Did you pay for your last latte using Alipay? Was your most recent vacation booked on Ctrip? Are travelers able to rent your spare bedroom via Tujia? Unless you’re Chinese, the answer is probably no, and that’s not an answer that looks likely to change anytime soon. And most of those companies don’t really care.
The exception may be Ctrip, which bought the Scotland-based flight-search business Skyscanner in 2016. To boost Skyscanner’s local and travel content, Ctrip in late 2017 tacked on U.S.-headquartered Trip.com and London-based Twizoo, which aggregates reviews from social media. Ctrip followed up those deals by converting the Trip.com domain into an English-language version of the Chinese travel site.
During China’s October Golden Week, which in 2017 lasted eight days, an estimated 700 million Chinese — more than half of the nation’s population — traveled somewhere. And more than 100 million of them ventured outside the country. But why aren’t China’s major travel brands following their citizens overseas?
The idea itself is not new. In late 2008 and in 2009, when European and North American economies were teetering after the onset of the financial crisis, China’s continued growth and deep reservoirs of cash led many to wonder — and in some cases, hope — that the long-expected wave of Chinese mergers and acquisitions would begin. In 2010, Chinese automaker Geely bought Sweden’s Volvo from Ford Motor Company. And that was about that, a wave that barely got anyone’s feet wet.
While their war chests may have been ready for conquest, China’s big companies weren’t. Despite having hundreds of millions of customers at home, they had almost no experience running overseas operations. The difference was, China’s consumers were driving demand for goods and services at home, but not abroad.
In less than a decade, the Chinese outbound traveler has become a force. And now, when China’s travel market sneezes, many surrounding countries catch bad colds. Case in point: China opposed South Korean deployment of a U.S. anti-missile system to defend that country against possible attack by North Korea. Despite China acknowledging the threat and working with the United States to reduce tensions on the Korean Peninsula, China also banned tour groups from visiting South Korea early in 2017 — causing travel numbers there to dip by 40 percent.
Similar sharp sticks have been used by China to poke nearby countries, including the Philippines, and occasionally Japan. Many of those markets are already hooked on the Chinese travel yuan, and have found out the hard way that the withdrawal symptoms are nasty when forced to quit cold turkey.
Part of the seeming lack of ambition by Chinese travel and transportation players is that there is little incentive from outside the market to go elsewhere. In late 2016, any number of news outlets were reporting that China was buying Hollywood, namely film studios and production companies. That was before Chinese currency regulators stepped in and put a halt to those deals, with a chill settling over what had been seen as a new mergers and acquisitions warming trend.
While HNA bought a $6.5 million stake in Hilton in 2016, and Anbang has made substantial buys, including the Waldorf Astoria in New York, it’s unclear what the future is for these types of moves given changes in Chinese policy about foreign investments.
The message from President Xi Jinping’s government, which has moved to stem a tide of billions of dollars in capital outflow by individuals and companies, was clear: Chinese companies should invest their money in China, make their money in China, and then spend that money in China.
Even for Chinese companies with international ambitions, focusing on the domestic market is just too easy. Despite China’s geographic diversity, for the most part its 1.4 billion people read the same language and largely understand a single spoken dialect projected by a dominant, state-run television broadcaster.
Add to that a sole currency — one that is not fully convertible — that is increasingly spent using cardless, cashless, electronic payment methods such as Alibaba’s Alipay and Tencent’s WePay, and suddenly the desire to make life difficult by going overseas and dealing with new banking rules, multiple currencies, different languages and website interfaces, and higher labor costs starts to seem really unappealing.
Wouldn’t it be easier just to expand the domestic customer base, or revenue per existing customer? On the other hand, businesses will always be tempted to grow their geographies when feasible.
Past performance is no guarantee of future results. In this case, it means that Chinese companies won’t make any significant acquisitions right up until the moment they decide to start making significant acquisitions.
While China’s own laws prevent foreign companies from owning majority or equal stakes in many industries, the country’s own companies are not restricted in the same way when looking abroad. However, for the most part, that isn’t a situation that’s likely to be a problem anytime soon.