China's Travel Industry Reacts to Foreign Competition

China's Travel Industry Reacts to Foreign Competition

China recently announced that it is opening its domestic market to foreign travel agencies. Overseas investors will be allowed to set up wholly owned travel agencies in China, two and half years ahead of the schedule agreed under the World Trade Organization commitments. Foreign tour companies will be able to set up wholly owned travel agencies next month according to provisional rules issued by the China National Tourism Administration and the Ministry of Commerce last Saturday. Under these rules, overseas investors will be allowed to set up agencies in Beijing, Shanghai,Guangzhou and Shenzhen in Southern Guangdong province and Xi'an in Northwest China's Shaanxi Province. Many domestic travel agencies still suffering from the effects of the SARS crisis, opening the market to foreign investors will not have an immediate impact on their business as there are still many restrictions on foreign agencies. "The rules require that joint ventures must have an annual revenue of 40 million yuan and a 100 percent foreign ¨º -owned agency must have 0.5 billion yuan. That's quite a lot. What's more, foreign travel agencies are not allowed to arrange overseas travels for Chinese mainland citizens and this is a huge market," said Li Huiyang, deputy general manager of China Travel Service. According to the China National Tourism Administration, eight foreign companies are now applying for approval to start business. Although their operations will be limited, many domestic travel agencies realize that competition is on its way and are trying to prepare for it. "Although there will be no immediate impact on our business, we can expect fierce competition in 2005 when exactly the same rules will apply for foreign and domestic travel agencies. So we need a systematic reform of ownership, management and strategy to improve our competitiveness," said Wang Yanguang, marketing manager of China International Travel Service. Industry insiders say many travel agencies in China are badly run and poorly regulated. The SARS epidemic has driven many unqualified tour companies out of business. Those that have survived will have to face competition from their overseas counterparts. Experts say opening the market to foreign companies is a good thing and will help to create a fairer and more competitive environment.