The Chinese yuan has continued its slide against the dollar and has reached an exchange rate of 6.53 yuan to the dollar, the lowest value of the Chinese yuan thus far this year. This steady drop in value is likely to continue in the near term due to the worsening state of Sino-American relations and the indications from the People’s Bank of China that it intends to further let the yuan slide. An overall weaker yuan gives China an edge in attracting foreign investment and further boosting its trade surplus. However, it will have the unfortunate effect of decreasing the spending-power of Chinese tourists in the near term. If the slide continues and the cost of travel rises further for Chinese tourists, it could even dampen the growth of Chinese outbound trips this year.
A weaker yuan means that outbound travel will be more expensive for Chinese tourists, hampering growth
The value of the yuan is determined through a managed float by Chinese authorities in relation to a portfolio of foreign currencies. The value of the yuan is allowed to float within a margin of 2 percent either up or down, as opposed to the full, free-floating valuation of many other currencies.
The value of the yuan against the dollar for the rest of 2018 will be largely contingent upon the state of Sino-American trade relations. Unfortunately, the looming prospect of a trade war seems to be approaching at a brisk pace. The Trump administration instituted tariffs on $50 billion worth of Chinese goods in response to Chinese theft of American intellectual property. Chinese authorities responded by imposing $50 billion in tariffs of their own.
The potential trade war between the United States and China seems more likely than ever
The Trump administration is currently putting together a list of $200 billion worth of Chinese goods for potential tariffs. In addition to tariffs, the administration has put in place new restrictions on Chinese investment in the United States for key sectors like robotics and aerospace.
Whether this means that a trade war is all but declared is still unknown, but instability will likely lead Chinese authorities to maintain or further weaken the yuan. Jing Travel has previously argued that Chinese tourism to the United States will not be a direct target of Chinese retaliatory measures. However, Chinese tourism to the United States may suffer collaterally with a weakening yuan and the impression that the United States is a less than welcoming destination.
While tourism to the United States won’t likely be targeted directly in a trade war, it could suffer collaterally
Moreover, it’s hard to deny the role nationalism plays in Chinese outbound travel. If tensions continue to heat up, many Chinese tourists may simply avoid the United States for political reasons.
All of this comes a particularly bad time for the U.S. tourism industry specifically. According to the latest preliminary numbers from 2017, Chinese tourist arrivals fell by 5.8 percent for the year to date for September 2017. The effect upon the overall Chinese outbound tourism market will likely be much less dramatic and the total number of outbound tourists is highly unlikely to fall in 2018 compared to 2017. That said, if the weaker yuan is maintained, outbound tourism growth will be slower than otherwise.