August 15, 2013 / 4:39 AM / 4 years ago

Rough seas forecast for China's fast-growing cruise industry

A man walks in front of a cruise ship docked in Shanghai Port International Cruise Terminal, opposite the Pudong financial area, in Shanghai August 11, 2013.Aly Song

HONG KONG (Reuters) - China has steamed into the cruise industry with new terminals - along with big plans for more facilities and a luxury ship - to bring more foreign tourists ashore and capitalize on domestic travelers wanting to sail the high seas.

But industry experts see trouble for the government-led initiative costing billions of dollars, including construction of lavish facilities that are losing money, lack of proper planning, high port fees for ships and inefficient cruise facilities with long delays to clear customs.

"The government, the local authorities, need to support the cruise lines in exercising international practice here," said Liu Zinan, the chairman in Shanghai of Florida-based cruise operator Royal Caribbean International.

Since cruise tourism was introduced in China less than 10 years ago, five terminals have been built at an estimated cost of more than 4.5 billion yuan ($735 million). Three are under construction and another six are in the pipeline.

The investment is paying dividends in terms of tourist numbers, with port calls by international cruise lines rising 8.8 percent last year to about 285, according to the China Cruise & Yacht Industry Association.

But a construction spree has torpedoed profits, said Zheng Wei-hang, the association's vice president.

"All five established cruise terminals have suffered losses mainly as a result of excessive investment by municipal authorities in building landmark structures that have yielded insufficient returns," he told Reuters.

The Chinese government made development of the cruise sector a priority in 2011 as part of a five-year economic plan.

In the southeastern city of Xiamen, more than 16 billion yuan were earmarked for 10 projects that include construction of a 100,000-tonne luxury liner, a cruise terminal and a shipping business center, the official Xinhua news agency has reported.

In Shanghai and Tianjin, the combined investment in cruise infrastructure has topped 12.3 billion yuan, Royal Caribbean International estimates.

Kai Tak Cruise Terminal is seen under construction at the site of the former Kai Tak Airport in Hong Kong August 12, 2013.Tyrone Siu

'SIMPLY COPYING WILL NOT WORK'

Some experts are concerned the money is being pumped in without proper research of the market or its potential for growth, especially as the tastes of Chinese cruise passengers differ markedly from foreign travelers.

"Simply copying will not work," said Wolfgang Georg Arlt, director of the China Outbound Tourism Research Institute at West Coast University of Applied Sciences in Germany.

"Thorough market analysis and an understanding of the special demands of Chinese customers is needed before big investment is undertaken."

A man travels by ferry and sails past Kai Tak Cruise Terminal, which is under construction at the site of the former Kai Tak Airport, in Hong Kong August 12, 2013.Tyrone Siu

Mainland Chinese tend to opt for short trips that involve plenty of shopping, in contrast to many Europeans and Americans who favor longer cruises that require months of planning.

For Chinese travelers, bureaucracy abroad can be an obstacle as they must apply for multiple visas if they take a cruise to many popular Asian destinations, including Port Klang in Malaysia and Phu My in Vietnam.

South Korea's Jeju Island is a notable exception and has become popular among Chinese tourists because it grants 30 days of visa-free entry when they arrive directly by air or sea.

Shanghai, which launched China's cruise business, is at the fore of the industry with two terminals serving as homeports for ships sailing to Jeju and other northeast Asian destinations.

But even it has shortcomings, said office worker Shi Shile, who recently travelled to Taiwan on a Royal Caribbean ship from Shanghai's Wusongkou International Cruise Terminal.

"The terminal is good in hardware but poor in software. The service and the logistics need to catch up," he said. "On the contrary, the terminal in Taiwan is not that new but the service is much better."

($1 = 6.1223 Chinese yuan)

Editing by Anne Marie Roantree, John O'Callaghan and Ron Popeski

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