【Record】Dr. Andrew Yan, Managing Partner of SAIF Partners Gives a Keynote Speech in the In-Depth Discussion on "Reorienting Tourism Investment and Recasting the Industry"

Dr. Andrew Yan, Managing Partner of SAIF Partners

Hello everyone! Tourism industry is the most severely affected by COVID-19 in 2020. The global hotel industry might suffer a huge loss across the board. Under such circumstances, I’d like to touch upon the topic: where do the investment opportunities in the tourism industry reside?

First, let's take a look at the pandemic. Tourism accounts for 10% of global GDP and takes 10% of global employment, which is roughly one tenth. The 2020 pandemic has so far knocked off 25% for the global tourism industry. If you look at the contribution of tourism to GDP of China, it was about 11 trillion in 2019 or 11% of overall GDP. The total number of Chinese tourists in 2019 was 6 billion, an increase of 8.4% year-on-year, and the national tourism revenue registered 663 million, an increase of 11.1% year-on- year. Basically speaking, the growth rate of China's tourism doubled that of national GDP.

Tourism development in China still delights us. Statistics of Chinese tourism during holidays of the Labor Day and the Dragon Boat Festival reveal that the tourism industry recovered about 59%, a relatively high percentage. If we put China to the broad context of the world, Chinese tourism recovered at a faster speed thanks to its general economic strength.

These are investment statistics since 2019. Last year, the total investment in China’s overall tourism industry was RMB 1.99 trillion in which over 99% was invested in improving destination resources. We know that improving destinations accounts for quite a lot of investment. About RMB 9.2 billion was invested in distribution channels and RMB 3.35 billion in tourism service. Distribution channels where investment was made include digital channels that have been talked about by many representatives.

In terms of the project number, 371 projects of investment in destination resources took 73.6% of the overall investment in culture and tourism. 41 projects are about investment in distribution channels, accounting for 9.5%, and 73 projects are related to investment in tourism service, accounting for 16.9%. This describes the tourism landscape in 2019. By comparing these statistics, we can see that in the first half of 2020, huge blows have been delivered to all of them.

From the perspective of investment, there are two aspects. One is the increase in absolute demand, and the other one is the upgrade of tourism consumption. From the perspective of demand increase, 2019 was a landmark year for China, with the GDP reaching USD 10,000 per capita. Statistics from the World Bank and UNWTO have shown that when per capita GDP exceeds USD 5,000, people’s demand for tourism shifts from sightseeing to vacation. This is why 2019 was a landmark year for China when the fortune structure improved a lot thanks to GDP per capita exceeding USD 10,000. The proportion of middle class was increased. And travel per capita increased from 0.2 in 1984 to 4.3 in 2019. This is the increase in demand. If we look at the upgrade of tourism consumption, we know that China might be famous for its bus tourism which still exists but no longer popular since consumption in China remains multi-layered. But the general trend of tourism is transforming from taking bus tourism hastily and carelessly, to enjoying personal and humanistic experience, from tourism at a long distance but low frequency to tourism at a short distance but high frequency. A sharp decline in tourism for shopping stands in contrast to the rise of enjoying gourmet food, culture and entertainment. Tourism of high quality and characteristics are more welcome in the market.

Let’s take a look at market opportunities from perspectives of investment demand and supply side. The mobile Internet has profoundly changed tourism, making it fragmented, individualized and diversified. Here are some examples to show the great contribution that digital technologies have made to tourism experience and consumption.

Tourism destinations are diversified and globalized, covering experience of natural landscapes and cultural heritages. People born before 1995 are still the main force in tourism, but those after 1995 and 2000 are rising rapidly. Tourism consumption habits have changed and travel has become a part of life experience, which means that travel is now shortened and leisure-oriented. In other words, tourism has become a component to our daily life instead of some rarity happening only few times each year.

From the supply side, tourism policies have promoted supply-side reform of the tourism industry. From tourism to Tourism+, this integration of industries has revealed many new growth points. I will share several cases about this later.

Market players in tourism are integrating resources to boost performance and transforming themselves from a single enterprise entity to a cross-sectoral business entity. It is non-tourism companies that are enjoying the fiercest cross-sectoral momentum. Among numerous Chinese companies engaging in tourism, the biggest competitors that deserve your most attention are not those originally from the tourism industry, but most likely cross-sectoral competitors, for example, Alibaba and Tencent. Their efforts are likely to bring about a huge integration effect in the tourism industry. Internet and social media have become the most important marketing tools.

From the perspective of financing and investment, the pandemic is still weighing heavily on our market. First of all, let's take a look at the overall market fund-raising scale which has dropped significantly by nearly 90% in the first half of this year compared to 2019. Investment institutions are very cautious in investing in tourism industry at this time. The valuation of projects began to be adjusted, and investment institutions have paid more attention to financial indicators. In the past, we did not care too much about the price as long as we were into the project or destinations. But now everyone is more cautious, paying particular attention to liquidity.

