August is perhaps the least preferred month for travel in China. For one thing, it is hot and humid across the entire country and heavy rains and tropical storms can make traveling quite a hassle. In places like Shanghai and Guangzhou, temperatures can easily soar into the high 90s (Fahrenheit). Despite these challenging conditions, I noticed a continued boom in Chinese travel and tourism during my recent visit.
China's largest airline recently reported that its passenger numbers for the first half of the year increased by 35% compared to the same period last year. In fact, there has been a surge both in supply and demand for most modes of public transportation throughout the country. Airlines, buses, trains and subways are all very crowded, and travel on high-speed bullet trains is becoming increasingly popular. China has been aggressively building its high-speed trains and railways over the past few years, and now trains that can move along at more than 300 kilometers per hour are a reality. Some tour companies that use these bullet trains in their travel packages tout them as a selling point to attract customers. According to China's Ministry of Railway, the country already has 6,920 kilometers of commercial high-speed railway in operation. There are 11 high-speed rail lines currently running at full capacity and seeing strong ridership.
Another area of expansion are subways. It has been reported that China will spend more than US$146 billion to triple the size of its subway system over the next five years. In the southern city of Guangzhou, I can see an apparent need for the city to continue to expand its subways, while there are five existing subway lines, traffic jams are still the number one issue for residents of this city.
As a result of rising incomes and infrastructure build-up, tourism-related industries are growing rapidly in China. Among them, budget hotels are the most direct beneficiaries. In recent years, the number of budget hotels (which have room rates of below US$30) has grown at an outstanding pace, now with nearly 4,000 in China, up from about 500 in 2005. This development has come thanks to the growing number of business and leisure travelers. One of the country's major budget hotel companies, headquartered in Guangzhou, told me that it is expanding rapidly across the country, claiming market share from traditional state-owned guesthouses. The company expects the industry will continue its expansion over the next five years.
Not only are Chinese tourists traveling more within China, they are also taking more international trips. Japan, for example, saw a six-fold rise in Chinese tourists in July after Japan relaxed visa requirements for travel. It seems that China is gradually expanding its consumption power outside its own borders, to the delight of its neighbors in the region.
Richard Gao, Portfolio Manager, Matthews International Capital Management, LLC
