This article first appeared in Forum, The Edge Malaysia Weekly on December 11, 2023 - December 17, 2023

The global tourism industry, once battered by the relentless onslaught of the Covid-19 pandemic, is on the path to recovery as countries around the world began reopening their borders last year.

According to the United Nations World Tourism Organization, international tourist arrivals had rebounded to 87% of pre-pandemic levels in January to September 2023 and are on track to recover to almost 90% by the end of the year. Malaysia is also showcasing a promising revival with tourist arrivals in the first half of this year surging to nearly 70% of pre-pandemic levels. However, behind these headline numbers lie a tale of uneven recovery, with China emerging as a pivotal piece in completing Malaysia’s tourism puzzle.

Even though Malaysia’s tourism sector is showing signs of recovery, it is still uneven and predominantly driven by tourists from neighbouring countries. The return of tourists from Indonesia, Singapore and Thailand, which accounted for 14%, 39% and 7% respectively of total arrivals in 2019, has been stronger than most other countries. In the first half of this year, tourist arrivals from these three countries improved to 78%, 72% and 78% respectively from the levels achieved in the corresponding period in 2019.

Although regional travellers have played a significant role in this resurgence, the lagged return of visitors from China has limited the overall recovery potential for Malaysia’s tourism sector. In the first half of 2023, tourist arrivals from China stood at a mere 32% of the figures recorded during the same period in 2019, which is less than half the headline recovery rate. This is particularly underwhelming given the initial euphoria at the start of the year when China made swift moves to relax pandemic-related restrictions and reopen its borders. However, this policy shift failed to provide the anticipated boost to Malaysia’s tourism sector. Initial cautiousness, economic sluggishness and weaker consumer sentiment in China have collectively contributed to a significant underperformance in international travel demand. Since China is one of Malaysia’s largest sources of incoming tourists, constituting 12% of total tourist arrivals in 2019, the slower recovery highlights a critical gap in Malaysia’s route to full tourism recovery.

China’s importance goes beyond just the number of visitors from the country as it also contributes significantly to Malaysia’s tourism revenue. While China represented 12% of arrivals in 2019, visitors from the country accounted for about 18% of Malaysia’s total tourist receipts. In comparison, Singaporean tourists made up 39% of total arrivals but only contributed to 24% of total receipts in 2019. The per capita spending of Chinese tourists is also among the highest, with an average of RM4,921 while on holiday in Malaysia — significantly higher than that of tourists from Singapore (RM2,022) and Thailand (RM2,104). This economic significance underscores the need for a robust strategy to re-engage Chinese tourists.

Malaysia has taken a positive step to address the challenges posed by their slower return by introducing visa-free access for visitors from China. This move aims to lower barriers to entry, simplify the decision-making process and reduce travel costs. According to the Global Times, searches for Malaysia on Chinese travel platform Qunar almost doubled after the announcement of the visa-free programme, indicating a surge in interest.

While this is a commendable move, the road ahead is not without challenges. The competition to attract Chinese tourists will be stiff among Asean countries. China accounted for about 28%, 19%, 21% and 13% of overall tourist arrivals in Thailand, Singapore, the Philippines and Indonesia respectively in 2019. In the first 10 months of this year, the number of Chinese tourists visiting these countries remained notably lower than before the pandemic and their recovery rate underperformed the overall recovery rate of tourist industries in these countries. Malaysia will be competing with its regional neighbours for a share of the same pool of Chinese tourists to provide that final boost to complete recovery.

It is worth noting that countries such as Thailand have already removed visa requirements for Chinese nationals. Thus, what Malaysia is offering in terms of easier visa-free entry is not a new concept and only helps to level the playing field. To further enhance its competitiveness, Malaysia needs to focus on providing seamless connectivity to Chinese tourists. Improving transport, including more direct routes and affordable airfare, is crucial. Additionally, investing in other tourist infrastructure, such as accommodation, public transport and tourism facilities, will contribute to a more positive and welcoming experience.

Tourism may not be the largest sector in Malaysia’s economic landscape, but it still holds significant importance. In 2019, the gross value added (GVA) of tourism-related industries contributed 15.9% to Malaysia’s overall gross domestic product (GDP), while direct tourism activities contributed 6.8% to GDP. Thus, it is crucial to address the challenges posed by the slow return of Chinese tourists as their return may well be the spark Malaysia’s tourism sector and the overall economy needs in 2024.

Woon Khai Jhek, CFA, is a senior economist and head of the economic research department at RAM Rating Services Bhd

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