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Q3 2016

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CHINA
TOURISM REPORT
INCLUDES 5-YEAR FORECASTS TO 2020

Published by:BMI Research

China Tourism Report Q3 2016

CONTENTS
BMI Industry View ............................................................................................................... 7
Table: Key Forecasts (China 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SWOT .................................................................................................................................... 9
Tourism ................................................................................................................................................... 9

Industry Forecast .............................................................................................................. 11


Table: Inbound Tourism (China 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table: Tourism Receipts (China 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table: Hotel Accommodation (China 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table: Tourist Departures and Consumption (China 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Industry Risk/Reward Index ............................................................................................. 22


Table: Asia Tourism Risk/Reward Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rewards ............................................................................................................................................... 23
Risks .................................................................................................................................................... 23
Security Risk ......................................................................................................................................... 24

Market Overview ............................................................................................................... 25


Competitive Landscape .................................................................................................... 32
Domestic Hotel Groups ........................................................................................................................... 32
Table: Domestic Hotel Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

International Hotel Groups ...................................................................................................................... 33


Table: International Hotel Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

13th Five-Year Plan ........................................................................................................... 35


13th Five-Year Plan: Key Points ................................................................................................................ 35
Summary Of Contents ............................................................................................................................. 35
Chapter 1: Overview ............................................................................................................................... 36
Table: Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Chapter 2: Innovation To Drive Development .............................................................................................. 37


Chapter 3: Economic Institutions .............................................................................................................. 38
Chapter 4: Modernisation Of The Agricultural Sector ................................................................................... 39
Chapter 5: Industries ..............................................................................................................................
Chapter 6: Expand The Network Economy ..................................................................................................
Chapter 7: Build A Modern Infrastructure Network ......................................................................................
Chapter 8: New-Type Urbanisation ...........................................................................................................
Chapter 9: Coordination Of Regional Development ......................................................................................
Chapter 10: Environmental Protection .......................................................................................................
Chapter 11: Continue Opening Up ............................................................................................................
Others: ................................................................................................................................................

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China Tourism Report Q3 2016

Methodology ...................................................................................................................... 46
Industry Forecast Methodology ................................................................................................................ 46
Risk/Reward Index Methodology ............................................................................................................... 47
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

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China Tourism Report Q3 2016

BMI Industry View


BMI View: The outlook for China's tourism industry is very positive. As well as a huge domestic travel
market, China is also attracting growing volumes of international visitors and extensive government
investment in transport infrastructure means tourism is reaching the further reaches of the country, as well
as established travel hubs. While there are some potential downside risks to our current forecasts, namely a
sharper economic decline in the domestic economy along with regional political tensions, we continue to
expect steady increases in tourism arrivals and tourism related expenditure between 2016 and 2020.

Table: Key Forecasts (China 2013-2020)

2013e

2014e

2015e

2016f

2017f

2018f

2019f

2020f

26,290.30

26,360.80

25,985.40

27,183.74

28,884.25

30,026.24

30,996.03

31,997.15

-3.3

0.3

-1.4

4.6

6.3

4.0

3.2

3.2

346.78

341.85

336.54

381.67

433.79

463.46

486.73

509.49

0.1

-1.4

-1.6

13.4

13.7

6.8

5.0

4.7

56.40

55.48

53.55

56.15

60.46

63.93

67.13

70.28

International tourism
receipts, USDbn, % yo-y

2.7

-1.6

-3.5

4.9

7.7

5.7

5.0

4.7

Hotel and restaurant


industry value, CNYbn

1,148.74

1,256.05

1,359.92

1,466.73

1,588.46

1,723.35

1,865.80

2,015.26

9.8

9.3

8.3

7.9

8.3

8.5

8.3

8.0

186.8

203.9

216.4

215.8

221.4

237.7

257.4

278.0

12.6

9.1

6.2

-0.3

2.6

7.4

8.3

8.0

Total arrivals, '000


Total arrivals, '000, %
y-o-y
International tourism
receipts, CNYbn
International tourism
receipts, CNYbn, % yo-y
International tourism
receipts, USDbn

Hotel and restaurant


industry value,
CNYbn, % y-o-y
Hotel and restaurant
industry value, USDbn
Hotel and restaurant
industry value,
USDbn, % y-o-y

e/f = BMI estimate/forecast. Source: National sources, BMI

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China Tourism Report Q3 2016

Key Updates And Forecasts

China continues to attract major investment into the hotel sector, both by expanding domestic hotel
groups and international hotel operators which are developing popular Western brands and new market
focused brands in the country. Spanish hotel company NH Hotel Group is one of the latest to enter the
market, setting up new company Beijing NH Grand China Hotel Management in partnership with HNA
Group with plans to open 120 to 150 hotels in China by 2020.

The number of international flight connections to China is expanding, making the country more
accessible to the global travel market. Delta Air Lines announced in March 2016 it was applying for
approval from the US and Chinese governments to launch a daily non-stop flight between Beijing and
Los Angeles in late 2016, following the launch of a flight between Los Angeles and Shanghai in 2015.
Meanwhile Air China is awaiting approval for a new flight connection between Shanghai and Mineta San
Jose International Airport.

Developments such as these will support the growing volumes of international visitors travelling to
China. We expect to see 27.2mn international tourism arrivals to China in 2016, increasing to just under
32mn in 2020. Upside risks include further relaxation of visa requirements and expansion of international
travel connections.

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China Tourism Report Q3 2016

SWOT
Tourism
SWOT Analysis

Strengths

China has an enormous domestic and outbound market as well as a growing inbound
tourism market.

There is a broad range of historical, cultural and natural attractions to entice new and
returning tourists.

The government is supportive of the tourism industry, with large-scale state


assistance and investment in infrastructure and marketing campaigns.

China is surrounded by strong regional markets with a multitude of cross-border


transport connections.

Weaknesses

The long-term competitiveness of the tourism industry could be undermined by


excessive state involvement, which may deter foreign direct investors.

Underdeveloped infrastructure could limit opportunities for expansion of tourism,


particularly in remote rural areas which are difficult to reach.

High hotel prices in cities such as Beijing and Shanghai can deter domestic and
regional tourists.

Little knowledge of English outside of main tourist destinations could hinder some
potential visitors from Western markets.

Visa restrictions can deter potential visitors who may choose more accessible
destinations in the Asia Pacific region.

Opportunities

Increasing market liberalisation will open the industry to foreign investment over the
medium-to-long term, which will benefit development and management of existing
hotels and auxiliary tourism services.

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China Tourism Report Q3 2016

SWOT Analysis - Continued

Relaxation of some visa regulations will increase visitor numbers, particularly


facilitating short-term visitors to major cities such as Shanghai and Beijing, which are
major regional transit hubs in the Asia Pacific.

Ongoing infrastructure improvements will boost the transport and accommodation


sectors and provide a solid base for future investments.

Tourism is expanding to new areas of the country, furthering the reach of tourism
spending and related investment.

Threats

The tourism market is still vulnerable to international economic declines, and a


slowdown in domestic economic growth could impact internal and outbound travel.

Regional security tensions, particularly with Japan and South Korea, could affect
inbound travel.

A downturn in relations with Hong Kong could further impact tourist arrivals to and
from mainland China.

Air pollution in major cities could deter potential visitors, particularly Beijing, which
has seen record levels of pollution in recent months.

Ongoing stock market fluctuations and uncertainty may damage consumer and
investor confidence.

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China Tourism Report Q3 2016

Industry Forecast
BMI View: China's tourism industry presents potential investors with a broad range of opportunities for
growth. The country is home to an enormous domestic tourism market, with travel to internal attractions
well established and supported by an extensive transport network. At the same time growing numbers of
international tourists are choosing to visit China in a highly competitive region, boosting tourism related
expenditure and hotel industry value.

Latest Updates

China's inbound tourism market is expected to recover well from a short-term decline seen in 2015. We
expect arrivals to grow by 4.6% in 2016 to reach a total of 27.2mn. Around half of the inbound market
originates from other Asia Pacific states.

We have updated our short-term forecasts for hotel and restaurant industry value to reflect ongoing
currency exchange movements. In 2016 hotel and restaurant industry value is forecast to fall by less than
1% in US dollar terms, while maintaining positive growth in local currency terms.

Structural Trends

China's tourism market is well developed, but there is still room for growth over the next 10 years. The
government wants to shift tourism away from traditional areas, in part to relieve the overcrowding of
traditional tourist hotspots that can diminish the experience of visitors. The country is also looking to boost
the level of English in tourist areas and improve availability of tourism-related facilities such as information
centres in order to make things as appealing as possible. The continued building of transport connections
will allow for easier travel within the country and across borders; overall, China is well placed to keep up
with continued growth in the tourism industry.

