With its rising incomes and population of 1.3bn, China represents a vast potential source market for the tourism sector. As the nearest tropical country to China’s major population centres, the Philippines is an obvious vacation destination for the emerging Chinese middle class in search of adventure.
But developing Chinese tourism to has proved to be tricky. The business has tended to grow in a series of frustrating starts and stops, dogged by strained relations between the Chinese and Philippine governments. The relationship is becoming even more important for the Philippines as it seeks to attract international high-rollers to a group of casinos being built on the Manila waterfront. The Asian top-end casino market is almost exclusively ethnic Chinese and predominantly mainland Chinese.
PACKAGE TOURS: So far Chinese tourism to the Philippines is mostly a mass-market package tour business. In 2013 the package tour sector was booming, with tourist arrivals from mainland China up 49% year-on-year in the first seven months of the year, according to Department of Tourism (DoT) data.
The rapid growth made China the third-largest source of tourists to the Philippines, after Korea and the US and narrowly ahead of Japan. July 2013 was a particularly good month, with nearly 48,000 tourists arriving from China, more than three times as many as had visited in the same month of the previous year.
But the industry remained under a cloud of continuing political tensions between the two countries, which are especially sensitive for the tourist sector because China’s government has in the past placed restrictions on travel to the Philippines as a means of applying pressure on Manila.
POLITICAL TENSIONS: The tensions revolve around China’s claim to sovereignty over most of the South China Sea, including islands and waters that lie much closer to the Philippines than to China. After the previous president of the Philippines, Gloria Macapagal-Arroyo, was widely criticised for overly accommodating China, the current president, Benigno Aquino III, has challenged China’s claims in the South China Sea through a UN arbitration process while seeking military support from traditional ally the US.
Chinese tourism to the Philippines developed quickly under Arroyo until 2007 before stalling amid the global financial crisis. Rapid growth returned in 2010, but was set back by an unfortunate hostage-taking incident in August of that year, two months after Aquino took office. Eight tourists from Hong Kong were killed when a rogue policeman took their tour bus hostage and police bungled a rescue operation. Arrivals from Hong Kong and mainland China fell sharply that autumn but were still up 21% for the year compared to 2009.
Despite Aquino’s tougher stance towards China, Chinese tourism to the Philippines maintained its momentum in 2011, with arrivals growing another 30% to surpass 243,000. However, China reacted sharply in April 2012 when a Philippine warship confronted a group of Chinese fishing boats at the Scarborough Shoal, an uninhabited atoll about 240 km west of the Philippines.
The Philippines considers the atoll to be within the 320-km exclusive economic zone afforded to it by international law, whereas China claims traditional sovereignty based on medieval records. Besides good fishing, the South China Sea is considered to be potentially rich in undersea oil and gas, adding to the territorial pressure on the area.
PRESSURE & GROWTH: After the April 2012 incident, the Chinese pressured its tour operators to cancel package tours to the Philippines while issuing a travel warning discouraging visits due to a purported threat of “anti-Chinese sentiment”. After a strong start to the year, Chinese tourist arrivals fell off that May and ended 2012 up just 3% over 2011.
By 2013 the Chinese tourism industry appeared to have put the incident in the past. With arrivals from China growing more rapidly than ever, tourist officials in the Philippines were pointing to the Chinese growth as the best hope for achieving the official target of 10m tourist arrivals per year by 2016, more than twice as many as in 2012.
GAMING ATTRACTIONS: On the opposite end of the economic scale from the mass-market package tour business targeting the middle class, investors in the Entertainment City gaming district being built on Manila Bay are hoping to draw China’s richest men to come play in its high-roller baccarat rooms.
The Solaire Resort and Casino, the first Entertainment City casino that opened in March 2013, dedicates its upper floor to high-rollers, who currently play almost exclusively in Macau, the only part of China where casinos are legal. Another casino resort, the City of Dreams Manila, is slated to open in mid-2014, and two more were planned but on hold for different reasons. All four facilities target the same, mostly Chinese high-roller market.
LOCAL LUXURIES: Leo Venezuela, director of investor relations at Bloomberry Resorts, which owns Solaire, told OBG his company expects about 70% of its high-roller clientele will be ethnic Chinese, and most will come from mainland China. To attract this lucrative market, Solaire’s high-roller floor offers a range of Chinese luxuries, such as rare teas. The only game played is baccarat, a European card game similar to blackjack with a long tradition among Chinese players in Macau. Service is provided by ethnic Chinese staff, many of who are mainland China natives.
“It’s one thing to be served by a Filipino who speaks your language, and another thing to be served by a fellow countryman who speaks with your local accent,” Venezuela said.
Among the 488 rooms built for Solaire’s initial stage are four elaborately fitted out, mansion-size “villas”, each with their own outdoor swimming pool and panoramic views of Manila Bay. Unlike the lower floor of the casino, which caters to domestic gamblers with a Vegas-style splash of card tables, slots and barmaids in brightly coloured dresses, the upstairs is serene, with straight lines and subdued colours. “The guys that play up here don’t want distractions. For them, gambling is war,” Venezuela said.
For the Philippine government, however, diplomacy is key to its success in drawing such players, as well as to avoiding further disruptions of the burgeoning Chinese packaged tours business.
DISPUTES & RESOLUTIONS: However, the maritime dispute with China remained tense in 2013 while another old maritime dispute with Taiwan erupted into conflict when Philippine coast guards shot and killed a Taiwanese fisherman who was evading arrest. Taiwan shut down all of its tourism flights to Manila until August 2013 when President Aquino apologised and the guards were charged. Had Philippine coast guards fired at a mainland Chinese fisherman, the repercussions for the domestic tourism sector could have been disastrous.
Meanwhile Aquino defied China by formally appealing for UN arbitration under the UN Convention for the Law of the Sea (UNCLOS), rejecting China’s position that all South China Sea maritime border disputes should be resolved bilaterally. China has refused to participate in the arbitration and has reportedly blocked Philippine ships from entering the area around Scarborough Shoal. The arbitration process is expected to last some four years.
The president further annoyed the Chinese government by launching negotiations with the US on what he is calling an “Increased Rotational Presence framework agreement”. The proposed agreement would make US military forces continually present in the Philippines under a series of temporary operations, thus sidestepping restrictions on permanent foreign military bases that were written into the Philippine constitution after the US military was expelled from the country in 1991.
Another dispute struck the Chinese package tour business in November 2013 when hundreds of Chinese were trapped in the Philippines in the aftermath of Typhoon Haiyan and some were reportedly kicked out of their hotels when they ran out of money. When one of the tourists appealed through Chinese social media for aid, he received mostly hostile comments denouncing Chinese who travel to the Philippines as “traitors”, according to media reports.
MARKETING PLOY: One way Chinese tour operators have dealt with the tensions is by advertising tours to the Philippines without mentioning the country by name. For example, the web site of state-owned travel agency China Travel Solution advertised trips to the island of Boracay, the most popular destination for Chinese tourists in the Philippines, without explicitly stating what country it is in.
Given the substantial business potential on both sides of the market, it seems industry players are keen to keep the tourist tide rising, even as relations between the two countries may run into stormy waters. As the number of Chinese tourists continues to grow, these efforts appear to be paying off.
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