A landmark day for Australia's vast tourism sector

Qantas and Emirates A380s fly over the Sydney Harbour Bridge. Photo: Brendon Thorne/Getty Images

Anyone looking for proof that Australia’s economic rebalancing is gaining traction need look no further than the ABS overseas arrivals and departure numbers for September released earlier today.

According to the ABS, the number of short term visitor arrivals rose to 637,100 in September, the highest level on record. The increase, 11% higher than a year earlier, saw short term visitor arrivals over the past year soar to 7,254,200, also a record high.

It’s a massive increase – up by an astonishing 458,500 from the 12-month total seen just a year earlier.

Bucking concerns expressed by financial markets over recent months, 38.2% of the increase came from just one nation – China.

According to the ABS, Chinese short term visitor arrivals surged to 94,600 in September, a whopping 26.8% higher than a year earlier. The huge increase saw Chinese visitor arrivals balloon to 974,100 over the past 12 months, an incredible 175,000 more than that seen in the year to September 2014.

It’s amazing growth, and all at a time when China was the centre of attention across financial markets for all the wrong reasons. The economy, as demonstrated by industrial data release after data release, was slowing sharply, intensifying fears over a so-called “hard landing” for the world’s second largest economy.

Not only that, when combined with visitor arrivals from Hong Kong, 113,500 people from greater China visited Australia in September, beating out second-placed New Zealand with 110,000. This is a significant development – for the first month on record visitor arrivals from greater China outnumbered those from New Zealand, the traditional top source for arrivals due to its close geographic location.

Craig James, chief economist at Commsec, described the development as a “red letter day for Australian tourism”.

“With Chinese tourism rising at a 20% annual rate, further history-making days aren’t far away,” he wrote in a research note following the data release.

“The focus by some analysts and media commentators on the ‘slowdown’ in China is misguided. China is experiencing a transition from a production-led economy, to one driven by household spending. The 1.4 billion people in China are experiencing rising incomes and are lifting spending. Australia needs to ensure that we have the infrastructure to cope with perhaps 1.5 million Chinese tourists coming to our shores each year.”

Although James’ view may be greeted by some scepticism by markets, particularly as China’s industrial sector continues to stutter, he is merely pointing out the fact that like Australia, China is also undergoing an economic rebalancing of epic proportions at present. It is shifting from trade, infrastructure and industrial led growth to that powered by services and consumption. It’s no simple task, and one that is almost certain to see China’s economy slow from the unsustainable levels seen in the post GFC era.

While that may be bad news for Australian mining firms supplying China with raw materials, it’s almost certain to benefit Australia’s far larger services sector should China’s government successfully pull it off.

A quarter of the world’s population lives in China, and household wealth across the nation is increasing fast. In a research note released earlier this year, ANZ suggested that around 326 million will be added to China’s burgeoning urban middle class by 2030, taking the total number to an unprecedented 854 million. Not only that, ANZ believes disposable incomes in China’s urban regions are set to quadruple over the same time period.

That’s more than 2.5 United States worth of people who are likely to see their disposable income quadruple over the next 15 years should ANZ’s forecasts turn out to be correct.

“We could be seeing the beginning of the most significant change in global consumption patterns since the rise of the US middle class at the turn of the 20th century,” said Warren Hogan, chief economist at ANZ in a research note released last month.

Given the recent trend in Chinese arrival numbers – from September 2005 annual growth has ballooned by 695,500 – it’s clear the trend is not only higher but near explosive at present.

Should China’s economic transformation go to plan, the opportunities for Australia’s tourism sector, along with the broader economy, are huge.

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