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China Tourism Report Q3 2016

Tourist Arrivals & International Tourism Receipts


Tourist Arrivals (2013-2020)
40,000

75

70
30,000
65
20,000
60
10,000
55

50
2013

2014e

2015e

Total arrivals, '000 (LHS)

2016f

2017f

2018f

2019f

2020f

International tourism receipts, USDbn (RHS)

e/f = BMI estimate/forecast. Source: National sources, BMI

Tourist Arrivals: Depreciated Yuan Boosts Attractiveness Of Chinese Tourism Industry

China's inbound tourism market is already large and is set to grow significantly over the next few years. The
country is a regional financial hub, but also boasts a diverse range of city break destinations, historical
attractions and natural beauty that attracts a diverse range of tourists into the country. The market is
vulnerable to regional political relations, and tensions with neighbouring states over territorial disputes (for
example with Vietnam regarding the South China Sea) have dampened inbound travel figures in recent
months. Recovery in regional growth in key source markets such as South Korea, Japan and Singapore and
a devalued yuan (making travel to the country relatively cheaper) will boost the overall number of
international visitors in 2016, with the total rising to 27.2mn, reflecting growth of 4.6%.

China's inbound tourism market is expected to continue to grow over our five-year forecast period. The
main drivers behind this are economic conditions in key source markets which is driving demand, allied
with the increased capacity of air travel into and out of China which is decreasing the cost and improving
accessibility. The decreased strength of the yuan boosts this further, although there is little certainty of this

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China Tourism Report Q3 2016

lasting indefinitely. The further relaxation of visa restrictions will also support greater inbound travel several cities, including Changsha Qingdao, have been included on the 72-hour visa free travel list from late
2015. As a result we are forecasting average annual growth of 4.2% in tourism arrivals between 2017 and
2020 leading to a total inbound arrivals figure of just short of 32mn in 2020.

Total Arrivals
Total Arrivals (2013-2020)
40,000

7.5

5
30,000
2.5
20,000
0
10,000
-2.5

-5
2013

2014

2015

2016f

Total arrivals, '000 (LHS)

2017f

2018f

2019f

2020f

Total arrivals, '000, % y-o-y (RHS)

e/f = BMI estimate/forecast. Source: National sources, BMI

China's main regional source markets are Asia and Europe, which contribute 51.8% of and 22% of inbound
arrivals respectively (in 2016). Geography plays a major part of this for the closer Asian countries, but
China's role as a major part of the global supply chain and financial hub make it a major business
destination, particularly to the major cities. There is unlikely to be a major shift from this status quo, as both
European and Asian visitors are set to grow over the next few years at an average annual rate of 4.8% and
3.1% respectively, with only Africa growing faster (from a very low base - and mainly down to increased
economic links between China and the continent).

The rapid expansion of air travel to and from China will support this growth, with national carrier Air
China launching 29 international routes in 2015 alone. In 2016 the airline will launch China's first flight

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China Tourism Report Q3 2016

route to Cuba (via Montreal) and Emirates has announced the launch of new flights to Yinchuan and
Zhengzhou from May 2016. Additional flights are also being launched between the US and China by
airlines including United and Delta which will support the growth in arrivals from North America currently forecast at just over 4% annually over the forecast period. While the expansion of flight capacity
is aimed more at the large outbound travel market, it will in turn enable greater volumes of inbound travel to
China by expanding flight options and improving affordability.

On a more granular level, South Korea is (and will remain) by far the largest source market for China, with
total anticipated inbound arrivals of 5.2mn in 2020, up from 4.5mn in 2016. This growth is underpinned by
steady economic growth over the next few years boosting demand, and the cheaper yuan creating an
incentive to visit. Other Asian countries set to register fast growth include Singapore (with 1.4mn arrivals in
2020) and Mongolia (with 1.7mn arrivals) thanks to China's role as regional hub. Elsewhere, Russia is set to
return to growth following a decline in 2014 after a devaluation of the rouble decreased the ability of
citizens to visit abroad and in 2020 will be the fourth largest market with arrivals totalling over 1.6mn, after
the USA on 2.5mn. Japan is the second largest source market, with some 2.6mn arrivals expected in 2020,
though we caution this is dependent both upon domestic economic growth within Japan and upon improving
political relations between Japan and China meaning growth could fluctuate.

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China Tourism Report Q3 2016

South Korea And Japan Dominate


China - Inbound Tourism, Top 10 Markets by Arrivals ('000), 2016f

f = BMI forecast. Source: National Bureau of Statistics China, BMI

Despite the broadly positive outlook, there are some significant regional risks for China's tourism industry.
Regional tensions (such as the international dispute over the Seppuku islands), and recent nationalistic
rhetoric between the Chinese government and Japan has set nerves on edge, and any escalation may harm
tourism throughout the region as consumer confidence and economic activity declines. The Chinese stock
market also dropped significantly in 2015 and again in early 2016, which may deter investment in the future
due to increased uncertainty in the economic prospects. On a more local level, travel to specific destinations
such as Beijing may see a downturn following record levels of air pollution which led to the shutting of
major transport routes and schools in the city.

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China Tourism Report Q3 2016

Table: Inbound Tourism (China 2013-2020)

2013

2014

2015

2016f

2017f

2018f

2019f

2020f

26,290.30

26,360.80

25,985.40

27,183.74

28,884.25

30,026.24

30,996.03

31,997.15

-3.3

0.3

-1.4

4.6

6.3

4.0

3.2

3.2

552.70

596.90

580.20

637.89

690.33

747.47

802.52

853.69

5.3

8.0

-2.8

9.9

8.2

8.3

7.4

6.4

Arrivals by region,
North America, '000

2,769.50

2,760.30

2,765.60

2,995.89

3,133.60

3,223.27

3,299.73

3,374.67

Arrivals by region,
North America, % yo-y

-2.0

-0.3

0.2

8.3

4.6

2.9

2.4

2.3

414.40

438.44

468.80

479.11

504.33

510.81

513.74

512.86

4.8

5.8

6.9

2.2

5.3

1.3

0.6

-0.2

13,854.50

13,669.70

13,531.10

14,088.77

15,156.13

15,804.85

16,339.25

16,973.84

-5.3

-1.3

-1.0

4.1

7.6

4.3

3.4

3.9

Arrivals by region,
Europe, '000

6,766.20

6,529.30

5,808.50

6,020.32

6,252.82

6,468.39

6,663.68

6,795.88

Arrivals by region,
Europe, % y-o-y

-3.0

-3.5

-11.0

3.6

3.9

3.4

3.0

2.0

Total arrivals, '000


Total arrivals, '000, %
y-o-y
Arrivals by region,
Africa, '000
Arrivals by region,
Africa, '000, % y-o-y

Arrivals by region,
Latin America, '000
Arrivals by region,
Latin America, % y-oy
Arrivals by region,
Asia Pacific, '000
Arrivals by region,
Asia Pacific, % y-o-y

f = BMI forecast. Source: National sources, BMI

Marketing Strategies: Investing Heavily In Growth

China's large and increasingly affluent population is increasingly targeted by overseas markets keen to
attract a share of the growing outbound travel market. At the same time, China's own tourism industry
continues to market itself effectively and court travel into the country and the government has invested
heavily in transport infrastructure to allow it to flourish. The China National Tourism Administration
(CNTA) is the national agency in charge of tourism, though most provinces manage their own regional
tourism campaigns. The CNTA has a broad reach and has set up 20 offices in 15 countries globally
including Japan, Singapore, the USA, Canada, the UK, France, Spain Australia, Russia and India, which are
tasked with developing tourism relations. One of the largest is the China National Tourism Office in the

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China Tourism Report Q3 2016

USA - a key market for inbound tourism to China and the target of extensive investment. In 2016 the two
countries launched the 'US - China Tourism Year' campaign aimed at increasing travel between the USA
and China and implementing measures such as visa extensions.

Other ongoing national marketing campaigns include 'China Like Never Before' and 'Discover China' which
are both led by the CNTA. The country invests extensively in marketing China's attractions abroad,
participating in a range of trade events and setting up dozens of exhibitions and marketing events annually.
CNTA is also currently working on the '515 Strategy for Tourism Development' which encompasses five
objectives, 10 actions and 52 measures to promote tourism. The focus is largely upon expanding awareness
of China's many tourism destinations and facilitating travel by partnering with airlines and tour operators.
Programmes such as these are also supported by extensive government investment in transport
infrastructure, with USD12bn expected to be invested in airport infrastructure in 2016 alone. Other projects
include the expansion of cross-border rail connections which will improve accessibility for regional
markets.

