China’s tourism sector recovery has slowed since mid-2021 and will remain volatile in 2022 as a result of travel restrictions amid a resurgence of Covid-19 cases, Fitch Ratings says in its latest China Corporates Snapshot report.

Domestic tourist numbers and revenue in 2021 declined to around 50% of pre-pandemic levels from over 60% in 1H21 and remained weak entering into 2022.

Fitch believes the government’s Covid-19 policies are largely driving the sector’s recovery path and an escalation in virus cases could weigh on tourism activities, putting a drag on China’s economic recovery. Tourism - which contributed 11% of China’s total GDP in 2019 - has been fuelling China’s economic growth. The pace of tourism growth has outperformed total GDP since 2014, except in 2020.

Still, China’s tourism sector recovery is uneven. Leisure travel has recovered rapidly as travel preferences shifted towards short-distance, high-quality vacations and family entertainment, such as theme parks. In the scenic spots market, which generally targets non-local tourists, the recovery has been much slower. Scenic spots have faced higher operational volatility because the destinations are more affected by cross-provincial travel restrictions.

Fitch believes travel restrictions remain a key business risk for scenic spot operators in 2022. That said, publicly listed market leaders’ liquidity buffers are generally robust and their debt burdens are low, as many had strong pre-Covid balance sheets, and scenic spot operations are highly cash generative and have low capex requirements.