If 6 Million More Youkeu Arrive, Growth Rate Could Rise by Up to 0.48%P... "Normalization of Flights is Key"

China Opens Group Tours to Korea After 6 Years
Up to 0.5%p Boost to Korea's GDP
Impact May Be Limited Due to China's Weak Economy
Regulation Easing Amid Tensions?..."Because of Asian Games"

China has completely lifted restrictions on group tours to South Korea for the first time in about six years, and analysts say this will have a more positive effect on our economy than exports to China. Given the significant economic uncertainties in South Korea in the second half of the year, this move by China could act as a boon.

China has lifted the restrictions on group tours to Korea for the first time in 6 years and 5 months, raising expectations that this will be a boon for the domestic travel, hotel, and duty-free industries. On the 11th, foreign tourists are lining up in long queues to enter a duty-free shop in downtown Seoul. Photo by Kang Jin-hyung aymsdream@

However, since private consumption in China is currently weak enough to raise concerns about deflation (falling prices), some opinions suggest that it will take considerable time for Chinese tourists to generate the same economic impact as before COVID-19.

According to the Bank of Korea and the International Finance Center on the 11th, economic recovery expectations are rising following the announcement by China's Ministry of Culture and Tourism that it will allow group tours for its citizens to 78 countries, including South Korea.

China had regulated group tours to South Korea as retaliation for the deployment of the THAAD (Terminal High Altitude Area Defense) system by the US Forces Korea in March 2017. It gradually eased these restrictions until 2019 but then completely banned them again in January 2020 due to the spread of COVID-19. The full recovery of Chinese group tours to South Korea is the first in about six years since 2017.

The market views the recovery of Chinese tourism as a significant help to our economy. According to a survey released by the International Finance Center in March, an increase in Chinese tourists (Youke) visiting South Korea results in a 0.3 to 0.5 percentage point rise in South Korea's gross domestic product (GDP).

China has lifted the restrictions on group tours to Korea for the first time in 6 years and 5 months, raising expectations that this will be a boon for the domestic travel, hotel, and duty-free industries. On the 11th, foreign tourists are lining up in long queues to enter a duty-free shop in downtown Seoul. Photo by Kang Jin-hyung aymsdream@

The Bank of Korea estimates that for every one million Youke visitors, the GDP growth rate increases by 0.08 percentage points. If the number of Youke recovers to the pre-COVID-19 level of six million, the growth effect could reach up to 0.48 percentage points. Considering that the Bank of Korea forecasts this year's growth rate for South Korea at 1.4%, this is a significant figure.

In fact, immediately after China's reopening (resumption of economic activities) earlier this year, there was great optimism about economic recovery driven by increased exports to China. However, as exports and imports with China did not revive as expected, many global investment banks (IBs) analyzed that the economic impact of the recovery of Chinese tourism would be greater than that of exports to China.

The International Finance Center also stated, "If Youke visits recover to pre-COVID-19 levels, it is expected to stimulate the domestic economy and improve economic sentiment, providing a stimulus effect comparable to exports."

Based on 2019, before the spread of COVID-19, the per capita expenditure of foreign tourists visiting South Korea was $1,633 for Chinese tourists, much higher than the average of $1,061 for tourists from other countries excluding China. In 2016, when the number of Chinese tourists reached a record high, their total consumption was about 22 trillion won, accounting for 6.5% of South Korea's total goods consumption.

Of course, given the recent export restrictions on semiconductors to China by South Korea, the US, and Japan, and the resulting unfavorable sentiment toward South Korea in China, the number of Chinese group tourists may not increase rapidly.

Lee Chi-hoon, head of the Emerging Economies Department at the International Finance Center, explained, "Looking at Japan's case, which had conflicts with China over the Senkaku Islands (called Diaoyu Islands in Chinese), the number of Chinese tourists increased with a time lag. Since there is still some resentment toward South Korea in China, tourism will not recover immediately, but it will have economic effects over time."

There is also analysis that the recent sluggish recovery of the Chinese economy may make it difficult for tourism volume and consumption to increase as much as expected.

Last month, China's consumer prices fell by 0.3% year-on-year, raising concerns about deflation. Since the Bank of Korea and the International Finance Center's studies on the economic effects of Youke were conducted on the assumption that the Chinese economy would recover, future developments may not fully align with these expectations.

Especially from China's perspective, with the urgent need to revive domestic demand, a sharp increase in overseas consumption by its citizens could be a burden.

Jeon Byung-seo, director of the China Economy and Finance Research Institute, said, "Although restrictions have been lifted, we need to see how many group tour visas will be issued and how quickly flights will return to normal. The Chinese government may also take measures to prevent too many tourists from going abroad."

In fact, during the THAAD retaliation in 2017, China did not explicitly ban group tours to South Korea but effectively blocked tourism to South Korea by ordering travel agencies to stop selling group tour packages.

Analysts say that China's sudden lifting of group tour restrictions for the US, Japan, and South Korea?countries with which it has conflicts?is aimed at increasing visits to China ahead of the Asian Games to be held next month in Hangzhou.

Jeon explained, "The official reason is that COVID-19 is over and they are opening up, but the real intention seems to be to boost the Asian Games."

This content was produced with the assistance of AI translation services.