Asia's Tourists Hit the Beaches, Warming Region's Economy

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via CAAI News Media

By ALEX FRANGOS

SIEM REAP, Cambodia—Resurgent tourism within Asia is helping to drive economic recoveries, and demonstrating the growing power of regional consumers.

Associated Press

In this June 8, 2006 file photo, towers of the legendary Angkor Wat temple are seen north of Siem Reap provincial town, about 230 kilometers, 143 miles, northwest of the capital Phnom Penh, Cambodia

via CAAI News Media

By ALEX FRANGOS

SIEM REAP, Cambodia—Resurgent tourism within Asia is helping to drive economic recoveries, and demonstrating the growing power of regional consumers.

Just ask Kwong Meng Geip, a purveyor of a medicinal mushroom spirit a few miles from the ancient temples of Angkor Wat. South Koreans who arrive on tour buses are the biggest buyers of the unique brew he makes in clay barrels. And the Koreans are flowing back after a slow 2009.

"My business is better than before," says Mr. Kwong, as he presides over displays of the yellow-tinged liquor at the Angkor Rice Wine Workshop, a distillery and souvenir shop he owns. "It releases the hurt," he says of the liquor.

Mr. Kwong attributes the medicinal benefits to the special 150 pound soo krom mushrooms used to make the mild-tasting liquor, which sells for $25 a bottle.

What's happening at Mr. Kwong's shop is playing out across the region. Unlike the U.S. and Europe, where unemployment remains high and consumers are cautious, Asia's unemployment rates are falling. That has given Asians the confidence to travel, some for the first time.

Tourism generally accounts for a relatively small share of economic output. But it signals an important willingness among consumers to spend.

Consumption spending more broadly has been driving growth across Asia. Government stimulus spending and subsidies for consumers to buy big-ticket items such as cars and appliances have helped economies expand at healthy rates. Chinese consumers bought more cars than Americans last year, for instance.

But the shift into travel spending, seen as a big-ticket discretionary item, is a sign perhaps of the next stage of the recovery.

Unlike government-encouraged car purchases, "personal travel is a real indicator of consumer spending, in the sense that there are no subsidies involved," says Yuwa Hedrick-Wong, chief economist for MasterCard Worldwide, based in Singapore.

He says Asian consumers, not burdened by debt as were many in the West, socked away money during the downturn and are now spending some of those savings on travel.

Like auto purchases, tourism is a spending multiplier that puts money in the hands of a diverse set of actors in the economy, from airline pilots to taxi drivers and chambermaids. "It's a very good industry as a growth stimulus for the destination countries," says Mr. Hedrick-Wong.

The rise in intra-Asia tourism may help achieve a long-term goal sought by many policy makers around the world: a rebalancing of the global economy in which consumer spending becomes a bigger driver of Asia's growth.

To be sure, Asia's export-dependent economies still need American and European demand for their goods. And that goes for tourism. High-spending Americans and Germans are a critical source of demand in places such as Thailand and Indonesia. But more intra-Asian travel helps to ameliorate the sluggish travel recovery among Western consumers as they pay off home loans and credit-card bills.

An important source of tourism revenue for the rest of the region is China. During the Lunar New Year holiday in February, a popular time for travel in the Chinese world, the number of mainland Chinese who went abroad increased nearly 21% from the year before to 2.4 million, according to government statistics.

Zu Hui, 28 years old, a worker at an oil-trading company in Beijing, recently took her honeymoon trip to the beach island of Phuket, Thailand. It was her first exploration outside China, and she called it "a great trip" filled with romance and water sports.

She says going abroad can be cheaper than traveling within China, and it allows her to avoid the crowds in China during peak holiday periods. She's now planning a trip to Dubai.

In Malaysia, tourist arrivals have "not been disrupted because most of them come from Asia and the Middle East and from the emerging world," says central bank governor Zeti Akhtar Aziz.

Malaysia bucked the global downtrend in travel and managed to attract 22 million tourists in 2009, a 7% increase from the year before. Tourism spending helped boost fourth-quarter growth to 4.5%. More than a million tourists came from China for the first time. India sent nearly 590,000 tourists to Malaysia.

Overall, Southeast Asia saw a 2% increase in international visitors in 2009, according to the Pacific Asia Travel Association. Global international travel fell 4%, says the World Travel Organization, led by Europe and North America, both down 6%.

The return of tourism activity is especially important to parts of Asia where the leisure travel industry is a key component of growth.

Tourism expenditures made up 13.6% of GDP in Cambodia in 2008, 9.5% in Malaysia, and 8.4% in Thailand, according to the United Nations World Travel Organization. Taiwan credited its stronger-than-expected growth to a surge in tourism after rules were relaxed on visitors from mainland China.

In the dusty colonial town of Siem Reap, visitors from South Korea, China and Taiwan have begun to stream in again after a sharp downturn in 2009. The number of Korean tourists venturing to Cambodia dropped 26% in 2009, as Korea's currency lost almost a third of its value during the financial crisis.

By December, however, Korean arrivals to Cambodia bounced back 21% compared to 2008 lows. Visitors from China and Taiwan also rebounded sharply in December, up 14% and 34% respectively, according to Cambodia's Ministry of Tourism. Tour guides, motor-taxi drivers and folks like Mr. Kwong, the winemaker, are starting to get busy again.

"More and more people are coming," says Lee KyungMi, owner of Damnak Spa, a small hotel and spa in Siem Reap that caters to Korean visitors. The native of Seoul cautions business is still not where it was two years ago, when a quarter-million Koreans visited Cambodia, many to see the Buddhist temples around Angkor Wat.

The main drag in Siem Reap is lined with Korean-owned hotels and Korean barbecue restaurants. And three new golf courses are also a magnet.

"Korean golfers are our major market," says Adam Robertson, manager of the Angkor Golf resort. They make up 70% of his customers. "When the Korean won devalued, that was hard to take." January and the first half of February was "very good."

High-end hotel operators in the area say they have seen a pickup in travelers from the U.S. and Europe, but they are aiming their biggest growth at Asian travelers.

"The last two months a lot more Koreans are coming," says Emmett McHenry, general manager at the Sokha Angkor Resort in Siem Reap. He has offered special deals to Chinese and Korean travel agencies and figures one-quarter of his visitors are from the two countries.

The rebound in travel spending points to a possible sweet spot in Asian growth. A modest demand recovery in the U.S. and Europe, combined with a confident Asian consumer, could be enough to keep Asia's economies humming for awhile.

—Juliet Ye contributed to this article.

Write to Alex Frangos at alex.frangos@wsj.com