Japan Makes Way for China Tourist Money

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

From my vantage point on my recent visit to both China and Japan, the signs are clear.

China is coming. And Japan knows it.

Major department stores like Takashimaya Co. Ltd., Sogo Co. Ltd. and Mitsukoshi Ltd. are gearing up. In places like Tokyo, Osaka and Kyoto, they're seeing a new wave of power shoppers at their counters – the Chinese.

A few short years ago, this was unthinkable.

Yet, as my wife and I strolled through downtown Kyoto, we saw it too. Most major department stores have added Chinese signage to the usual Japanese and English placards.

We heard it, as well, from Chinese shoppers who were tromping through the Shijo-Kawaramachi shopping district loaded down with bags sporting the latest designer logos. It's much the same in Tokyo's uber-rich Ginza district as well where Mitsukoshi has recently hired store-based interpreters fluent in Mandarin.

I can't say I'm surprised.

According to the Japanese Department of Tourism, a record high of nearly a million Chinese tourists came to Japan last year. China's Ministry of Public Security estimates that 34.5 million Chinese headed for foreign destinations in 2006 – up from a mere 4.5 million a year earlier. By 2011 that figure is expected to top 80 million with Hong Kong, Macau, Vietnam, South Korea and Japan predicted to account for 85% of all Chinese tourist destinations according to Euromonitor International.

And they're spending big bucks, too.

CNN reporter, Kyung Lah, interviewed one group of mainland Chinese tourists recently that had spent $50,000 dollars on clothing and makeup alone on a 3-day trip. Not surprisingly, most of that was on designer brands from Prada Group, Gucci Group NV (PINK: GUCG), Christian Dior SA, and Shiseido Co. Ltd. (OTC: SSDOY).

Which jibes with my personal experience as indicated by Chinese and Japanese I've spoke with over the years. Whereas most of them used to only dream about traveling, an increasing number are actually doing it. My good friend Jun Hao and his wife have hit most of Europe's major cities and a good deal of the United States, too.

Getting back to Japan, however, it may surprise you to learn that most Chinese feel very comfortable there. A fact that stands in stark contrast to how relations between the Japanese and Chinese are often portrayed in the Western media.

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It's now a common sight in Tokyo to see Chinese who are shopped out make a beeline for Toyota Motor Corp.'s (ADR: TM) showrooms. Obviously, they're not buying Toyota's in Japan, but boy are they anxious to buy Toyota's in China.

And a visit to the showroom is just what the doctor ordered for young, cosmopolitan Chinese yuppies… or "Chuppies" as they're called.

Not only do they feel more international for having done so, but Chinese tourists tell me they find Japan quite welcoming. And warm, which is another one of those words than can be translated a variety of ways.

Not one citizen of China or Japan that I've recently spoken with believes that the political past between their respective countries would prevent an economic future.

Investors looking to capitalize on the blossoming relations between the two countries and the tourism trade specifically need to look no further than Japanese department stores, Chinese credit card companies and, ironically, Toyota to get in on the action.

Of course, there are obvious choices when it comes to computerized travel providers and airlines.

But the value there may be harder to extract given there's not a clear value proposition and the industry remains largely fragmented… for now. And that's part of what makes Money Morning's growth "because" of China – and Japan – investing strategy the way to go for now.

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