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The Tourism Engine

A review of the potential of travel and tourism in China and Hong Kong

Scott Wayne

China is fast becoming one of the world's top countries for travel and tourism. Already a magnet for tourists from elsewhere in Asia, China is expected to witness explosive growth in international business and tourist arrivals over the next decade. The industry's benefits to China and the Hong Kong Special Administrative Region include not just overall wealth but also job creation.

According to WTTC/WEFA research, in 1999 travel and tourism will have contributed an estimated $87 billion to China's GDP and accounted for almost 494 million jobs, or 7 percent of total employment. In Hong Kong, travel and tourism supports 224,000 jobs, or 9 percent of total employment. And the China and Hong Kong travel and tourism economies together are expected to generate more than $41 billion in capital investment this year.

Overall economic activity stimulated by travel and tourism will grow 3 percent per year from 1999 to 2010. By 2010, the sector could account for more than 1 in 11 jobs in China and 1 out of every 10 jobs in Hong Kong. Tourism could make up 9 percent of China's GDP and 11.4 percent of Hong Kong's.

In the long term, China's travel and tourism economy is forecast to grow at a real rate of 7.9 percent per year, while Hong Kong's is set to expand 1.7 percent annually through at least 2010. Demand for travel and tourism in China is expected to grow at more than twice the predicted global rate of 3.4 percent per year, despite the fact that the recent Asian crisis lowered previous forecasts (see Tables).

The travel and tourism industry–which includes transport, accommodation, catering, and recreation–is part of a broader travel and tourism economy, which includes businesses that supply the industry. Analyzing the flow-through effects of these second-tier businesses across the wider economy demonstrates the overall impact of travel and tourism. This important analysis is made possible by a technique called satellite accounting, first developed by the World Tourism Organization. Current public-sector analysis and related policies tend either to overlook or understate the impact of the industry, or deal with its smaller components. Most countries' national accounts, including those of China, fail to show the economic impact of travel and tourism clearly. Satellite accounting allows the government to measure both the direct economic effects of visitor consumption and the indirect economic impact of travel companies, suppliers, and support services.

A number of Asia Pacific Economic Cooperation economies, including Canada, Singapore, and Australia, are now developing detailed satellite accounts for travel and tourism within their national accounts systems. China recently adopted the standards of the World Tourism Organization for tourism satellite accounting, and WTTC and PRC officials have been discussing implementing this methodology in China and Hong Kong.

More than the Great Wall

China is the world's fifth leading international tourist destination, ranking eighth in foreign-exchange earnings from tourism. Domestic tourism is also an emerging source of revenue.

In 1998, 63.5 million domestic and international visitors traveled in China, according to Xinhua News Agency reports. Although the bulk of visitors continue to come from Hong Kong, Macao, and Taiwan, there has been a steady increase in visitors from further afield, notably Japan, South Korea, the United States, and Russia. In 1998, according to World Tourism Organization figures, roughly 24 million foreign tourists traveled to China and almost 10 million to Hong Kong.

Despite the negative impact of the Asian crisis on regional tourism, the number of foreign tourists arriving in China rose by more than 15 percent in the first seven months of 1999 over the same period in 1998, according to the Quarterly Statistical Report of the Pacific Asia Travel Association. Most of this increase came from northeast Asia, which accounted for almost two-thirds of arrival traffic. The World Tourism Organization reports that receipts from foreign tourists totaled about $12.5 billion in 1998.

As one of the fastest-growing service sectors, tourism is listed as a key or "pillar" industry by 24 of China's 31 provinces, autonomous regions, and municipalities. The industry is also beginning to diversify from its traditional focus on city-based cultural and heritage sites. In mid-1999, for example, WTTC was informed of projects related to a ski resort in the Changbai Mountains and archaeological tourism in the Tumen River region, both in Jilin Province.

Travel and tourism exports are a growing source of foreign exchange in economies with expanding service sectors. There are two categories of exports: international visitors and travel-related merchandise exports. In 1999, travel and tourism service exports–or international visitor spending–were estimated at $14.3 billion in China and $13.6 billion in Hong Kong. These figures are expected to more than double by 2010.

