* Chinese drive global tourism mkt, spent $261 bln last year
* Better transport links, tourist spots luring people back home
By Adam Jourdan
SHANGHAI, Sept 29 (Reuters) - As China's army of tourists prepares for next week's 'Golden Week' vacation, the hottest destinations aren't Paris, New York or Tokyo. Instead, a cooling economy means holidaymakers are staying closer to home - on the beaches of Sanya or the peaks of far-western Yunnan.
Chinese travellers - who spent $261 billion overseas last year - are increasingly opting for 'staycations', a boon for domestic tourism operators, but a challenge for retailers and hotel chains tapping into Chinese demand abroad.
The country's tourists made 2.54 billion trips in China in the first half of this year, up 13.5 percent from 2016, far outstripping an outbound market that has slowed as consumers tighten their belts amid recent economic wobbles.
"This Golden Week, we prefer to travel domestically," said Tian Haiqin, a 50-year-old Beijing housewife who said cost, jet lag and language barriers were the main reasons for staying at home. "It's quite expensive to travel abroad, not only to far Western countries, but also around Asia."
Tian said she plans to spend around 20,000 yuan ($3,000) a week for her and her son to stay in a resort in the eastern city of Hangzhou, known for its scenic lakes and surrounding hills.
She's not alone. Around 710 million Chinese will make trips in the country for the National Day holiday, according to estimates from travel agent Ctrip.com International. Some 6 million will travel abroad.
The holiday break - one of the world's biggest mass movements of people - gives a snapshot of China's big-spending tourists, who can make, or break, the fortunes of hotel chains, duty-free stores, cruise firms and brands.
Tong Yiling, Asia analyst at BMI Research, said the domestic tourism sector had seen a "rapid improvement" in competitiveness, with improved transport links and big investment in tourist sites. Better marketing about local travel destinations and the impact of tighter capital controls to deter Chinese from taking money abroad were also having an effect.
Many are looking to cash in on the domestic trend.
Walt Disney Co's Shanghai park saw over 10 million visitors in its first year, while Fosun International's Club Med has opened hotels in Guilin, island getaway Sanya and skiing resorts in the northeast.
Some overseas destinations have taken a hit over security concerns, industry insiders said. Attacks in Europe, instability on the Korean peninsula and political uncertainty in the United States have weighed on tourist demand.
"I think one of the most important reasons why people like to travel within this country is because of lots of unexpected incidents such as terrorist attacks in recent years," said an official surnamed Zhou at travel company Leyou. "People feel it could be very dangerous to travel overseas."
Visitor numbers to South Korea, normally a popular destination for Chinese, dropped more than 60 percent in August against 2016 due to a political row between Beijing and Seoul over South Korea's installation of a missile defence system.
To be sure, China's outbound tourism spending is still growing. A report from CLSA in July estimated Chinese tourists would spend $429 billion overseas by 2021.
But growth is slowing. Outbound travel was up just over 5 percent last year, down from close to 30 percent growth in 2010, according to BMI Research.
Beijing has helped, opening duty-free zones around the country and cracking down on dishonest local tour operators. A boom in local "adventure" tours has also helped lure younger millennial tourists to domestic travel.
"Compared with outbound travel, domestic travel has been greater in size and growth rate for the first several months of this year," Ctrip, China's largest online travel agent, said in written comments to Reuters.
Outbound tourism, meanwhile, is in a "new normal of steady, slow-to-moderate growth", with tighter shopping budgets "curbing" the rise in spending overseas, it said.
Even last year, luxury brands LVMH and Burberry flagged lower Chinese tourist spending overseas.
BMI's Tong pointed to several areas of China's tourism market that should grow fastest in the next few years: historic sites, theme parks and countryside farmhouse getaways, which the government is promoting to boost rural incomes.
Many Chinese, though, still look to escape the holiday rush that can see huge crowds at train stations and tourism hotspots.
Yu Yongyi, 22, has booked a trip to Vietnam, to add to holidays he has made to Spain, Thailand, Sri Lanka and Malaysia.
"Most of the time I'll go abroad for holidays because the price of flights is getting lower," said Yu, head of marketing for start-up Eniutrip. "So it's often cheaper to go abroad than to stay at home."
$1 = 6.6566 Chinese yuan renminbi Reporting by Adam Jourdan in SHANGHAI, with additional reporting by Shanghai and Beijing Newsrooms; Editing by Ian Geoghegan