International Tourism Receipts: Inbound Arrivals Growth To Swell Receipts

Tourism receipts will constitute USD56.15bn over 2016, representing growth of 4.7% on the 2015 figure
and indicative of the growing tourism industry in the country. As more and more tourists come to visit
(especially from economically prosperous countries) tourism receipts will increase accordingly. Transport
services (the smaller of the two classifications) will grow faster than travel items at 5.5%, and will total
USD4.9bn. Travel items will grow at 4.8% to reach USD51.3bn, representing a huge opportunity for
tourism-related retailers in China, particularly in conjunction with domestic tourism spending.

Over the medium term, there will be even more growth as the country develops its transport infrastructure
further (such as the construction of a new rail link with the capital of Laos which commenced in December
2015 and the huge expansion of budget airline connections) and expands the tourism sector across the
country. The devalued local currency attracting tourists from the likes of South Korea will increase
spending on internal travel and the items associated with them. International receipts for transport services
will reach USD6.3bn in 2020, following average annual growth of 6.5% over the forecast period. The
corresponding figure for travel items will be USD64.0bn, supported by steady growth in international
arrivals and investment in tourism related infrastructure including new shopping malls, theme parks and
related attractions across the country.

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China Tourism Report Q3 2016

Table: Tourism Receipts (China 2013-2020)

International tourism receipts, USDbn


International tourism receipts, USDbn, % y-o-y
International tourism receipts, CNYbn
International tourism receipts, CNYbn, % y-o-y

2013

2014e

2015e

2016f

2017f

2018f

2019f

2020f

56.40

55.48

53.55

56.15

60.46

63.93

67.13

70.28

2.7

-1.6

-3.5

4.9

7.7

5.7

5.0

4.7

346.78 341.85 336.54 381.67 433.79 463.46 486.73 509.49


0.1

-1.4

-1.6

13.4

13.7

6.8

5.0

4.7

International tourism receipts, transport services,


CNYbn

29.13

29.60

29.00

33.11

37.99

40.86

43.15

45.39

International tourism receipts, transport services,


CNYbn, % y-o-y

-5.9

1.6

-2.0

14.2

14.7

7.6

5.6

5.2

International tourism receipts, travel items, CNYbn


International tourism receipts, travel items, CNYbn,
% y-o-y

317.66 312.24 307.54 348.57 395.81 422.60 443.58 464.11


0.66

-1.70

-1.51

13.34

13.55

6.77

4.96

4.63

e/f = BMI estimate/forecast. Source: National sources, BMI

Hotels: Luxury Market Set To Grow

China has a well-developed hotel market, with international and domestic hotels acknowledging the high
potential of the tourism market in the country and investing accordingly. Most of the top global hotel groups
have entered the market, many in conjunction with local partners, and China is home to several huge
domestic hotel groups. By the end of 2016 there will be an estimated 22,950 hotels in the country and with
more developers announcing new projects in the pipeline we expect the total number of hotels to increase to
29,650 in 2020 making this one of the largest hotel markets globally. There are a range of different hotel
properties present in the market, with luxury hotels in the major cities and tourism hotspots combined with
business hotels and economy offerings. We expect to see a focus on investment in secondary cites and less
traditional areas of the country as the government looks to expand tourism across the whole country.

The average length of stay will remain static at around 2.7 nights throughout the forecast period which is
indicative of the country receiving a large number of visits from neighbouring countries for business travel,
compared to other areas such as beach holidays which attract longer stays. Weekend breaks to the country
are popular, and will remain so, and as the country continues to attract a diverse range of tourists there is
likely to be an increase in occupancy across the different tiers of hotels and in a positive sign for the
industry we expect to see the total number of overnight stays increase steadily throughout the forecast
period.

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China Tourism Report Q3 2016

Overnight Stays and Industry Value


Overnight Stays And Industry Value (2012-2020)

500
2020f

65,000
2019f

1,000

2018f

70,000

2017f

1,500

2016f

75,000

2015e

2,000

2014e

80,000

2013e

2,500

2012e

85,000

Total overnight stays, '000 (LHS)


Hotel and restaurant industry value, CNYbn (RHS)

e/f = BMI estimate/forecast. Source: National sources, BMI

The total value of the country's domestic hotel and restaurant industry is set to reach USD215.8bn by the
end of 2016, with strong growth in local currency terms reflecting steady growth in the number of
international visitors to the country. As visitor numbers increase throughout the forecast period, and as the
availability of high end hotel options which command higher room rates improves, we are forecasting
annual average growth of 6.6% between 2017 and 2020 leading to an industry value reaching USD277.8bn
by the end of the forecast period. Whilst recent concerns about the stability of the Chinese economy remain,
growth will continue over the next five years and the value of tourism to the wider economy will remain
stable.

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China Tourism Report Q3 2016

Table: Hotel Accommodation (China 2013-2020)

2013e

2014e

2015e

2016f

2017f

2018f

2019f

2020f

18.44

20.37

21.64

22.95

24.43

26.08

27.82

29.65

67,962.3 68,140.0 67,193.9 70,214.0 74,499.7 77,377.7 79,821.8

82,344.8

Number of hotels and


establishments, '000
Total overnight stays, '000
Average length of stay, nights

2.7

2.7

2.7

Hotel rooms, '000

2,655.00 3,010.33 3,361.56 3,561.43 3,768.45 4,019.84 4,305.68

4,754.30

Hotel and restaurant industry


value, CNYbn

1,148.74 1,256.05 1,359.92 1,466.73 1,588.46 1,723.35 1,865.80

2,015.26

Hotel and restaurant industry


value, CNYbn, % y-o-y

9.8

2.7

9.3

2.7

8.3

2.7

7.9

2.7

8.3

2.7

8.5

8.3

8.0

e/f = BMI estimate/forecast Source: National sources, BMI

Domestic Tourism: Transport Infrastructure Boost Domestic Industry

As well as an enormous outbound travel market, China is also home to the largest domestic travel market in
the world. The country's huge population of 1.4bn constitutes the bulk of tourism travel in the country
where there is a strong tradition of internal travel, particularly around national holidays, cultural and
religious events and major festivals, such as New Year festivities. China certainly has no shortage of
attractions to ensure domestic travel remains popular. The CNTA reports that the domestic tourism market
saw over 4bn tourism trips in 2015 alone, generating revenue of over USD620bn, and the organisation is
investing in expanding domestic tourism to rural areas (such as mountainous regions in the West of the
country) in order to spread the benefit of tourism related spending. At present a relatively small share of the
population is in possession of a passport while only around 50 countries globally allow for visa-free travel
(or visa-on-arrival) to Chinese passport holders. This means that demand for domestic travel is likely to
remain strong, despite the increase in outbound travel.

Demand for international travel from Chinese citizens has increased massively over the last few years more than doubling between 2010 and 2015. This has been driven by a growing middle class and a rising
average wage and consumer confidence throughout the country. Despite a fall in the stock market and
concerns about consumer confidence in a slowdown of the economy, demand will continue to grow as
wages continue to rise and as such outbound departures are set to reach 142.9mn by 2020, the largest
tourism market in the world. A burgeoning middle class with disposable income and cheaper international
flights has really driven this demand, and this trend will continue as other countries (such as the UK)

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decrease visa regulations and other red tape in order to attract wealthy visitors from this potential source
market.

Table: Tourist Departures and Consumption (China 2013-2020)

2013

2014e

2015e

2016f

2017f

2018f

2019f

2020f

Outbound,
total
departures,
'000

90,598.61

104,781.87

110,133.62

114,835.99

119,706.58

125,621.21

132,346.09

142,901.00

Outbound,
total
departures,
% y-o-y

17.8

15.7

5.1

4.3

4.2

4.9

5.4

8.0

Average
Tourist
departure
per 1000 of
the
population

0.07

0.08

0.08

0.08

0.09

0.09

0.09

0.10

e/f = BMI estimate/forecast. Source: National sources, BMI

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Industry Risk/Reward Index


BMI View: Overall, China receives a score of 47.85 out of 100 in BMI's Tourism Risk/Reward Index this
quarter, which places the country 18th out of 23 countries in the Asia Pacific region, ahead of Indonesia
and behind Laos.