The Matthew Effect of the market is amplifying sharply. Financing is easy for mature and leading companies, while a huge number of companies in the middle or at the tail are in difficulties. Some of them even went to bankruptcy. The long cycle of investment decision-making poses new challenges to company’s management capabilities of liquidity.

What could we learn from this to develop the tourism industry? During this window period when deployment of rare tourism resources could be optimized thanks to the adjustment in business market valuation, enterprises are supposed to conduce fine operation with a focus on the realization of efficiency and liquidity. Tourism products and services should be distinct and updated, instead of mass production. Liquidity management is the most pressing task for enterprises that should plan for at least 12 months.

From the investment perspective, we attend to Tourism+ very much because a single tourist spot is now hard to sell in the market and this requires supporting factors. As I just mentioned tourism experience in China was quite shallow and perfunctory in the past, and we are now focused more on individual and humanistic experience. Cooperation between tourism and other sectors is so important that the biggest surprise coming out of this collaboration might be a company not from tourism industry, but from X industry.

Tourism + technology, accompanied by empowering experience, has become a key word in the new tourism industry. We have to pay attention to the application of technologies and tools to improve operational efficiency. Our channels and individualized services are both closely related to big data.

There are two examples to illustrate the fresh experience of Tourism + technology + other sectors. I’m wondering if you still remember the Night of the Lantern Festival in the Forbidden City at the beginning of 2019. APPOTRONICS, a listed company that has received our investment, produced an ultra-light show for the Forbidden City. I visited that show and was very impressed by its outstanding beauty especially at night. Everyone was trying to snatch a ticket. There were so many people.

Another case is also a company we invested in cooperation with Huangshan Tourism for the Mysterious Huashan Grottoes. In this project, the interior scene has been transformed by laser lights. If you enter the Huashan Grottoes, it’s like Alice in the Wonderland. We’ve all experienced that and the Mysterious Huashan Grottoes have attracted many tourists. This is a very good example of bringing on new tourism experience by applying new technologies to fully explore tourism resources.

You must know this very popular place, the Anaya Seaside Church. What’s more, we’ve talked about Tourism + other sectors and the most promising combination in China is Tourism + healthcare. China is aging rapidly but the current facilities in China for the elderly people as a whole are very rudimentary. There is a huge market if we combine the beautiful environment, rehabilitation and elder care together. We have seen some projects running very well, for example, there is a very beautiful area in Huangshan where a company is planning to build a huge elderly community equipped with excellent medical supports. Anaya project is now extremely famous in the North with every visitor praising its beauty. The Anaya Seaside Church is elegantly decorated and visited by a lot of tourists. We used to think that people came to that church for praying but it turned out that they are there to get married. Everyone wants to contract the whole place to shoot wedding photos. That is very interesting.

Moreover, we’ll talk about how to apply technological means to improve services. We’ve invested in a company called Shuwei Technology that is in cooperation with Huangshan Tourism. We provide location services tracking down to the centimeter and big data knows where you’d like to go, guaranteeing your safety and offering services. Every tourist in Huangshan is under our protection and guardianship because we know exactly what you need. In this way, management of Huangshan could produce precise profile for each and every tourist based on backstage data. This greatly boosts management efficiency and is what we called the application of data in specific scenarios where tourists could enjoy more exquisite and personal experience.

Automatic driving provides us with new solutions for traffic in scenic spots. Everyone knows that automatic driving is a new topic and it takes some time to be realized. The first application scenario should be fixed routes in scenic spots, and automatic bus in mining areas and communities which might be the first realized scenario. We have already seen these new technologies in application. Consequent changes to tourism industry are subtle but fundamental.

In addition, there is the impact of new media on tourism. We all know that the Internet influencer economy is quite hot these days. It drives tourism in forms of influencers promoting products and more importantly recommending popular scenic spots. Many cities now have this kind of recommended scenic spots. Attempted by their recommendations, many people would like to visit these spots. And this explains why the influencer economy in China might take the lead in the world. The first company in China investing in the influencer economy is Ruhnn listed in America. Nowadays, there are many players fueling the influencer economy in China including Douyin, Xiaohongshu and MicroBlog. The influencer economy has become one of the most important marketing instruments in Chinese tourism industry.

From the perspective of investment, the key word in tourism is Tourism+. On the one hand is Tourism + technologies, and on the other hand is Tourism + other sectors. Therefore, even though the 2020 pandemic poses both new challenges, new technologies might give us much more fresh experience. Investors including myself are expecting these opportunities. Thank you.