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China's Ctrip brushes off trade war concerns as revenue jumps 21%

Travel company says domestic demand still strong despite cooling economy

China's Ctrip is optimistic about its outlook despite the escalating trade war.

PALO ALTO, U.S. -- Ctrip, the biggest online travel agency in China, reported stronger than expected first-quarter earnings after the market closed on Wednesday, with revenue up 21% on the year.

Net revenue came to 8.2 billion yuan ($1.2 billion) in the first three months of the year, with the bulk of that coming from domestic business. Net profit, meanwhile, rose 18% in the quarter. 

The results come after predictions that Ctrip might face a rocky first quarter as Chinese customers showed signs of reigning in spending amid a slowdown in economic growth.

Now, however, Ctrip co-founder and Chairman James Jianzhang Liang is striking an optimistic note, even about the escalating trade war.

Due to the trade tensions, "a lot of Chinese and other companies that serve China as a market need to have closer interaction with Europe or Asian countries, and that can actually increase cross-border activities, including travel, between those countries," said James Jianzhang Liang, co-founder and chairman of Ctrip.

The company said it is preparing for the possibility of a decline in the number of U.S.-bound travelers, but emphasized the country makes up a "small part" of its international tourism business.

Small or not, such caution may be warranted. After growing at an average of more than 20% a year for the previous decade, the number of Chinese travelers to the U.S. was flat in 2018, due in part to the trade tensions, according to the World Travel and Tourism Council.

The Washington-based U.S. Travel Association issued a similar assessment in a recent report: "Despite the increase in Chinese residents who hold passports, political factors such as ongoing trade tensions between the two countries and official statements from Chinese government officials dissuading travel to the U.S. likely play a role in the significant slowdown." According to the same report, China remains the third-largest source of overseas travel to the United States, and America runs a $28 billion travel and tourism trade surplus with China.

There is also the fact that China has shown that it is willing and able to leverage the spending power of its outbound tourists to express diplomatic displeasure.

Beijing took this approach in 2017 when it ordered travel operators not to sell group tours to South Korea in response to Seoul accommodating a U.S. anti-missile system in its borders. The number of Chinese tourists to South Korea halved that year compared to 2016.

Ctrip, however, insisted it is not overly worried about such a possibility. "On the one hand, China to U.S. travel might be negatively impacted by the trade tension, but that is only a small part of the overall international tourism market. And we will probably see more activities in most of our markets within Asia," Liang added.

The company acknowledged that there are uncertainties in the current macro environment that could cause a slowdown, but said its core revenue stream -- domestic travel -- has remained strong despite the cooldown in China.

Chinese GDP growth slowed to 6.8% last year and the government has cut its target for this year to 6.5-6.6%. But Ctrip remains confident in the continuing middle-class boom that has helped fuel China's growing travel market.

"China's macroeconomics will affect us a little bit, but travel is much more resilient than other industries," Liang said in a previous interview with the Nikkei Asian Review. "It usually grows [at] twice the GDP growth rate."

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