China Travel Service Hong Kong Ltd's aggressive march into the mainland travel market could add fuel to the fires of fierce competition already burning through out the sector.

Aiming to fully tap the mainland tourist market, China Travel Service Hong Kong (CTSHK) plans to acquire 200 domestic travel agencies in two years, according to Shen Zhuying, president of the company.

Shen said CTSHK is planning to reinforce its tourist services on the mainland, establish branch offices across the country in the next two years and invest in western China to help develop new scenic spots.

He explained that his company is trying to capitalize on an expected increase in foreign tourists over the next seven years, after Beijing won the bid to host the 2008 Olympic Games.

The company plans to acquire and merge with domestic travel agencies in the more developed markets of Guangdong and Fujian provinces and the cities of Beijing, Shanghai and Xi'an.

The travel agencies under the China Travel Service Group will be the primary targets, Shen said, since his company has co-operated with the group before and because the two share the same brand.

"Partnership with overseas industry players can help domestic travel agencies raise their standards and enhance their competitiveness," Shen said.

Meanwhile, CTSHK is applying to the government for a business licence to run tour services on the mainland.

If successful, the application will break through current restrictions on wholly overseas-owned travel services operating in key tourist cities in China.

Shen said he is confident his company will obtain the licence but is still uncertain when that will occur.

Facing CTSHK's aggressive challenge, China Youth Travel Service, a domestic giant in the sector, said it is also carrying out a strategic expansion.

Jiang Jianning, president of China Youth, said his company will shift focus from profit to scale, aiming to become an international tourism wholesaler.

"We will acquire well-performing domestic agencies in the famous scenic regions and develop more chain stores around the country," Jiang said.

China Youth Travel has opened five chain stores in Beijing and is expected to have 12 more in the city by the end of this year.

Jiang said the company has purchased a 60 percent stake in Guangzhou International Youth Travel Agency for 3.6 million yuan (US$434,700).

The acquisition will help his company become stronger in the South China market, he said.

Yue Zuofu, a professor at Beijing Tourism College, said the acquisition tide triggered by CTSHK will speed up restructuring of the travel industry in China.

"Acquisition and co-operation are necessary for the development of travel services, and it is time for them to compete through capital and talents rather than through lower prices," Yue said.

The industry, despite bursting with potential, is plagued by limited capital scales, insufficient infrastructure, substandard management and outdated marketing strategies.

Last year, 80 million foreign tourists came to China, up 16 percent over 1999. They brought US$15.6 billion in foreign exchange to the country.

At the same time, 10 million mainland tourists travelled overseas, up 13 percent over the previous year.

The travel industry accounted for 5 percent of China's gross domestic product last year and the figure is projected to reach 8 percent by 2010.

(China Daily 07/23/2001)