The China National Tourism Administration (CNTA) this month reduced limitations imposed on foreign-invested travel agencies. The registered capital for foreign travel agencies has been lowered to levels much closer to those of domestic travel agencies, and restrictions on setting up branches in the country have also been scrapped.

China first allowed foreign investors to hold majority stakes in joint venture agencies in early-2003, and gave the go-ahead for the establishment of solely foreign-funded travel agencies in December 2005. However, the high capital required has, for the most part, kept the industry relatively small. At the end of 2006, there were only 25 approved foreign-controlled and solely foreign-funded travel agencies. All were required to have a minimum registered capital of 4 million yuan (US$515,000).

A spokesman from a prominent foreign luxury tour operator in China said the reduced capital requirements did not necessarily mean there would immediately be obvious changes to the marketplace.

"We might take advantage of the changes, so we can get our foot in the outbound market. But like many others, we do not want another office in China. We have local partners in other provinces, so it is really unnecessary. There is no advantage to us other than getting the brand into the Chinese market, which might be useful if there are more changes to the regulations."

Although some foreign companies have already started planning expansion across China, including TUI China, the first joint venture in the Chinese travel industry with a foreign majority, it seems the regulations may have the largest impact on local agencies in the short-term.

China International Travel Services president, Mr Yao Yuecan, said small China agencies had begun cutting prices to compete against expanding Chinese state-owned agencies and also in preparation for the potential influx of foreign agencies. Moreover, since changes to the regulations were announced earlier this year, many local Chinese firms have rushed to secure a foothold in hot tourism areas to seek an advantageous position in the tourism market.

Beijing International UTS Travel Service manager for international tours, Mr Guo Feng, also expressed concern: "I think the result will be that foreign travel agencies will increasingly merge with or take over domestic agencies."  

Most analysts are urging the domestic market to remain calm. Shanghai Municipal Tourism Administrative Commission head of market management, Mr Su Guangjian, said: "A large influx of foreign travel agencies will not occur in a short time, as they first have to research market potential."

The spokesman from the luxury tour company said: "The current industry is a total mess...The rules are destructive. These new regulations are one step closer towards liberalization, but they are meaningless right now...I do not know when the full force of the regulations will be felt. The government has been talking about them since 2003."

"It will probably happen after the Olympics, definitely not before as this is their big moneymaking chance now. It is interesting the Chinese consumer is going to be the one who ultimately pushes the changes. Their reactions to and outrage over recent outbound tours shows that something has to be done."

(TTG August 3, 2007)