.

*In the mid-to-long term, it is necessary to diversify the tourism market of Korea by supporting and developing travel programs with high quality in order to increase the number of tourists from third countries besides China.

*It is also necessary to revitalize shopping of foreign tourists with premium strategies through higher quality and differentiation of consumer goods.