The Chinese Boom No One’s Noticing

I’ve got good news if you know a youngster with a good set of eyes and no job. Tell them to start studying two things: how to fly a plane, and Mandarin.

Here’s why.

There’s a boom happening right now. But not many people are paying attention. It’s called Chinese travel.

The Wall Street Journal reported last week that flight schools need 8000 new students a year. That’s to keep up with the demand for commercial aviation.

Manufacturer Boeing says Asian airlines will need 226,000 new pilots in the next two decades. That’s more than North America, Europe and Africa combined.

That’s a problem for Boeing, because they can’t sell planes if there’s nobody to fly them.

You can check out the estimated demand for pilots around the world on this handy graph…

Source: WSJ

Not only does the industry need students, it needs schools as well.

After years of travel restrictions on Chinese citizens, the country doesn’t have the infrastructure or human resources yet to train young pilots.

That’s actually a bit of a boon for Australia and the US right now. Currently a lot of young Asian trainees go to either to learn how to fly.

The $37 billion Warren Buffett deal

It was only last month that investing patriarch Warren Buffett made his largest deal ever. He bought a company called Precision Castparts for US$37 billion.

That’s billion dollars with a ‘b’.

A key market for Precision Castparts comes from selling components for jet engines.

If there is one thing we know about Warren Buffett, it’s that he invests for the long haul. He’s positioning his company, Berkshire Hathaway, to cash in on this industry for years.

That’s even as the odds grow shorter that he’ll be around to see the fruits of his decisions (he’s 85).

One of Precision Castparts customers is Boeing. It thinks that the demand for travel out of Asia will mean an additional 38,000 aircraft. They will need to be built over the next 20 years.

That’s $5.6 trillion worth of aircraft, to cater to 7 billion travellers by 2034.

That’s trillion dollars with a ‘t’.

And Australia should be a major winner from this. The Chinese will continue to discover our unique environment and delicious wine and food.

It’s already beginning…

The Chinese travel boom

The Australian Financial Review reported last week that the Australian tourism sector is picking up speed.

That’s from a strong showing from Chinese and Indian tourists. They gave the industry its strongest annual growth rate since Sydney held the Olympics in 2000.

Total tourist spending rose 10% to a record $33.4 billion to the end of the last financial year.

Chinese tourist spending in particular was up 32%.

The World Tourism Organization says that China has been the largest source of cross border tourists since 2012.

To put the speed of that growth in perspective, get this. The amount of Chinese tourists was 50 million in 2010. It was 113 million in 2013. They’re also the highest spenders per capita.

This market is huge and getting bigger.

Shaun Rein, author and founder of the China Market Research Group, estimates that by 2018 200 million Chinese will travel abroad annually.

200 million? That’s a market nearly 10 times the population of Australia.

The Chinese traveller doing OK in the currency wars

Australia is not yet in the top five destinations for Chinese tourists. Those countries are Hong Kong, Thailand, Macau, South Korea and Japan.

The Wall Street Journal reported last Friday that Hong Kong is losing ground.  They say it’s from the Chinese government cracking down on corruption.

Plus there is the difficult relationship between Hong Kong and Beijing. That results in Chinese mainlanders often being resented.

Hong Kong’s loss will be everyone else’s gain, in terms of money at least.

There’s also the fuss made about China ‘devaluing’ its currency by 2% the other week to mention. Despite that, the rest of the world is getting cheaper and cheaper for Chinese tourists.

The Japanese yen, the Australian and Canadian dollars and most of the emerging market currencies are all down by much more than that.

Regardless, the currency moves will inevitably shift over the next 10 years. What won’t change is more and more Chinese traveling the world.

This is one reason over at Cycles, Trends and Forecasts we are actually very positive about the world economy.

While everyone else gets caught up in short term drama, they miss the long story.

There are plenty of opportunities in asset markets and business. Click here to see why now is the time to start taking them.

Best wishes,

Callum Newman,

Associate Editor, Cycles, Trends & Forecasts

Callum Newman

Callum Newman

Callum Newman is the editor of Markets and Money and Associate Editor of Cycles, Trends and Forecasts. He also hosts Markets and Money Podcast. Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect. To have Callum’s thoughts and insights on the current state of the currency, commodities and stock markets delivered straight to your inbox, take out a free subscription to Markets and Money here.

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