China Drives Malaysian Tourism and Retail Growth, but for How Much Longer?

August 29th, 2018

The explosive growth of Chinese tourism over the last decade has proven great news for the economies of Southeast Asian countries. Traditionally reliant on long-haul and highly seasonal travelers from Western nations, the rapid emergence of a huge tourism market in Southeast Asia’s backyard—China—couldn’t be a more welcome development.

While it is true that Chinese tourism development has been uneven and a cause of overtourism in tourist hotspots like Indonesia’s Bali, it’s still proven an overall positive for virtually all Southeast Asian economies. Just in terms of arrival numbers, Thailand is the clear leader in the region, and its neighbors are looking at different approaches to steal some of its luster—as well as recipes for success in the Chinese market.

And even though Philippine President Rodrigo Duterte has given them a run for their money at times, perhaps none has been more eager to court Chinese tourism, investments, companies—really Chinese anything—than Malaysia. But that may be coming to an end.

A growing source of tourists and revenue for Malaysia

While it hasn’t been without its problems and controversies, China has proven a vital growth market for Malaysia’s already well-developed tourism industry. In 2017, the country attracted 2.28 million Chinese tourists—making China the third-largest source of tourism, only trailing bordering Indonesia and Singapore. It’s a big recipient of Chinese tourist spending, too. Alipay ranks the country as the ninth-largest recipient of Chinese tourist spending, and Chinese tourists were quoted as the main reason for the 30-percent growth in duty-free sales in Kuala Lumpur last year.

It has also proven to have a lasting (and growing) appeal among Chinese travelers, even after facing significant challenges. Most notably, the disappearance of flight MH370—which carried a lot of Chinese travelers—caused a double-digit drop in Chinese visits in 2014. The recovery began in 2015, while 2016 figures broke all previous records.

Welcoming Chinese tourists, companies, and investments

But for Malaysia, there’s much more to the engagement with China than tourism. The previous government under disgraced former Prime Minister Najib Razak was one of the main supporters of China’s Belt and Road Initiative and had attracted significant Chinese Belt and Road infrastructure projects to the country. Malaysia’s future appeared to be Chinese—a China-fueled economy, a China-boosted tourism industry, and a China-built infrastructure.

Even in tourism, high-level partnerships and investments with Chinese businesses came to prove the rule rather than the exception. For example, the country’s destination marketing organization (DMO), Tourism Malaysia, launched “Malaysia Smart Tourism 4.0 Powered by Tencent,” an initiative to boost the local tourism industry with tools developed by Chinese tech giant Tencent.

Chinese tourists in Malaysia, meanwhile, were encouraged to buy Chinese-built property in the country. Projects such as the $100 billion Chinese real estate development Forest City in Johor Bahru were exceptionally ambitious (and clearly misguided) attempts to cash in on both Malaysia’s eagerness to attract Chinese capital, and Chinese consumers’ apparent fondness for Malaysia. Of course, the viability of a newly-built city in Malaysia that would supposedly attract 700,000 mostly foreign residents was often questioned by observers.

Belt and Road corruption and hangover

All good things must come to an end, and it looks like that may turn out to be the case not only for the previous Malaysian government but also of the future of China, and Chinese money, in Malaysia. Najib Razak was ousted after Malaysians had had enough of the still-unfolding 1MDB corruption scandal, in which Chinese projects in Malaysia are alleged to have a key role.

The new prime minister, 93-year-old Dr. Mahathir Mohamad, has promptly changed the country’s stance toward Chinese projects and capital in Malaysia. Flagship Belt and Road projects like the East Coast Rail Link and two gas pipelines—the Multi-Product Pipeline and Trans-Sabah Gas Pipeline—have been canceled within just a few months of Mahathir’s election.

On Monday, another big announcement was made: Foreigners will not be able to buy residential units at the $100 billion Forest City—a decision that virtually torpedoes the already questionable feasibility of the project. With apartments priced vastly higher than real estate in neighboring areas and marketing almost exclusively catered to moneyed Chinese, there was never really a question that it was a Chinese project on foreign land catering to Chinese clients. “Our objection is because it was built for foreigners, not built for Malaysians. Most Malaysians are unable to buy those flats,” Mahathir told reporters Monday.

If the Malaysian tourism industry escapes unscathed as the country attempts to untangle the previous administration’s alleged corruption remains to be seen. Of course, a lot hinges on how China reacts to recent events, but the fact that many other Belt and Road projects are still underway in Malaysia would suggest that China will be cautious in how it deals with the new government in Malaysia—the leverage isn’t all Beijing’s.

A less welcoming environment for Chinese capital and companies, in general, could, of course, mean that fewer Chinese companies elect to enter partnerships with Malaysian tourism industry stakeholders. At the same time, the degree to which such partnerships actually generate increased visitation is contested.

In any case, it wouldn’t be the first Chinese tourism storm that Malaysia has weathered. The backlash over MH370 didn’t last long, and whatever happens this time, Malaysia retains the attractive features that helped it bounce back so quickly in 2015.

Most likely, Chinese tourists will keep returning to Malaysia—it’s possible that reason won’t be because they bought real estate there, but rather just for the usual tourism. That works for everyone involved.

The post China Drives Malaysian Tourism and Retail Growth, but for How Much Longer? appeared first on Jing Travel.




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