1. Forecasts of Demand for Hong Kong Tourism 2005-2020
Prof. Haiyan Song
School of Hotel and Tourism Management
The Hong Kong Polytechnic University
Tourism in Hong Kong has become the second largest foreign currency earner since 1995 and the income generated from tourism has contributed around 6% to the Hong Kong gross domestic products (GDP) over the last decade (HKTB, 2002 and 2003). International tourism arrivals in Hong Kong increased from 0.93 million in 1975 to million in 2004, representing an average annual growth rate of around 10.9% which was higher than most of the destinations in the Asia-Pacific region during the same period. The growth of tourist receipts has been even more spectacular, rising from HK$2,975 million in 1975 to HK$91,850 million in 2004 with an annual growth rate of about 12.1%. The total number of tourist arrivals dropped by 7% (9.9 million) in 2003 due to SARS, resulting in a substantial decline of incoming tourism receipts of 11%. This shows the industry is vulnerable to external shocks, and appropriate crisis management strategies and policies within the public and private sectors are crucial for minimizing the negative impacts of external shocks to the industry.
Inbound tourism in Hong Kong has been dominated by arrivals from mainland China, and this trend will continue, as the independent travelers scheme will be extended to more cities in China. Total arrivals of Mainland China visitors increased from almost none existence in the early 1980s to 4.8 million in million mainland Chinese visitors visited Hong Kong in 2004, accounting for 56.1% of the total arrivals. The influx of mainland travelers poses a number of issues such as tourism carrying capacity, provision of new products and services, and the social, cultural and environmental consequences.
Although the tourism industry has played an ever-increasing role in the generation of wealth and employment in Hong Kong, it also faces the critical problem of creating and maintaining a sustainable competitive advantage in an environment of increased globalization and economic integration in Southeast Asia. In particular, Hong Kong will have to compete for international tourists with such destinations as Singapore, Taiwan, Thailand and China. In order to respond effectively to this challenge, the policymakers and businesses need to be aware the comparative position of the industry in the region in their policy formulation. To achieve this, the factors that influence international tourism demand and the future trend of this demand in Hong Kong need to be accurately assessed and forecast. The proposed research project is, therefore, to develop an econometric forecasting system, which can be used in tourism policy analysis and planning.

2. Methods Econometric Model (VAR) Forecast variable
Visitor arrivals
Explanatory variables
Income level of origin countries/regions (GDP index)
Cost of tourism in Hong Kong (Exchange rate adjusted CPI)
Cost of tourism in substitute destinations (Exchange rate adjusted CPI indexes)
One-off events (1997 handover, 9.11, 2003 SARS and Iraqi War, etc.)
Tourism practitioners are interested in tourism demand forecasting for the following reasons. Firstly, tourism demand is the foundation on which all tourism-related business decisions ultimately rest. Companies such as airlines, tour operators, hotels, cruise ship lines, and recreation facility providers are interested in the demand for their products by tourists. The success of many businesses depends largely or totally on the state of tourism demand, and ultimate management failure is quite often due to the failure to meet market demand. Because of the key role of demand as a determinant of business profitability, estimates of expected future demand constitute a very important element in all planning activities. It is clear that accurate forecasts of tourism demand are essential for efficient planning by tourism-related businesses, particularly given the perishable nature of the tourism product. Secondly, tourism investment, especially investment in destination infrastructures, such as airports, highways and rail-links, requires long-term financial commitments and the sunk costs can be very high if the investment projects fail to fulfill their design capacities. Therefore, the prediction of long-term demand for tourism related infrastructure often forms an important part of project appraisal. Thirdly, government macroeconomic policies largely depend on the relative importance of individual sectors within a destination. Hence, accurate forecasts of demand in the tourism sector of the economy will help Hong Kong in formulating and implementing appropriate medium-long term tourism strategies.
The vector autoregressive (VAR) approach will be used to model and forecast the demand for Hong Kong tourism by tourists from all origin countries/regions. One reason why this approach is selected is that it has been shown in empirical studies that the VAR model can generate relatively accurate medium and long term forecasts of tourism demand (Witt et al 2003 and 2004). Another advantage of this approach is that the VAR model does not require the generation of forecasts for the explanatory variables before the forecasts of the dependent variable can be obtained. In addition, an impulse response analysis can be carried out, which can provide useful information for policymaking purposes.
Standard economic theory suggests that the most important factors that influence demand for tourism are the own price of tourism product, the price of substitute tourism products, tourists’ income, tourism marketing expenditure, travel costs from origin countries/regions to the destination and one-off social-economic events, etc..