Table: Asia Tourism Risk/Reward Index

Rewards

Risks

Rewards

Industry
rewards

Country
rewards

Risks

Industry
risks

Country
risks

Tourism
index

Rank

Australia

66.83

63.33

72.06

81.49

76.94

85.22

71.22

Thailand

75.99

85.30

62.04

58.23

62.46

54.77

70.66

Hong Kong

66.32

68.33

63.29

79.23

78.55

79.78

70.19

Japan

69.62

65.00

76.55

69.36

71.54

67.58

69.54

South Korea

69.93

70.00

69.83

66.73

71.33

62.96

68.97

Taiwan

69.62

76.67

59.04

61.94

68.83

56.30

67.31

Singapore

61.29

65.00

55.73

80.44

85.47

76.32

67.03

Macau

64.50

69.17

57.50

69.61

65.00

73.38

66.03

New Zealand

57.38

39.17

84.69

83.85

76.65

89.73

65.32

Malaysia

56.33

53.33

60.83

67.46

74.72

61.52

59.67

10

Myanmar

55.82

51.67

62.04

60.31

62.39

58.61

57.16

11

Vietnam

55.91

51.67

62.26

56.69

68.00

47.43

56.14

12

Sri Lanka

57.66

60.00

54.14

50.63

61.38

41.83

55.55

13

Maldives

53.27

58.33

45.68

59.75

68.96

52.22

55.22

14

Cambodia

57.89

68.33

42.21

39.07

31.35

45.38

52.24

15

Philippines

49.93

48.33

52.33

56.18

69.58

45.21

51.80

16

Laos

49.48

50.00

48.70

45.21

63.88

29.93

48.20

17

China

43.02

35.00

55.05

59.12

77.97

43.70

47.85

18

Indonesia

36.97

33.33

42.41

50.15

61.77

40.65

40.92

19

French Polynesia

38.00

36.67

40.00

42.30

50.00

36.00

39.29

20

India

36.22

30.00

45.54

44.27

29.99

55.95

38.63

21

Pakistan

34.28

33.33

35.69

44.53

59.37

32.39

37.35

22

Bangladesh

32.51

19.17

52.53

46.39

66.04

30.31

36.67

23

Source: BMI

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Rewards
This is an evaluation of the sector's size and growth potential in each state, along with broader industry/state
characteristics that may inhibit or enhance its development. The reward score for tourism takes into account
the number and percentage growth of tourist arrivals over the past year as well as our forecasts for growth
over 2016 and beyond. China scores 43.02 out of 100 this quarter, sitting well below the regional average of
54.73.

Industry Rewards

While arrivals to China declined in 2015, we expect the market to recover well in 2016, with further growth
expected throughout our five-year forecast period. Overall figures for tourism receipts and hotel occupancy
have been similarly enhanced and factored in accordingly, giving China an Industry Rewards score of 35.00
out of 100, behind the regional average of 53.53.

Country Rewards

In some areas, particularly major cities and transit hubs, China has highly developed infrastructure, and it
continues to invest in expansion and improvement projects across several areas including rail and air travel.
There is, however, significant scope for expansion in rural areas, and as such, China has a Country Rewards
score of 55.05.

Risks
This section offers an evaluation of industry-specific dangers and those emanating from the state's political
and economic profile that call into question the likelihood of anticipated returns being realised over the
assessed time period. China has an overall Risks score of 59.12, again below the regional average this
quarter.

Industry Risks

The Industry Risks score takes into account short-term political stability and regional stability, which is
strong in China given the control of the ruling Communist Party and regional stability. However, it also
considers China's vulnerability to external factors - in particular continuing tensions with Japan. China
scores 77.97, a relatively high score in the Asia-Pacific region.

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Country Risks

BMI's proprietary Country Risks score covers corruption, legal framework, bureaucracy, market openness
and security risks. Some risk exists in China due to allegations of corruption at high levels of government
and business. Complex bureaucracies also affect the ease of foreign investment, limiting market openness,
and China is traditionally secretive, limiting access to data in the international market. As such, China has a
relatively low score of 43.70.

Security Risk
China does have some ongoing regional security risks, including tensions with neighbours such as Vietnam
and Taiwan over disputed territory. However, we believe the possibility of an escalation of regional tensions
is unlikely. There is some risk of domestic terrorism relating mainly to grievances of the Uyghurs and other
Muslim/Turkic minorities in Xinjiang against the government in Beijing and the Han Chinese ethnic
majority. Regional crime can be an issue, but is rarely aimed towards tourists and reports of issues are rare.

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Market Overview
The hotel market in China is well developed, and a broad range of domestic and international hotel groups
are present, providing accommodation to suit all budgets across the vast majority of popular and established
tourist destinations. Opportunities still remain for foreign investors, particularly those working with local
partners to expand in the country or those introducing tailor-made brands specifically targeting the
enormous domestic travel market in China.

China offers enormous potential for hotel developers. In terms of an inbound tourism destination, the
country boasts a vast array of attractions to offer potential visitors and these attractions are spread across the
country, increasing opportunities for development outside of major city centres. China is home to 43
UNESCO World Heritage sites including the Forbidden City in the capital Beijing, the Terracotta Warriors
at Xian and the Great Wall of China, which all attract millions of domestic and international visitors each
year. As well as these cultural attractions, China has an array of eco-tourism sites, with panda tours in
Chengdu proving increasingly popular and sites such as Zhangjiajie National Forest Park gaining more
visitors. The extensive range of attractions will ensure that China maintains strong inbound tourism figures,
which will be further supported by the gradual relaxation of visa requirements which will make the country
more accessible for foreign visitors. China's strong location at the heart of the Asia-Pacific region also
ensures demand will continue to grow.

Perhaps the biggest draw for hotel developers in China is the huge domestic travel market as the country has
an enormous population of 1.38bn (estimated in 2016); and for many, domestic travel is still a more popular
and viable option than overseas travel. According to the China National Tourism Administration, domestic
travel has grown 10% every year for the past few years, and domestic tourism spending now contributes
4.0% to GDP. Domestic travel is boosted by a strong tradition of travel, particularly on National Day in
October (a public holiday), when many people visit cultural sites of historical importance, and during the
Spring Festival and New Year celebrations.

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Strong Tourism Market


Total Arrivals & Total Departues '000, Hotel & Restaurant Industry Value, USDbn
300

200,000

150,000
250
100,000
200
50,000

150

0
2013e

2014e

2015e

2016f

2017f

Hotel & restaurant industry value, bn


Outbound, total departures, '000

2018f

2019f

2020f

Total arrivals, '000

e/f = BMI estimate/forecast. Source: National sources, BMI

Consistently ranking as one of the most popular tourism destinations in China, the major city of Shanghai,
on the Eastern coast with a population of around 24mn, is well placed to keep up with the demands of the
tourism market. Shanghai is served by two airports. The smaller, Hongqiao International Airport, was the
first civilian airport in China and has been subject to extensive expansion and modernisation over the years.
Hongqiao International Airport now offers domestic and international flights, and is served by around 90
airlines. The much newer Shanghai Pudong International Airport is one of the largest and busiest airports in
the world and the third busiest airport in China - serving around 57.8mn passengers in 2014. In addition to
excellent air travel connections, Shanghai is also connected throughout China via extensive high-speed
bullet trains which facilitate intercity travel. All budgets are catered to by the hotel market in Shanghai, with
options ranging from budget backpackers and motels through to high-end luxury resorts, including a high
number of high profile international hotel groups.

Beijing presents a similar picture in terms of supporting infrastructure. Beijing International Airport is the
busiest in China and the second busiest globally (behind Atlanta in the US), serving over 86mn passengers
in 2014. Flag carrier airline Air China alone flies to 120 destinations from Beijing International Airport and

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most of the world's major airlines offer flights to the city. Within Beijing, as in Shanghai, an extensive
metro system, a well developed road network and an array of national rail connections helps ensure ease of
travel. Again the hotel market is well developed with all budgets catered for by domestic brands and
international hotel groups.

The city of Guangzhou, in the south of the country and north of Hong Kong, is the third biggest city in
China and also one of the most popular tourism destinations. During Chinese New Year, Guangzhou is the
site of the biggest human migration in the world. Guangzhou International Airport is the second busiest in
China, and again tourists will benefit from an extensive range of international and domestic air travel
connections. As a major trade hub, Guangzhou is also well connected domestically via extensive road and
rail links, as well as a massive port, and within the city is served by a modern metro system.

