Categories: EconomyNews

China reopening may add at least 1% to Malaysia’s GDP

China visitors to Malaysia were only 1.9% of total tourists in 9M22 versus 11.9% pre-Covid-19 


THE effect of stronger tourism activity, amid recovering global tourism activities, resumption of China’s outbound travels and sustained domestic tourism demand, is expected to boost Malaysia’s GDP by at least one percentage point (ppt) this year. 

According to UOB Global Economics & Market Research, prior to Covid-19 overall tourism’s contribution to Malaysia’s GDP, or referred to as tourism direct GDP (TDGDP) stood at 6.8% in 2019 and 6.5% in 2018 which is higher than the average level of 4.4% in Asia Pacific. 

The research firm pointed out that Malaysia registered a 1% increase in foreign tourist arrivals to 26.1 million in 2019, the second-highest annual inbound tourist arrivals since data began in 1981. 

Chinese tourists made up 3.1 million or 11.9% share, to rank as the third source of inbound tourist arrivals for Malaysia in 2019, after Singapore (10.2 million or 38.9%) and Indonesia (3.6 million or 13.9%). 

In the same year, tourism receipts from China tourists ranked second, totalling RM15.3 billion or 17.8% of Malaysia’s total tourist receipts of RM86.1 billion, overtaking Indonesian and Singaporens’ tourists’ spending in the country. 

It also noted that the higher spending capacity of China tourists based on average per capita expenditure of RM4,921, ranks higher than Singapore (at RM2,022) and Indonesia (RM3,571). 

“Chinese tourist’s spending power had even risen above some matured economies,” it said. 

Generally, it said that tourist receipts flowed into country-specific tourism goods (shopping, 33.6% of total receipts), accommodation (24%), food and beverages (F&B) (13.3%), local transportation (7.6%), and entertainment (3.4%). 

“Based on the TDGDP performance, the tourism industry helped to increase Malaysia’s employment by 2.9% to 3.6 million persons in 2019. This contributed 23.6% to total national employment,” UOB Global Economics & Market Research said. 

It added that the F&B serving services (34.7% share) and retail trade (32.5% share) were the main industries in tourism employment that year. 

The higher spending capacity of China tourists based on average per capita expenditure of RM4,921, ranks higher than Singapore (at RM2,022) and Indonesia (RM3,571) (pic: Bloomberg)

In contrast, during the Covid outbreak and closure of the country’s international border for tourism activities in 2020 and 2021, it said that Malaysia recorded two straight year of contractions in inbound tourist arrivals. 

The number of foreign tourist arrivals plunged by 83.4% to 4.33 million in 2020 and 96.9% to 130 million people in 2021, while total tourism receipts shrank by 85.3% to RM12.7 billion in 2020 and 98.1% to 200 million in 2021. 

As such, it said that most tourism sub-sectors based on TDGDP approach posted a steep decline for two years in a row, particularly travel agencies (2020: -88%, 2021: -96.8%), accommodation (2020: -82.9%, 2021: -77.8%), and passenger transport (2020: -78%, 2021: -78.3%). 

Although the tourism sector staged a rebound in 2022 as Malaysia reopened its economy and borders from April 1, 2022, the sector has yet to fully recover to pre-pandemic levels. This was in part due to the prolonged Covid lockdown in China, higher global inflation particularly airline ticket prices, caution amid lingering pandemic risks, and capacity constraints including labour shortages. 

In fact, it said that the recovery of Malaysia’s tourism sector last year was largely buoyed by strong domestic tourism demand as inbound tourist arrivals only recovered to 5.6 million or 21.3% of 2019 levels in the first nine months of 2022. 

Foreign tourist receipts managed to recoup only RM16.4 billion or 19% of the total RM86.1 billion in 2019, it added. 

Meanwhile, domestic tourism dominated 97.4% of Malaysia’s overall tourism expenditure in 2021 (2020: 73.8%, 2019: 50.9%, and 2015: 44.8%), cushioning the lower share of foreign tourist spending since the pandemic (2021: 2.6%, 2020: 26.2%, 2019: 49.1% and 2015: 55.2%). 

The 5.6 million foreign tourists in 9M22 came mainly from Singapore (53.5% share), Indonesia (14.4%), Thailand (6.8%), India (3.4%) and Vietnam (2%). 

China visitors to Malaysia was only 100,000 (1.9% share) in 9M22 compared to 3.1 million or 11.9% share in 2019, with its ranking dropping to sixth last year from third in pre-pan- demic 2019. 

“Hence based on past and current trends, the room to grow and recover is significant with positive effects on consumption of goods and services (ie shopping, retail trade, and travel agencies), accommodation, passenger transport, and food & beverages sub-sectors,” it said. 

UOB Global Economics & Market Research stated key risks to Malaysia’s tourism outlook include a weaker global outlook, slower China recovery and return of China tourists, capacity constraints, and inflation risks. 

Citing the latest survey by the World Tourism Organisation, it said the challenging economic environment including high inflation and interest rates, elevated oil and food prices, health concerns, and cautious spending amid global recession fears are main factors weighing on the tourism recovery. 

One challenge, it said, is balancing the impact on inflation as China’s reopening and surge in demand may put upward pressure on prices of energy and other related goods and services. 

“We estimated the potential effect of higher tourism demand on Malaysia’s inflation,” it said. 

In Malaysia’s consumer price index (CPI), tourism-related services components including transport services; entertainment, recreation & cultural services; package tour; and accommodation services account for 4.4% of overall CPI weight. 

“This implies that every 10% increase in the prices of tourism-related services could directly add 0.4ppt to Malaysia’s headline inflation (versus our baseline forecast of 2.8% for 2023),” it opined. 

  • This article first appeared in The Malaysian Reserve weekly print edition

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