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Impact of New China Law

I recently returned from a one week visit to China with the Associate Minister of Tourism, Hon. Chris Tremain.

We had the opportunity to meet with senior government figures, investors, airline management and travel agency bosses. Uniformly there was genuine warmth for New Zealand and optimism that this country will continue to be a desirable destination for Chinese travellers.

At many of our meetings we were able to discuss the new Chinese travel law, which takes effect on 1 October. It is clear the law is going to have a dramatic and ultimately beneficial impact.

The law prohibits the sale of domestic and outbound tour packages (to any country) at unreasonably low prices and requires increased transparency of the tourism products included in these packages. The common practice of some Chinese travel agents selling below cost tours, and then making up the shortfall through commissions received from shops in destination countries, is no longer permissible.

What we have observed in China is that most of the tours to New Zealand being offered for post 1 October have increased in price and do not include organised shopping.

From Tourism New Zealand's perspective this is a very welcome change. The outbound visitor market in China has matured rapidly. Chinese people have more experience travelling abroad, have higher expectations of their outbound travel experience and are expecting better consumer protection.

Some destinations, including New Zealand, have been beset by problems linked to the purchase by shopping consortia of tours from Chinese travel sellers.  These tours are typified by unethical and sometimes illegal tactics, resulting in Chinese visitors purchasing poor quality and/or non-genuine goods at inflated prices. The significant sentences handed out to convicted Rotorua shop operators this year following a Commerce Commission investigation that Tourism New Zealand assisted with, has demonstrated that New Zealand will not tolerate our visitors being ripped off.

However, it would be naive to think that the law will immediately eliminate shopping interests from the China tour group distribution model.  There is already evidence which suggests that souvenir shops are looking to cut deals with Chinese tour sellers to shore up their interests.  

Tourism New Zealand's China Market Development Unit is keeping a close eye on these developments. The ADS Code of Conduct is being amended to recognise the impact of the new law. There will also be a continued focus on visitor education to ensure that Chinese visitors are aware of their rights as consumers in New Zealand. And in China, Tourism New Zealand will continue to incentivise travel sellers to sell better quality New Zealand product under the auspices of the Premier Kiwi Partnership (PKP) programme.

What does this mean for New Zealand tourism operators?

The new law does not mean that Chinese people cannot shop when they travel abroad with a tour group.  But the shopping must be optional and there are strict requirements to be met.

Inbound tour operators and tour guides need to obtain written agreement from all of the visitors in respect of any unscheduled shopping excursions or optional activities introduced during the course of the tour.  Failure to do this runs the risk of placing Chinese travel agents in breach of the tourism law - and they could be liable to refund the full cost of the tour to the affected travellers, regardless of whether there are any quality issues with the purchased products. Maintaining accurate records of visitor agreement to unscheduled activities is going to be crucial.

What does it mean for Chinese visitors to NZ?

This is a positive development for New Zealand tourism, as it encourages higher quality, longer staying visitors and more FIT visitors. As such, it fits neatly with Tourism New Zealand's strategy for the Chinese market.

From 1 October the average retail price of a New Zealand tour is up about 30%, which sits in the middle of the range - Thailand tours have doubled in price; Australian tours are up around 50%, whilst Europe and Canada have experienced little change.

There will be a short term adjustment period with some uncertainty. We expect total Chinese visitors to New Zealand to be soft through to year end as consumers get used to the "new normal" pricing, with the biggest reduction coming from dual Australia/New Zealand tours rather than mono-New Zealand visitors. But bookings are likely to be stronger than ever for Chinese New Year in February 2014 and the medium term outlook is excellent.

Chris Roberts

GM Corporate Affairs