Outside of these major cities, China offers an almost endless array of attractions; and following extensive
investment in transport infrastructure over the years, most destinations are easily accessible via high-speed
rail connections, nearly 200 domestic and international airports and a large road network. Cities along the
coastline are also connected by extensive maritime channels. China has invested heavily in ensuring popular
tourist destinations are accessible - for example the Terracotta Warriors in Xian are connected to the world
via International Xian Xianyang Airport (which operates around 250 flight routes to nearly 100 domestic
destinations and international flight routes to 20 major destinations, mainly in Asia, but also connecting to
Europe) while two major rail terminals offer further domestic connectivity. As a vast country, some areas
are more difficult to reach, but only marginally. Jiayuguan City, for example, in the far West, home to
popular Jiayuguan Pass of the Great Wall is served by an airport which connects to Xian and by train to
cities including Beijing, Shanghai and Chengdu. Locations such as this one offer fewer accommodation
options, with the hotel market mainly dominated by domestic hotel groups, although again most budgets are
catered for.

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Extensive Hotel Options


Number Of Hotels, '000 & Hotel Rooms, '000
40

3,400

3,200
30
3,000
20
2,800
10
2,600

2,400
2013

2014e

2015e

2016f

2017f

2018f

Number of hotels & establishments, '000 (LHS)

2019f

2020f

Hotel rooms, '000 (RHS)

e/f = BMI estimate/forecast. Source: China Statistical Yearbook, BMI

As noted above, most areas in China boast a well-developed hotel market and many of the top domestic
hotel groups have a huge portfolio of properties across the country. Motels and inns have expanded rapidly
in the country in the last few years, catering to low budget domestic travellers. As China's economy has
expanded and the middle class has grown, we have also seen rapid growth in the mid- to high-end travel
market. Recent years have seen more investment in high-end, luxury travel, with large resorts gaining in
popularity and five-star plus hotels spreading in key tourism destinations. As inbound travel has increased
and China has become more open to both foreign visitors and foreign investors, we have also seen major
global hotel groups such as Accor, Hilton, Hyatt, Starwood and InterContinental Hotel Group
(IHG) expanding rapidly. As the hotel market has approached saturation in major cities such as those noted
above, many international hotel developers are turning to locations slightly further afield, where they
benefit from more extensive real estate opportunities and strong transport connections. Park Hyatt and
Sofitel properties opened in Sanya, for example, in 2015, while Ritz-Carlton opened its first golf resort in
China in Haikou, also on Hainan Island in the south of the country. Starwood also opened a new Sheraton
brand hotel in Heilongjiang Province in December 2015, the 72nd hotel in China under the Sheraton
brand. Of the top global hotel groups, Accor, IHG and Starwood are all well established, while Wyndham

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has formed the most extensive presence through its purchase of the Super8 motel chain and rapid expansion
of the Ramada brand of hotels. Partnering with local brands is a key avenue for growth and Spanish hotel
chain NH Hotel Group announced in March 2016 it had launched a new hotel company called Nuo Han
with HNA Group following the signing of a memorandum of understanding between the two companies in
2014. Nuo Han hopes to open its first two hotels by the end of 2016.

China is home to several major domestic hotel groups which boast extensive property portfolios. These
include Shanghai Jin Jiang International Holdings which has over 1,400 properties under brands
including Jin Jiang Hotels, Peace Hotels and Jin Jiang Inn Budget Hotels. Hotels are spread across 300
cities in 31 provinces, with a particular focus on Shanghai and Beijing. Home Inns Group is another large
domestic group, offering over 2,660 hotels in 338 cities, including major destinations such as Shanghai as
well as destinations further afield. Home Inns is more focused on the budget sector, but as China's
household spending capacity has increased the group recognised growing demand for mid-range
accommodation and launched the Yitel brand, which caters more to this market. Another major domestic
group is Plateno, which operates over 2,100 hotels in 300 cities under major brands including 7DaysInn,
Portofino Hotels, Lavande Hotel, James Joyce Coffete and ZMAX Hotel. China is also home to several
small domestic groups which concentrate more on the luxury, high-end travel market such as Metropark
Hotels and Wanda Hotels and Resorts.

The extensive development of the hotel market, including in locations outside the biggest cities, is
supported by China's extensive transport infrastructure network. China already has one of the most
extensive rail networks in the world and a range of projects to expand and modernise the network are
planned or under way. Government investment will take place not only at a national level, with several new
high-speed intercity rail connections under development, but also in terms of city infrastructure, with
several cities developing longer metro rail lines including Beijing, Jinan and Guangzhou, all of which will
improve ease of travel around the country for tourists.

China's connections to a range of countries will also be improved by the Chinese government's
announcement it is considering plans for a 6,000km high-speed rail link from Xinjiang Province in China,
which will pass through Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Iran, Turkey and Bulgaria, and
then into Western Europe. The USD150bn project will involve more than 40 Asian and European countries,
linking regions with a combined population of 3bn. The railway, called the Silk Road Economic Belt, will
be able to transport manufactured goods from China to the West. The project is expected to be completed by
2030 and could have a substantial beneficial impact on the tourism market. There are also plans to develop

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further rail connections to Russia and Mongolia, benefitting the tourism market as Russia is one of the
biggest source markets for arrivals to China.

China is also keen to expand its air travel capacity, which is vital to maintaining its position as a major
transit hub in the Asia Pacific region. The Chinese government plans to invest USD12bn in civil aviation
infrastructure, especially airports, in 2016. The government will undertake about 11 key infrastructure
projects and 52 expansion projects related to aviation. The Civil Aviation Administration of China (CAAC)
will expedite the construction of airports, including those in Beijing, Xiamen, Chengdu, Dalian and
Qingdao. The country also plans 66 civil airports on the Chinese mainland in the next five years, increasing
the number of such airports from 206 to 272, according to CAAC Deputy Director Dong Zhiyi (PTI). The
CAAC will collaborate with the National Development and Reform Commission to design a blueprint on
the locations where the civil airports are to be built before 2030. China will reportedly also help domestic
and overseas airlines to start more than 200 new international routes in 2016.

Airports that are currently construction include new international airports in Chengdu and Beijing. The the
Chengdu airport will entail an investment of USD11.2bn and will comprise three runways. Once complete
in 2025, the airport will be capable of handling 40mn passengers annually, making it the 16th busiest in the
world. The airport aims to reduce congestion in the country's rapidly rising air transport market. The
government also started building an international airport worth about USD13bn in China's capital Beijing in
December 2014. This CNY80bn (USD12.9bn) airport project will include four runways, a 700,000 square
metres terminal building and 150 gate locations. The project's associated infrastructure is expected to
include a rail link to Beijing South station. It is scheduled to be completed in October 2018.

China's major source markets for inbound travel are primarily its neighbours in the Asia Pacific market,
such as South Korea, Japan, Malaysia, Singapore, Mongolia and the Philippines. Travellers from these
regions range in budget and spending capacity and the hotel market has developed to cater for all sectors.
China also receives a high volume of travellers from major Western markets such as the US and Canada,
and the presence of the international hotel groups is generally focused on these sectors, tapping into a high
degree of brand recognition. For many hotel groups, however, the key source market in China is China itself
due to the massive volumes of domestic travel. As a result, recognised and popular domestic hotel brands
are likely to continue to dominate. Recognising the importance of the domestic travel market, international
hotel groups such as IHG have launched new brands in China specifically targeting Chinese consumers: the
Hualuxe Hotels and Resorts brand opened its first properties in Nanchang, Jiangxi, and Yangjiang,
Guangdong, and another 24 hotels are due to open by 2020 in 20 cities across China. IHG also plans to open
properties under the Hualuxe brand in various global cities such as New York and London, targeting the

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outbound travel market from China. This trend reflects the growing importance of the Chinese tourism
market and hotel operators are increasingly likely to focus branding and marketing on the Chinese market,
within China and around the world.

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Competitive Landscape
China is home to a well developed and diverse hotel market, though outside of major cities the penetration
by major global brands remains limited. There are a number of large domestic hotel groups which dominate
the budget hotel sectors, several of which are expanding outside of China into other emerging markets in the
region. We are also seeing a great deal of investment in the high-end hotel sector, particularly by recognised
luxury brands catering to an affluent domestic and international tourism market.

