Demand growth softened in the first quarter of 2012 after a phenomenal 2011, as global demand contracted amid the unresolved European debt crisis and the slowing of China's economy.

HONG KONG

Hong Kong welcomed more than 11.2 million visitors in the first quarter of 2012, reflecting a 15.6% year-on-year (YOY) increase.

Visitor arrivals from mainland China rose by 21.1% YOY and remain the key driving factor behind robust growth.

Total visitor arrivals from China set a new record by topping 7.89 million, driven by the Chinese New Year holidays.

In January 2012, Hong Kong implemented the e-Channel service for eligible frequent mainland travellers at certain border control points, shortening border crossing times.

Apart from China, regional countries also contributed to visitor arrival growth. Visitor arrivals from South Korea grew by 17.2% YOY, driven by its strong economy and currency. Indonesia and the Philippines also recorded double-digit growth at 13.0% and 17.9%, respectively.

Japan recovered from the Tōhoku earthquake and grew by a modest 5.3% YOY. Taiwan, the secondlargest source market for Hong Kong, registered a 2.3% decline YOY, attributable to the presidential elections and a struggling economy that suppressed travel activities.

The mature US market registered 1.7% growth YOY. The UK posted 10.1% growth YOY � the strongest in the first quarter among long-haul markets. This increase is partially attributable to travel packages that featured the popular annual Rugby Sevens event.

Visitor arrivals to Hong Kong showed no signs of slowing in the first quarter of 2012, despite the slowdown in Hong Kong's economy (0.4% GDP growth YOY).

However, the lingering European debt crisis and the slowing of China's economy cast doubts on Hong Kong's tourism industry.

To drive visitor arrivals, the Hong Kong Tourism Board (HKTB) will continue to focus on the vibrant Chinese market. The HKTB plans to spend 30% of its HK$182 million marketing budget on the Chinese market in 2012.

The HKTB forecasts full-year visitor arrivals for 2012 to reach 44 million, representing a modest 5.5% growth.

In the first quarter of 2012, 49.5% of visitors to Hong Kong stayed overnight � a trend that is further declining as a result of increasing numbers of same-day visitor arrivals from China and a hotel market running at capacity. Notably, overnight
visitor arrivals from China were at the lowest level in the first quarter, at 43.8% of total Chinese visitor arrivals (compared to 48.0% in 2011).

Overnight visitor arrivals from South Korea and the Philippines registered the strongest YOY growth at
20.9% and 20.0%, respectively, in the first quarter. China, Indonesia and the UK also recorded above 10.0% YOY growth.

Japan registered healthy growth of 6.5% YOY, while the US market remained resilient.

Full story:

www.hvs.com/article/5854/the-greater-china-update-2q-2012

About the Authors

Daniel J. Voellm is Managing Director of HVS Hong Kong, has provided advice in major markets across Asia-Pacific. Prior to heading the Hong Kong office, Dan was Vice President at HVS' global headquarters in New York conducting a wide range of appraisals, market studies and underwriting due diligence services.

Dan brings a strong understanding of the hospitality industry to HVS. His experience in hotel and food and beverage operations in Germany, Switzerland, England and the United States is complemented by an Honours Bachelor of Science Degree from Ecole h�teli�re de Lausanne in Switzerland. Dan works closely with key institutional and private owners of hotel properties, financiers, developers and investors. Dan further advises on property and concept development and strategy.

Cathy Luo is an analyst of HVS Hong Kong, working primarily on hotel consulting assignments including Market Studies and Feasibility Studies in the Asia Pacific region. Prior to joining HVS, Cathy worked in Revenue Management with Marriott Hotels in Dubai performing analysis and providing recommendations to support hotel strategy.

Graduating with a an Honours Bachelor of Arts degree from Glion Institute of Higher Education and with previous working experiences in hotel operations, Cathy brings a comprehensive knowledge of the hospitality industry. Cathy has advised on projects in China, Singapore and Cambodia.

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