Thailand's economic outlook dims on fewer low-budget Chinese tourists

Thailand is nursing a slide in Chinese holidaymakers after cracking down on low-budget tours from the world's most-populous country, muddying the Southeast Asian nation's economic growth outlook.

Arrivals fell about 30 percent in November from a year ago, extending a slide that began in September after Thailand clamped down on operators bringing in large groups from China on cut-price holidays. Some of the impact could linger in the early part of 2017, according to Kasikorn Research Center Co.

Thailand is seeking to focus on smaller groups of higher-spending visitors to bolster the tourism industry longer term. The unknown is the severity of the short-term pain. Chinese visitors last year were the most by headcount and tourism accounts for about 11 percent of Thailand's $395 billion gross domestic product. Economic expansion was subdued even before the move against the so-called zero-dollar tour groups from China.

"The impact may continue to the first quarter as tour operators will take some time to adjust packages," saidPimonwan Mahujchariyawong, an economist at Kasikorn Research in Bangkok. "After that, things should get back to normal. It's good for the long term to boost the quality of our services and improve our image among tourists. It's short-term pain, long-term gain."

Companies such as Nok Airlines Plc have felt the squeeze: the drop in Chinese tourists is one reason why the Thai budget carrier doesn't expect to make a fourth-quarter profit.

Holidaymakers from China accounted for about 438 billion baht ($12.4 billion) of the 1.64 trillion baht Thailand earned from foreign tourists last year, the government estimates.

The Stock Exchange of Thailand's 12-member tourism and leisure index has declined 6 percent since the start of September 2016, compared with a 2 percent climb in the benchmark SET index over the same period.

Tourist arrivals are forecast at 34.1 million this year, up 5 percent from 2016 but down from an earlier projection of 36.3 million, according to the Bank of Thailand. The number of Chinese visitors post-clampdown is among downside economic risks, and GDP expansion likely slowed to 2.8 percent in October through December, the monetary authority has said.

A mourning period for the late King Bhumibol Adulyadej after his death in October also restrained consumption last quarter.

This year, flooding in the south of the country has affected a number of rubber plantations and a prolonged inundation could lead to damage equivalent to 0.7 percent of GDP, the Thai Chamber of Commerce said on Tuesday.

The central bank predicts economic growth of 3.2 percent in 2017, the same clip as last year, helped by the government's plan to ramp up infrastructure projects and a gradual recovery in Chinese arrivals. The pace of GDP expansion remains below neighbors in Southeast Asia.

The government eased some of the blow from the zero-dollar crackdown by temporarily reducing visa fees in December to lure visitors. The pristine beaches of resorts such as Phuket and Krabi, as well as the nightlife of Bangkok, remain big draws.

Tourism will continue to help drive expansion in 2017 and economic growth will likely be more balanced, with private consumption and investment providing increased support, saidSomprawin Manprasert, chief economist at Bank of Ayudhya Pcl in Bangkok.

"This incident is expected to be only a short-term blip," said Somprawin, referring to the zero-dollar crackdown.

Some of the business models in Thai tourism weren't sufficiently profitable, and both government and the industry need to ask how they can start adding value, said Stanley Kang, chairman of the Joint Foreign Chambers of Commerce in Thailand.