Domestic Hotel Groups

Table: Domestic Hotel Groups

Hotel Group

Presence

Shanghai Jin Jiang


Shanghai Jin Jiang is one of the largest hotel operators in China with more than
International Holdings 3,000 properties (and over 360,000 rooms) operating or under development across the world in
55 countries, of which around 1,400 are in China across 300 cities in 31 provinces, with a
further 1,070 hotels in Europe, 42 in Africa, 400 in America and 95 in other Asian markets. The
group was formed in June 2003 out of the merger of Shanghai Jin Jiang Holdings and
Shanghai New Asia and is now one of the largest hotel companies globally. Moving forward,
Jin Jiang is continuing its strategy of building different hotel brands, ranging from the budget
Jin Jiang Inn brand to the high-end J Hotel chain. The group reports having some 190,000
rooms under construction in a range of new properties.
Dalian Wanda Group

Dalian Wanda was established in 1988 and now operates across four key industries including
hotels and culture and tourism. Wanda Hotels and Resorts have 84 five-star and super fivestar properties catering to the high end luxury travel market with a further 69 hotels currently
under development, including properties in London, Chicago, Madrid and Sydney. Hotels are
operated under three brands, Wanda Realm, Wanda Vista and Wanda Reign. The company
both owns and manages hotels and properties for international hotel groups such as Sofitel,
Westin and Hilton.

Home Inns Group

Home Inns was established in 2002 and has expanded rapidly through several major
acquisitions. The group operates 2,661 hotels across 338 cities in China, including major
business destinations such as Shanghai and more remote rural destinations such as
Zhengzhou. In December 2015 Home Inns announced plans to merge with Hong Kong based
BTG Hotels Group, which was approved by shareholders in March 2016.

Plateno Hotels Group

Plateno Hotels Group was originally established in 2005 under the 7DaysInn brand, catering
to the budget travel market. 7DaysInn was listed on the NYSE in 2009, and in July 2013
Plateno Hotels Group was established, incorporating the 7DaysInn brand. The group now
operates hotels under four brands: Portofino Hotels, Lavande Hotel, James Joyce Coffete
and ZMAX Hotel. The presence across China is massive, with over 2,100 hotels in 300 cities
taking some 50mn room bookings a year and in 2014 the group expanded into overseas
markets in Thailand and Malaysia, followed by Indonesia, Laos, Sri Lanka, the Maldives, the
Philippines and Australia. Plateno now has over 6,000 hotels in operation or under
development and is the local partner for Hilton with plans to develop 500 Hampton By Hilton
brand hotels in China by 2020.

Huazhu Hotels Group

Formally known as China Lodging Group, Huazhu Hotels Group is a leading hotel operator in
China. The group has 2,763 hotels (owned, managed or franchised), offering over 278,843 hotel
rooms across 352 cities. Brands include HanTing, Hi Inn, Elan Hotel, JI Hotel, Starway
Hotel, Joya Hotel and Manxin Hotel. Huazhu Hotels also operates a hospitality loyalty
programme, with over 20mn members. In late 2014, the group agreed a strategic alliance with
Accor, a leading global hotel group, with Accor acquiring a 10% stake in the company. Under
the agreement, Huazhu will open between 350 and 400 new hotels in China.

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Domestic Hotel Groups - Continued

Hotel Group

Presence

HK CTS Hotels Co. Ltd More commonly known as Metropark Hotels, HK CTS Hotels is a wholly-owned subsidiary of
China National Travel Service Group Corporation. The group operates hotels under several
brands: Metropark, aimed at high end business travel; Traveler Inn for mid-range travel; and
Traveler Inn Express, aimed at the budget travel sector. The group has 50 hotels, including a
presence in Beijing, Shanghai, Chongqing, Hangzhou, Nanjing, Jinan, Taiyuan, Shenzhen,
Dalian, Shenyang, Suzhou, Zhuhai, Xiamen, Sanya, Yangzhou, Deqing, Chizhou, Dunhuang,
Jiyuan and Wuxi. The group also has hotels in Hong Kong and Macau. In 2015 the group
expanded in Europe via the acquisition of Kew Green which owns 44 hotels in the UK.
Green Tree Inn Hotel
Management Group

Green Tree opened its first property in Shanghai, China in 2004 and since then has expanded
rapidly with properties in over 400 cities in China, numbering some 2,400 hotels. These are
operated under a range of brands including Peel Tree Hotel, Green Oriental Hotel,
GreenTree Inn, GreenTree Eastern, GreenTree Alliance, Vatica and Green Union Hotel.
The group is aiming to expand overseas, including the opening of a new hotel in Bangladesh,
India, in 2015 and in total has around 600 hotels under development.

Source: Company websites

International Hotel Groups

Table: International Hotel Groups

Hotel Group

Presence

Accor

One of the leading international hotel groups in China, with 253 hotels, Accor is already well
established in the market. China has been noted as one of the key expansion areas for Accor,
and as mentioned above, the group recently acquired a 10% share in Huazhu Hotels Group, a
leading hotel operator in China. Under the agreement, Huazhu will open between 350 and 400
new hotels in China and Accor clients can also book Huazhu hotels through the Chinese
Accor website. Brands currently operated by Accor in China include Sofitel, Pullman,
Novotel, Grand Mercure, Mercure, Ibis and Ibis Styles.

Carlson Rezidor

Carlson Rezidor is also expanding in China, although on a slightly less ambitious scale. The
Belgium-based company has 14 hotels in the country with 28 new hotels under development
and is aiming for 50 properties by 2019, with Radisson Blu a major brand. Other brands
present in China under the Carlson Rezidor group include Radisson Red and Park Plaza. The
group is also introducing new brand Quorvus Collection to cater to the growing luxury
segment in China.

Choice Hotels
International

Choice Hotels has a very limited presence in China. The group has just three hotels, with two
located in Beijing and one hotel in Huludao. The brands operated by Choice Hotels in China
are Comfort Inn and Suites, Comfort Inn and Quality. Choice Hotels faces major
competition from entrenched domestic budget brands and is unlikely to expand rapidly in
China in the near term.

Best Western

Best Western currently has 20 hotels in the country. Best Western hotels can be found in
various locations including Beijing, Harbin, Shanghai and Xian. These hotels are operated
under the Best Western, Best Western Plus and Best Western Premier brands and gives
Best Western solid coverage over the mid-range hotel sector in China.

Hilton Worldwide

Hilton has expanded its presence in China and now has 74 hotels in the country. China is a
major market for Hilton, which recently entered into an exclusive licence agreement with local
hotel group Plateno Hotels to expand the Hampton by Hilton brand - the first of more than
400 planned sites opened in late 2015 when Hilton also opened its 32nd Hilton branded hotel
in Zhuzhou in partnership with Hunan Dahan Group.

Hyatt Hotels
Corporation

Hyatt is fairly well established with 40 hotels in China at a range of locations including major
cities such as Beijing and more remote locations. The group is present under several brands
including Grand Hyatt, Hyatt Regency, Park Hyatt, Hyatt House, Hyatt Place and Andaz.

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International Hotel Groups - Continued

Hotel Group

Presence
These hotels cater primarily to the high end travel market, offering extensive leisure and in
many cases business facilities.

Intercontinental Hotel
Group

InterContinental was the first international brand to enter China more than 30 years ago and
is still one of the biggest international chains present with 265 hotels in the country offering
over 85,000 hotel rooms and a further 205 new hotels under development. The group has
introduced the Hualuxe Hotels and Resorts brand, specifically targeting Chinese consumers
and other brands present include Holiday Inn, Crowne Plaza and Hotel Indigo.

Marriot International

Marriott is well established in China with around 89 hotels across the country. Brands under
the Marriott group in China include Renaissance, Ritz-Carlton, JW Marriott and Courtyard.
The group recently opened the Shenzhen Marriott Hotel Nanshan and has two new hotels due
to open in mid-2016.

Starwood Group

Starwood currently advertises over 138 hotels in China with a further 133 hotels under
development and due to open by 2023. The group opened a property under its W Hotels
brand in Beijing and plans to open seven W Hotels in the next five years across major Chinese
cities including Changsha, Chengdu, Shanghai, Suzhou, Sanya and Shenyang. Other brands
Starwood is expanding include the Aloft Hotels brand in Guangzhou and the Four Points by
Sheraton brand.

Wyndham Group

Wyndham has arguably the largest presence in China out of the international hotel groups,
reporting 1,012 properties on its website. The Ramada Plaza Changsha South which opened
in September 2015 was the group's 1,000th property in China. The purchase of the expansive
Super 8 Motel group in China, as well as several other small domestic hotel groups, has
rapidly expanded its hotel portfolio. Other brands under the Wyndham Group in China include
Howard Johnson, Ramada, Days Hotel and Wyndham Grand Plaza. Wyndham aims to
open eight Ramada brand hotels in China by 2017, adding to the 60 Ramada brand hotels
already present.

