College Row, Fifth Avenue should brace for fewer Chinese visitors

Fewer Chinese tourists may not deal a serious blow to the U.S., but could still cause damage in education and luxury sectors

By guest author Jacky Wong from Wall Street Journal. Jacky Wong is a Heard on the Street columnist based in Hong Kong. He covers technology, retail and real estate sectors in Asia. Previously, he was a Market Talk Reporter for the Journal in Hong Kong. He won a Google data journalism scholarship to study at Hong Kong University before joining the Journal. He started his career as a trader in BNP Paribas.

China’s army of globe-trotting tourists has been a handy economic weapon. This may not work as well against the U.S., but could nonetheless cause some damage to sectors such as education and luxury goods.

Several of China’s government ministries warned its citizens this week to reconsider visiting or studying in the U.S. Among the reasons given were visa denials by the U.S., as well as frequent shootings and robberies. The backdrop is clear: This is likely a move by China to pressure the U.S. about trade. China is the largest source of spending by foreign visitors to the U.S., according to the National Travel and Tourism Office.

China has before weaponized its outbound tourists, which amounted to 162 million last year. Two years ago, the government temporarily banned group tours to South Korea, according to local media there, in protest of Seoul’s decision to install a U.S. missile-defence system. The number of Chinese visitors to Korea fell 48 % in 2017 as a result.

There are no signs yet that China is banning its citizens from going to the U.S., but it’s still very likely there will be fewer Chinese tourists visiting this year, given the intensifying hostilities.

Yet the impact will be much less severe compared with the unofficial South Korea ban in 2017. For one, Chinese tourists accounted for nearly half of the total visitors to Korea in 2016, while they made up less than 4% of visitors to the U.S. last year. So even if there is a precipitous drop, U.S. sectors such as hotels or airlines will likely still do fine.

But, that could still cause damage where Chinese tourists are spending big. Historically, about 40% of Chinese visitors’ spending—roughly USD 15 billion in 2018—went into education. That is a significant source of income for some American colleges. All degree-granting postsecondary institutions in the U.S. made a total of USD 168 billion from tuition and fees in the 2016-17 school year.

Luxury brands is another sector that could get hit. Instead of checking out stores in the Fifth Avenue, Chinese shoppers, who account for one-third of all luxury spending globally, may choose to stroll along the streets of Paris or Milan instead. That will be bad news for American companies such as Tiffany, Ralph Lauren or Tapestry.

Fewer Chinese tourists may not deal a deadly blow to the U.S., but U.S. luxury stocks and universities could still take a hit.