China’s Restrictions on Car and Home Ownership Could Benefit Travel

Restrictions on home and car-buying in China’s big cities could accelerate the travel boom as people look for ways to spend their rising incomes.

That’s the view of Ctrip CEO James Liang, who expects that China’s outbound travelers’ spending on high-end hotels and flights will double their single-digit income growth.

“We are still very optimistic about the travel demand, as people don’t spend money buying houses, even buying cars,” Liang said during Ctrip’s third quarter earnings call last week. “If they cannot buy houses and cannot buy cars anymore, in big cities anyway, I think they — even though their income is growing maybe single digit, actually we think the income growth is going to be higher than the GDP level growth, but their travel consumption will be at least double the GDP and income growth.”

China has put limits on the purchase of automobiles in big cities to combat pollution, and several years ago put restrictions on the purchase of second and third homes, although the home-buying curbs have been eased recently.

“And particularly on the high end of the market where we have an advantage, for example, outbound travel or high-end hotel, air ticket consumption, I think these double the growth rate of the income,” Liang said.

He said Ctrip is “very optimistic” about travel demand.

Investors aren’t as optimistic, though, about Ctrip’s short-term prospects as they chipped away at Ctrip’s share price after the release of its third quarter earnings, fearing that increased competition will curtail profit margins.