Source: Company websites

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13th Five-Year Plan


13th Five-Year Plan: Key Points
Summary Of Contents

Chapter 1: Overview

Chapter 2: Innovation To Drive Development

Chapter 3: Economic Institution

Chapter 4: Modernisation of The Agricultural Sector

Chapter 5: Industries

Chapter 6: Expand The Network Economy

Chapter 7: Build A Modern Infrastructure Network

Chapter 8: New-Type Urbanisation

Chapter 9: Regional Development

Chapter 10: Environmental Protection

Chapter 11: Continue Opening Up

Others:

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Chapter 1: Overview
Table: Targets

2015

2020

Annual
changes

66.7

>92.7

>6.5%

(2) Productivity: CNY10,000/person

8.7

>12

>6.6%

(3) Urbanisation rate, (residential), %

56.1

60

3.9*

(3) Urbanisation rate, (Hukou), %

39.9

45

5.1*

(4) Services as a share of GDP, %

50.5

56

5.5*

(5) R&D as a share of GDP, %

2.1

2.5

0.4*

(6) Patents per 10,000 people

6.3

12

5.7*

55.3

60

4.7*

(8) Broadband access, %

40

70

30*

(8) Mobile Wi-Fi access, %

57

85

28*

Binding

Indicator
Economic development
(1) GDP, CNYtrn

Innovation

(7) Contribution of technology advancement, %

People's living conditions


(9) Disposable income growth rate, %
(10) Average education level, year

>6.5
10.23

10.8

(11) Job creation, 10,000

>5,000*

(12) Poverty relieved rural population, 10,000


(13) Population with pension, %

0.57*

5,575*
82

90

(14) Reconstruction of shanty areas, 10,000

8*
2,000*

(15) Life expectancy, year

1*

Environment
(16) Arable land, 10mn Mu
(17) Additional land for construction, 10,000 Mu
(18) Water usage reduction per unit GDP

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18.65

18.65

0*

<3,256*

23*

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China Tourism Report Q3 2016

Targets - Continued

2015

2020

Annual
changes

Binding

15*

3*

18*

(19) Energy usage reduction per unit GDP


(20) Non-fossil fuel, %

12

15

(21) Carbon emission reduction per unit GDP


(22) Forest coverage, %

21.66

23.04

1.38*

(22) Forest reserve, bn metre cube

15.1

16.5

14*

(23) Air quality: days of good quality/365, %

76.7

>80

(23) PM2.5 reduction for polluted cities

Y
18*

(24) Water: better than class III, %

66

>70

(24) Water: less than class V, %

9.7

<5

(25) Other pollutants - chemical oxygen demand reduction, %

10*

(25) Other pollutants - ammonia nitrogen reduction, %

10*

(25) Other pollutants - sulphur dioxide reduction, %

15*

(25) Other pollutants - nitrogen oxides reduction, %

15*

*indicates cumulative. Source: BMI

Development Concepts: Innovation, Coordination, Environmentally Friendly, Open-Door, Sharing

The central government will urge officials to follow through on new development concepts and adapt to the
'new norm' of economic development. The government will help expand total demand (via monetary and
fiscal policies) if necessary, but will mainly focus on supply-side structural reforms, so that production will
fit the increasingly sophisticated demands of the Chinese population.

Chapter 2: Innovation To Drive Development


Technology And Innovation

Support the development of frontier tech and science.

Let enterprises to lead innovation, while using national funds to develop large projects.

Construct high-end national science laboratories for the development of fundamental sciences.

Develop large high-tech and innovation centres to utilise economies of scale.

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Mass Entrepreneurship And Innovation

Encourage the development of service centres in different parts of China to start-up companies and smalland medium-sized companies.

Encourage the population to participate in the mass entrepreneurship and innovation programme by
promoting crowd-sourcing, collective support and crowd-funding.

Build A System That Encourages Innovation

Instead of pushing for innovation themselves, government entities should provide services to those who
innovate.

Develop and enhance the system to ease the process of monetising technological achievements. Ensure
that technocrats and scientists can earn a proportional profit for the technological advancement they bring
about.

Develop a system that supports mass innovation.

Focus On Talent

Continue to expand the pool of skilled labour.

Improve the allocative efficiency and mobility of skilled workers.

Improve the work environment for talent, attracting foreign talent and encouraging overseas students to
come back.

Develop New Drivers For Growth

Promote the upgrade of consumer goods to meet the needs of more sophisticated consumers.

Expand effective investment.

Find new comparative advantages for exports.

Chapter 3: Economic Institutions


Enhance The Existing Economic System

State-owned enterprise (SOE) reforms: Continue to consolidate SOEs, make them bigger, better and
stronger.

Strengthen the system to manage SOE assets: develop national investment and management companies to
manage state assets.

Promote mixed ownership structure for companies.

Promote the healthy development of the non-public sector.

Adopt modern practices with regards to the protection of property rights.

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Improve Market Efficiency

Continue price reforms on commercial goods and promote fair competition.

Deepen Reforms For The Administrative System

Allow decentralisation to prevent excessive intervention of government authorities and simplify


administrative processes.

Improve the efficiency of oversight and services.

Speed Up Fiscal And Taxation Reform

The central government should wield more power and responsibility in terms of fiscal decision-making;
continue to conduct taxation reform; improve the system for transfer payments from the central
government to local governments; and improve the efficiency of fund allocation for local governments.

Regulate the budget disclosure process and improve transparency.

Continue to reform the tax system.

Improve the sustainability of government spending.

Financial Sector Reforms

Allow the development of various financial institutions to meet different financial needs of the
population.

Improve transparency of the financial system and deleverage the financial market.

Enhance the oversight mechanism and improve efficiency.

Improve Macroeconomic Management Skills

Local governments need to follow the central government's plans and strategies.

Improve and develop new methods for macroeconomic management.

Improve the decision-making and execution process for economic policies.

Adopt the negative list system to improve the investment and financing experience for enterprises.

Chapter 4: Modernisation Of The Agricultural Sector


Food Security

Ensure food production security by preventing the reduction of arable land and improving the quality of
arable land.

Encourage farmers to change their production to better fit market demand.

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Push for the development of secondary and tertiary sectors in rural areas.

Improve the quality of food by setting stricter standards and improving supervision.

Improve the sustainability of the agricultural sector by promoting environmentally friendly production
methods.

On the international market, China should import only when needed, and needs to export more.
Companies need to continue to seek overseas investment opportunities.

Modernise The Business Model In The Agricultural Sector

Allow companies to gain economies of scale through long-term land leasing and other methods.

Encourage the development of new types of business entities (such as cooperative) in the sector.

Strengthen the development of agriculture-related service sectors.

Encourage the use of machinery in agriculture for more efficient production; utilise information
technology to improve management and allocative efficiency.

Improve Support And Protective Measures For Agriculture

Government will extend subsidies in the agricultural sector.

Improve the pricing and storage policies for agricultural products.

Improve financial services in the rural areas.

Chapter 5: Industries
Manufacturing

Increase the potential for further industrial upgrades by focusing on materials science and other key
technologies that are fundamental to industrials.

Promote the development of new manufacturing methods (such as intelligent manufacturing).

Push for the upgrade of traditional manufacturing sectors.

Enhance the quality and branding of Chinese products.

Curb overcapacity through market measures, financial subsidies, legal or even administrative measures.

Lower costs for companies: simplify regulation, provide tax relief, and lower energy prices and logistics
costs.

Support The Development Of Cutting-Edge Industries And Let Them Drive Growth

Let cutting-edge industries support growth.

Support the development of strategically important industries (such as aerospace, IT, life science and
nuclear).

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Allow these industries to gain economies of scale.

Improve the business environment for them.

Support The Development Of The Services Sector

Promote the professionalisation of producer services (such as consulting, legal, ratings, etc).

Improve the quality of consumer services (such as tourism, entertainment, etc).

Allow the market to play a greater role by enhancing the regulatory environment.

Chapter 6: Expand The Network Economy


Build A More Efficient Information Network

Improve the high-speed fibre network and mobile network system.

Speed up the development for IT technology.

Increase the speed for networks and reduce fees.

Internet + Plan

Enhance knowledge of fundamental IT technology.

Promote the bridging of Internet and offline industries.

National Big Data Strategy

Speed up the process of official data-sharing programmes.

Promote the healthy development of the big data industry.

Promote cybersecurity.

Chapter 7: Build A Modern Infrastructure Network


Improve The Existing Modern Transportation System

Enhance the national railway system.

Develop an intercity urban transport system.

Improve the efficiency and role of national transportation interchanges.