3. Methods
Forecast visitor arrivals from the top 10 tourism generating countries/regions
Forecasts of individual countries/regions are aggregated to achieve the total arrivals
Model estimation period: 1984Q1 – 2004Q4
Forecasting period: 2005Q1 – 2020Q4
Only annual forecasts will be reported

4. Top 10 Origin Countries/regions (2004)
Visitor Arrivals
Market Share (%)
Mainland China
12,245,862
56.15
Taiwan
2,074,795
9.51
Japan
1,126,250
5.16
USA
1,051,696
4.82
Korea
541,041
2.48
Macau
482,187
2.21
Singapore
463,920
2.13 UK
411,287
1.89
Australia
408,940
1.87
Philippines
336,673
1.54
Total
87.77

5. Visitor Arrivals from Mainland China (2005-2020)
Year
Forecasts of
Visitor Arrivals
Model (1)
Growth Rate (%)
Adjusted
Forecasts
(Model 2)
Adjusted Growth Rate (%)
2005
11,905,010
2006
13,292,734
11.66
13,833,622
16.20
2007
15,033,825
13.10
15,950,166
15.30
2008
17,178,257
14.26
18,246,990
14.40
2009
19,876,782
15.71
20,710,333
13.50
2010
23,320,274
17.32
23,319,835
12.60
2011
27,673,807
18.67
26,048,256
11.70
2012
33,068,811
19.49
28,861,468
10.80
2013
39,608,930
19.78
31,718,753
9.90
2014
47,384,547
19.63
34,573,441
9.00
2015
56,503,227
19.24
37,373,889
8.10
2016
67,130,121
18.81
40,401,174
7.20
2017
79,523,239
18.46
43,673,669
2018
94,052,199
18.27
47,211,237
2019
111,203,854
18.24
51,035,347
2020
131,570,812
18.31
55,169,210

8. Taiwan Year Visitor Arrivals Growth Rate (%) 2005 2,287,652 2006
2,500,508
9.30
2007
2,713,365
8.51
2008
2,926,222
7.84
2009
3,139,078
7.27
2010
3,273,330
4.28
2011
3,262,382
-0.33
2012
3,287,088
0.76
2013
3,383,902
2.95
2014
3,490,982
3.16
2015
3,563,070
2.06
2016
3,608,208
1.27
2017
3,651,535
1.20
2018
3,701,671
1.37
2019
3,751,952
1.36
2020
3,795,876
1.17

9. Japan Year Visitor arrivals Growth Rate % 2005 1,626,249 2006
1,807,239
11.13
2007
1,872,606
3.62
2008
1,909,585
1.97
2009
1,946,357
1.93
2010
1,986,862
2.08
2011
2,029,981
2.17
2012
2,074,693
2.20
2013
2,120,593
2.21
2014
2,167,606
2.22
2015
2,215,735
2016
2,264,999
2017
2,315,404
2.23
2018
2,366,991
2019
2,419,769
2020
2,473,743

10. Korea Year Visitor Arrivals Growth Rate(%) 2005 662,287 2006 692,083
4.50
2007
797,538
15.24
2008
865,621
8.54
2009
920,861
6.38
2010
981,889
6.63
2011
1,068,579
8.83
2012
1,176,393
10.09
2013
1,297,094
10.26
2014
1,424,722
9.84
2015
1,552,535
8.97
2016
1,673,734
7.81
2017
1,784,057
6.59
2018
1,882,602
5.52
2019
1,971,351
4.71
2020
2,054,197
4.20

11. UK Year Visitor Arrivals Growth Rate (%) 2005 454,281 2006 490,926
8.07
2007
517,413
5.40
2008
539,039
4.18
2009
559,037
3.71
2010
579,065
3.58
2011
599,792
2012
621,433
3.61
2013
644,016
3.63
2014
667,509
3.65
2015
691,887
2016
717,135
2017
743,252
3.64
2018
770,254
2019
798,162
3.62
2020
827,000

12. Total Visitor arrivals
Year
Total Visitor arrivals
Growth Rate (%)
2005
23,609,311
2006
26,468,800
12.11
2007
29,366,417
10.95
2008
32,354,120
10.17
2009
35,464,764
9.61
2010
38,627,327
8.92
2011
41,752,997
8.09
2012
45,045,700
7.89
2013
48,505,117
7.68
2014
51,991,906
7.19
2015
55,382,095
6.52
2016
58,622,343
5.85
2017
62,045,312
5.84
2018
65,676,108
2019
69,523,563
5.86
2020
73,600,427

14. Average Growth Rates of Top 10 Countries/Regions
(%)
Mainland China
10.46
Taiwan
3.43
Japan
2.84
USA
1.82
Macau
3.48
Korea
7.84
Singapore
3.81 UK
4.07
Australia
3.19
Philippines
6.54

15. Average Growth Rates of Top 10 Countries/Regions over 1984-2004 and 2005-2020
(%)
(%)
Mainland China
22.40
10.46
Taiwan
13.43
3.43
Japan
3.34
2.84
USA
3.18
1.82
Macau
18.17
3.48
Korea
13.19
7.84
Singapore
5.19
3.81 UK
4.47
4.07
Australia
1.95
3.19
Philippines
6.37
6.54

16. Forecasts of Market Share in 2020
Countries/regions
Visitor Arrivals
Market Share (%)
Mainland China
52,910,543
71.89
Taiwan
3,795,876
5.16
Japan
2,473,743
3.36
USA
1,389,471
1.89
Macau
1,626,325
2.21
Korea
2,054,197
2.79
Singapore
909,826
1.24 UK
827,000
1.12
Australia
604,383
0.82
Philippines
1,237,864
1.68
Other Countries
5,771,199
7.84

19. Thank You!