AILING FOREIGN TOURISM, COLLAPSE OF CHINESE ARRIVALS AND NEW RISKS FOR PH ECONOMY

As the Philippines is drifting into open escalation, economic uncertainty and geopolitics are casting a dark shadow on its outlook, starting with tourism.

INTERNATIONAL tourism has a critical impact on the economy in most Southeast Asian nations. Consequently, there have been great hopes that, after years of pandemic devastation, tourism would speed up recovery in the region.

In most regional countries, the recovery of foreign tourism has been encouraging, particularly in those where the revival has been fueled by Chinese tourism. The Philippines is not one of these countries, unfortunately.

Geopolitics behind ailing tourism

The Philippines is aiming to register 7.7 million international tourist arrivals this year. But the figures are a "moving target," considering the industry challenges, such as specific geopolitical issues, as Tourism Secretary Christina Garcia Frasco recently acknowledged.

Geopolitical headwinds do not attract foreign middle-class tourism. At the beginning of the year, there was still much excitement in the Filipino travel and tourism sector, which accounts for almost 9 percent of the Philippines' GDP and employs some 6.2 million Filipinos.

Last year, the Philippines received 5.5 million visitors, which was seen as promising after the pandemic 2020-2022 collapse. Yet, the reality is that the 2023 figure is close to the level of 2015. It reflects the kind of inflow of visitors that the country first already reached eight years ago.

The 2023 result remains only two-thirds of the pre-pandemic 2019 high of 8.3 million. That high became possible in the Duterte era, which was characterized by an effort to balance the country's ties with both the US and China.

The new, reduced arrival figures cannot be explained away by the pandemic years anymore. They are collateral damage associated with the incumbent government's new priorities.

Collapse of Chinese tourism in PH

Last year, the overall monthly foreign visitor arrivals in the region, though still below pre-pandemic levels, reached about 70-80 percent of the 2019 numbers, except for the Philippines. As foreign tourist arrivals recovered in Malaysia, Vietnam, Thailand, Singapore and Indonesia, the Philippine figure was still around 60 percent, 10 to 20 percent lower than in the peer countries.

Prior to the pandemic, Chinese tourists accounted for 40-60 percent of the total in the region. Last year, the tourism recovery was fueled, once again, by Chinese tourism. The only exception? The Philippines, where the number was barely 20 percent, a half or a third relative to its regional peers.

Thailand and Vietnam have benefited most from the revival in arrivals from China. By contrast, the Philippines is behind its major Asean peers in overall tourism exposure, except for Indonesia. The same goes for its share of Chinese tourists in the region.

The erosion of tourism in the Philippines and the collapse of Chinese tourism did not occur in the Duterte era. Even through the pandemic era, China ranked third among the country visitors in the Philippines. The plunge took place in 2023 when Manila embraced its new foreign policy, military ties with the US and the new US EDCA military bases.

PH falling behind Asean

The catalytic impact of the tourist sector on the GDP matters across Southeast Asia. If the run rate at the start of 2024 is maintained, total arrivals into the major regional countries this year could add up to over 110 million, almost 20 million more than in 2023.

Since early 2023, the major Asean economies have pushed for the role of the tourist sector in their recovery, including the arrivals of Chinese visitors. Conversely, as the pandemic conditions eased, Chinese authorities lifted strict border controls, followed by a recommencement in the frequency of inbound-outbound flights and group tours.

In many Asean countries, bilateral visa waivers have accelerated the process. Typically, Singapore, Thailand and Malaysia waived entry requirements for arrivals from China. By contrast, in the Philippines, aspiring Chinese tourists were blocked by a cumbersome visa process, which virtually ensured minimal inflows.

In most of Asean, the visa waiver efforts were complemented by the resumption of big-ticket events and festivities, improvements in the number of flight connections and total airline capacity in the region.

The net effect? The Asean has seen a sharp rebound (90-100 percent of the 2019 level) in Chinese tourists, led by Singapore, Malaysia and Vietnam, followed by Thailand. Far behind its regional peers is the Philippines (20-25 percent of the 2019 level). Thanks to the supportive economic policies and the catalytic contribution of tourism, the external balances of Asean countries have improved in the post-pandemic era, particularly in Singapore (20 percent of GDP), Vietnam (7 percent), even Thailand and Malaysia (1-2 percent).

Instead of a surplus, the Philippines has a significant deficit (-3 percent).

In the footprints of Ukraine and Israel?

The inconvenient truth is that if and when escalation explodes into a major open conflict, the collateral damage will widen in the tourism sector. The precedents of other US non-NATO partners are likely indicative. In Ukraine, international tourist arrivals increased until 2014, then stagnated and collapsed. In Israel, international tourism recovered in part, like in the Philippines, but collapsed after October 7.

Escalation is neither the only nor the ideal solution to international disputes. China has ongoing disputes with several Asean countries, including the Philippines, Vietnam, Indonesia, Malaysia and Brunei (and many Asean countries have disputes with each other). Yet, most regional economies have opted for bilateral discussions until the completion of the China-Asean Code of Conduct in the South China Sea (COC).

Unlike the Philippines, Vietnam and China have had multiple conflicts (1979-1991) and maritime disputes. Yet, in the first seven months of 2024, Vietnam welcomed 2.1 million Chinese visitors, showing a 200 percent jump on-year. Indonesia is marketing itself as an attractive destination for Chinese tourists, seeking to draw 1 to 1.5 million Chinese visitors in 2024, effectively doubling the 2023 figure. Among its regional peers, the Philippines is the odd anomaly.

As people-to-people exchanges have diminished, dehumanization and demonization of the perceived "enemy" are already well on their way, as the headlines show. Indeed, the ailing Philippines tourism sector and the collapse of Chinese tourism are the canary in the mine. It is not just about one industry. It heralds the downside risks now haunting the entire economy. If tourism declines, so may investment and trade.

It is the ordinary Filipinos that will pay the heaviest bill for these misguided and ultimately unwarranted policies.

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/.

2024-09-01T16:30:48Z dg43tfdfdgfd