Reduce carbon emissions; adopt IT to improve the efficiency and reliability of managing the
transportation system.

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Modernise The Energy Sector

Shift energy consumption structure towards the use of more environmental friendly energy sources.

Develop a more intelligent energy transfer and storage system.

Use IT to develop an intelligent management system of energy production.

Water Safety

Improve the allocative efficiency of water resources.

Perfect hazard prevention measures (flood and drought control).

Chapter 8: New-Type Urbanisation


Speed Up The Process Of Converting The Rural Population To Urban Citizens

Deepen Hukou reform.

Adopt a residential certificate system for all cities to ensure social security coverage.

Improve the system of such conversion processes.

Improve The Layout Of Cities

Promote city clusters and use them as the blueprint for regional development.

Adopt the 'central cities + satellite cities' model to improve resource allocation efficiency in each region.

Promote small- and medium-sized cities and cities with unique characteristics.

Improve Living Conditions In Urban Areas

Promote new-type urbanisation.

Improve infrastructure in cities.

Speed up the reconstruction of the shantytowns and develop necessary amenities.

Improve the efficiency and quality of managing cities.

Enhance The Housing Supply System

Provide housing subsidies to less-well-off families; improve the public housing system; continue
to manage housing markets to ensure the healthy development of property markets.

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Coordinated Development Between Urban And Rural Areas

Promote county economies; improve the countryside; allocate public resources to rural and urban areas
equally.

Chapter 9: Coordination Of Regional Development


Follow The Central Government's Plan

Promote the western development plan.

Revitalise northeast China and other traditional industrial hubs.

Support the development of Central China.

Allow East China to lead economic and social development.

Richer regions to support the poorer regions.

Jing-Jin-Ji Integration

Offload non-essential functions from Beijing.

Optimise the space usage in the region and allocate adequate functions.

Build an integrated transportation system.

Improve environmental conditions.

Promote the sharing of public services within the region.

The Yangtze River Economic Belt

Environmental protection: reduce water pollution and increase vegetation coverage.

Improve the quality of the transportation system along the Yangtze River.

Improve the strategic layout and allocation of industries for cities along the Yangtze River.

Subsidise The Development Of Less Developed Regions

Support the development of old revolutionary bases, autonomous regions and border areas.

Promote industrial transformation in those regions.

Marine Economy

Promote the development of the marine economy.

Enhance environmental protection in the seas.

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Protect maritime sovereignty and develop a mechanism to settle territorial disputes.

Chapter 10: Environmental Protection

Optimise the urbanisation layout in China by following the 'Two Horizontal Lines, Three Vertical Line'
layout.

Avoid waste of natural resources (water, land, mining products, etc).

Develop a 'Circular Economy' to encourage recycling, and improve the efficiency of resource
consumption.

Reduce pollution and emissions, prevent environmental hazards; strengthen environment-related


infrastructure and legal systems; allow degenerated regions to recover.

Promote environmental protection industry.

Chapter 11: Continue Opening Up


Set Up Multi-Dimensional, Multi-Tiered And Composite Connectivity Networks

Continue to cooperate with other countries to dissolve excess production capacity.

Exporters need to upgrade their production.

Continue to attract foreign investment and scale up outbound investments.

Improve the institutions for cross-border business activities.

Promote the implementation of the OBOR initiative.

Others:
Intensify Cooperation With Hong Kong, Macau And Taiwan

Strive To Alleviate Poverty

Take targeted measures to ensure that assistance reaches poverty-stricken villages and households.

Improve The Education And Physique Of The Population

Deepen healthcare reform.

Support the development of Chinese traditional medicine.

Improve the medical insurance system to cover the entire population.

Improve institutions and mechanisms for managing and supervising food and drug safety.

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Improve The People's Well-being

Local governments need to be proactive in promoting job creation.

Reduce income inequality in China.

Improve the social security system in China.

Do a better job creating employment.

Editor's note: This is an unofficial BMI summary of the 13th Five-Year Plan. It is a translation of the text
that was presented by Chinese state-owned media after it was approved by the National People's Congress
on March 16 2016 (see source below). The purpose of this translation is to provide as accurate an account
as possible in English of the key points of the 13th Five-Year Plan. An official translation in English
sanctioned by the government is expected to be made available later in 2016, which may have discrepancies
compared with this translation.
Source: Xinhua News Agency (http://news.xinhuanet.com/politics/2016lh/2016-03/17/c_1118366322.htm)

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Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise model we use varies from industry to industry. In each case this
is determined, as per standard practice, by the prevailing features of the industry being examined.

Common to our analysis of every industry is the use of vector autoregressions. Vector autoregressions allow
us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.

When forecasting some of our industry sub-component variables, however, using a variable's own history is
often the most desirable method of analysis. Such single-variable analysis is called univariate modelling.
We use the most common and versatile form of univariate models: the autoregressive moving average
model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality
is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for
analysis and forecasting.

BMI mainly uses OLS estimators. In order to avoid relying on subjective views and encourage the use of
objective views, we use a 'general-to-specific' method. We mainly use a linear model, but simple non-linear
models, such as the log-linear model, are used when necessary. During periods of 'industry shock', such as
poor weather conditions that affect agricultural output, dummy variables are used to determine the level of
impact.

Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:

R2 tests explanatory power; adjusted R2 takes degree of freedom into account;

Testing the directional movement and magnitude of coefficients;

Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);

All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.

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BMI uses the selected best model to perform forecasting.

Human intervention plays a necessary and desirable role in all our industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features, while a purely mechanical forecasting process would not.

Sector-Specific Methodology

A number of principal criteria drive our forecasts for each tourism sector variable.

Figures for the tourism sector data are based, where possible, on industry associations/operators,
government/ministry sources and official data. Where these are unavailable, tourism forecasts are based on
a range of variables:

Government policy, industry trends and expenditure levels stated in international and national press.

Industry trends and expenditure levels stated in tourism companies' official financial reports or releases.

Likely expenditure and growth patterns owing to international developments and demographic patterns.

Likely alterations in expenditure patterns owing to economic/political activity.

Risk/Reward Index Methodology


BMI's Risk/Reward Indices provide a comparative regional ranking system evaluating the ease of doing
business, and the industry-specific opportunities and limitations for potential investors in a given market.
The system divides into two distinct areas:

Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub categories:

Industry Rewards. This is an industry-specific category that takes into account current industry size and
growth forecasts, and the openness of a market to new entrants and foreign investors, to provide an
overall score for potential returns for investors.

Country Rewards. This is a country-specific category, and the score factors in favourable political and
economic conditions for the industry.

Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period. This is further broken down into two sub categories:

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Industry Risks. This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry, and the relative maturity of a market.

Country Risks. This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.

We take a weighted average, combining industry and country risks, or industry and country rewards. These
two results in turn provide an overall Risk/Reward score, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.

For each category and subcategory, a country is scored out of 100 (100 being the best), with the overall
Risk/Reward score a weighted average of the total score. Importantly, as most of the countries and
territories evaluated are considered by BMI to be 'emerging markets', our indices are revised on a quarterly
basis. This ensures that they draw on the latest information and data across our broad range of sources, and
the expertise of our analysts.

BMI's approach in assessing the risk/reward balance for industry investors globally is fourfold:

First, we identify factors (in terms of current industry/country trends and forecast industry/country
growth) that represent opportunities to would-be investors.

Second, we identify country- and industry-specific traits that pose or could pose operational risks to
would-be investors.

Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/
trends to avoid subjectivity.

Finally, we use BMI's proprietary Country Risk Index in a nuanced manner to ensure that only the
aspects most relevant to the industry are incorporated. Overall, the system offers an industry-leading,
comparative insight into the opportunities/risks for companies across the globe.

Sector-Specific Methodology And Weighting

In constructing these indices, the following indicators have been used. Almost all indicators are objectively
based. Given the number of indicators/datasets used, it would be inappropriate to give all subcomponents
equal weight. Consequently, the following weighting has been adopted:

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Table: Weighting Of Indicators

Weighting, %
Rewards

70, of which

Industry Rewards

60, of which

Tourist arrivals, '000

20

International tourism receipts per visitor, USD

20

Arrivals growth, %

20

Tourism receipts growth, %

20

Hotel occupancy, %

20

Country Rewards

40, of which

Physical infrastructure

50

Labour costs

50

Risks

30, of which

Industry Risks

45, of which

Stability of exposed region

50

Short-term political stability

50

Country Risks

55, of which

Legal framework

20

Corruption

20

Bureaucracy

20

Market openness

20

Security risk

20

Source: BMI

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