"Will 'Chinese Tourists' Ignite Domestic Demand... Ministry of Economy and Finance Checks Status Daily"

Average Spending of $4,000 per Person 'Big Spenders'
Over 1 Million People ↑ GDP Growth 0.08%P
Low Expectations for China's Reopening Exit Strategy

Expectations for the recovery of the South Korean economy in the second half of the year are shifting from the effects of China's reopening (resumption of economic activities) to domestic demand stimulation driven by the recovery of inbound tourists. This comes amid the uncertainty surrounding the reopening expectations in the second half due to the spread of economic crisis theories triggered by China's real estate sector, with analyses suggesting that the demand from Chinese tourists visiting South Korea could become a new catalyst for revitalizing the domestic economy.

According to government sources on the 22nd, the Ministry of Economy and Finance recently established a 'China Economic Situation Task Force' within its Economic Policy Bureau, which continuously monitors trade balance with China, Loan Prime Rate (LPR), trends in group tourists, and other related data in cooperation with relevant agencies such as the Bank of Korea and the Financial Services Commission. The task force is particularly paying close attention to the rapidly increasing number of Chinese entrants this year. This indicates a careful examination of the impact of China lifting the ban on group tours to South Korea, which had been closed for over six years, on the economic pattern of a low start followed by a rebound in the second half. A Ministry of Economy and Finance official stated, "We conduct daily morning conference calls with related agencies including the Bank of Korea to check key economic conditions in China," adding, "We are especially monitoring the trends of Chinese tourists and business entrants coming into the country."

China has lifted the ban on group tours to Korea after 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 including Chinese and Japanese were strolling the streets of Myeongdong, Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

Chinese Tourists Spend an Average of $4,000 Each, 'Big Spenders'

The government's focus on tourist trends stems from the judgment that Chinese group tourists, once called 'Youke,' can directly influence South Korea's economic growth rate. According to the Ministry of Culture, Sports and Tourism's '2021 Foreign Tourist Survey,' Chinese visitors to South Korea stayed an average of 41.9 days and spent an average of $4,170 per person. This amounts to over 4 million Korean won spent per person. The main purposes of their visits were education-related activities (447%) and business/professional activities (40.9%), due to restrictions on overseas travel. They showed high demand for shopping (72.1%) and gourmet tourism (58.4%) in South Korea, with significant shares also in training/education/research (43.0%) and business operations (38.0%). The government’s expectation for domestic demand stimulation through group tourism is based on the assessment that Chinese visitors remain major consumers domestically.

The government estimates that 1.8 to 2 million Youke will visit South Korea this year due to the resumption of group tours from China. The Bank of Korea analyzed that an increase of 1 million Chinese tourists would raise the domestic gross domestic product (GDP) growth rate by 0.08 percentage points. If 2 million Youke visit by the end of this year, it is estimated that the economic growth effect could be around 0.15%. According to the Korea Tourism Organization, the number of Chinese visitors to South Korea dropped by more than half from 7,808,200 in 2016 (before the THAAD retaliation) to 3,565,000 in 2017 (-54.3%), then shrank further to 568,000 in 2020 and 109,900 in 2021 due to the COVID-19 pandemic, but showed a rapid recovery to 546,400 in the first half of this year.

Experts believe that since China is a country where South Korea maintains a travel surplus, the scale of the surplus could significantly increase if group tourist inflows become full-fledged. South Korea recorded a travel surplus of $340 million with China last year. Jeon Jong-gyu, a researcher at Samsung Securities, said, "With China allowing group tours to South Korea, the average spending per tourist is expected to increase compared to individual travel, which will likely enlarge the surplus."

Underwhelming Effect of China's Reopening

The underwhelming effect of China's reopening has also shifted attention toward the increase in Chinese tourists. Due to sluggish domestic demand in China, South Korea's trade balance with China has been in deficit for 15 consecutive months since June last year (-0.8%) through June 20 of this year. The biggest factor limiting the effect of China's reopening is the weak demand for IT products.

With China's domestic market failing to recover, the slowdown in semiconductor and intermediate goods exports has had the greatest impact. In fact, semiconductor exports, which account for 40% of South Korea's exports to China, decreased by 24.7% compared to a year ago as of June 20. Additionally, exports of intermediate goods such as petroleum products (-41.7%), steel products (-20.5%), precision instruments (-23.4%), and computer peripherals (-32.8%) have also declined, continuing to worsen the trade balance.

The Korea Chamber of Commerce and Industry (KCCI) stated that for the South Korean economy to gain positive effects from China's reopening, the real estate market must recover and the 'industrial production,' which showed a downward trend last year, must be fully restarted. However, South Korea's nationwide light industry production in the second quarter of this year decreased by 7.4%, marking three consecutive quarters of decline since the fourth quarter of last year. The KCCI forecasted, "If consumer sentiment does not recover following China's reopening, a delay in South Korea's economic recovery will be inevitable."

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