China's capital investment in travel and tourism is roughly 11.3 percent of the worldwide 1999 total, or $733 billion. Though travel and tourism-related capital investment in Hong Kong has already exceeded the world average, China is still well below it, and long-term forecasts do not show the gap closing. Airplanes will continue to be a source of major capital investment in China. In January 1998, for example, The Boeing Co. reported the sale of five 737s to Chinese airlines. Boeing has delivered more than 250 commercial aircraft over the past 25 years to China, representing more than 60 percent of China's market for Western-built commercial jet aircraft. The temporary freeze on airplane purchases issued in 1998 appears to have been lifted. According to the China Daily, airline passenger traffic grew by 6.3 percent in 1998.

Despite tourism's importance to the economy, public spending on the sector is relative ly low. The PRC government is allocating around 3.8 percent of public spending in 1999 to travel and tourism services–well below the world average of 6.7 percent. Hong Kong government spending represents just over 7 percent of public spending. Both governments are likely to raise their spending on this sector in the next decade.

Releasing the Potential

Travel and tourism is a catalyst for social and economic development. The sector's impact is felt throughout the economy, from construction and manufacturing to retail and financial services. But Beijing is only beginning to acknowledge that private capital, in particular foreign investment, can be a boon.

In another new development, international tourism consists not just of foreign arrivals in China–mainlanders themselves are beginning to travel abroad. According to a 1998 report published by the Travel and Tourism Analyst, outbound trips more than doubled between 1991 and 1997. Although Hong Kong was the main destination, countries such as Thailand, Japan, Singapore, the United States, and South Korea each received over 200,000 visitors from China in 1997, a figure that is likely to increase.

Tourism is one of the largest creators of direct and indirect employment worldwide. More than 20 million jobs in China–and 116,000 in Hong Kong–could be added across the eco nomy over the next 12 years.

The full benefits of these developments, however, will only come with greater funding for key agencies, such as the China National Tourism Administration (CNTA). China would do well to factor travel and tourism into policy decisions across the spectrum of economic and public-sector decisionmaking. In particular, infrastructure and planning policies should be designed to generate employment and export earnings. Consideration should be given to tourism in policy mechanisms that enhance employment opportunities in both rural areas and areas where manufacturing is declining.

To improve the quality of travel services and promote growth in China's tourism sector, CNTA's Laws and Regulation Department in 1998 released a set of regulations allowing joint-venture travel agencies. The regulations stipulate that "overseas applicants should be engaged in international travel services, or wholly owned enterprises running international travel services. They should have an annual tourism turnover value of at least $50 million."

Taking Wing

Since the mid-1980s, decentralization has stimulated an increase in international routes to and from airports throughout China, improving access to Chinese points of interest. Today, airports in 27 cities offer international service. The majority of international business travelers, as well as a significant number of leisure travelers, arrive by air–particularly from Korea, Japan, and the United States. Nevertheless, the biggest single challenge in developing travel and tourism is to increase air transport opportunities.

A vital component of a strong travel and tourism industry is good infrastructure–improvement of which remains critical to the future of China's travel and tourism industry. In most cases public infrastructure that supports travel and tourism expansion–such as roads and airports–will also serve other urban and regional development purposes. Expanding airports and modernizing air-traffic control systems are priorities. Current land-based air-traff ic control systems should be switched to satellite navigation as soon as possible to contain operating costs, improve safety, and reduce congestion.

China's recent investments in airport construction are substantial. The Ninth Five-Year Plan (1996-2000) allocated $12 billion for the construction, renovation, and expansion of 41 airports. Eight new airports opened in 1997, and 13 more opened in 1998. Recent rules permitting foreign investment in airport development and management may boost expansion.

Taxes and Training

International visitor spending is an export but is not yet treated like other exports. An increasing number of "user fees" are being applied to travel and tourism–for air tickets, security, airport construction, and highways, among other things. It is important that China employ the principle of "user pays, user benefits," with funds earmarked for related travel and tourism infrastructure and transparently dispersed, and with collection time limited to the specified project completion.

Further, China must develop strategies that enhance the employment capacity of this sector and increase the quality of service to international levels. The travel and tourism sector should have access to government-funded training and education programs on an equal basis with other industries. Beijing could emphasize publi c education and career programs for job prospects in travel and tourism. The private sector can also play an active role in maintaining high international management and service standards, through access to both international skills and experience, to ensure competitiveness. The private sector itself can implement training and career structures capable of developing skills.

Nowhere to Go But Up

Thanks to its wealth of natural assets, China is a leader in the global tourism market. It is therefore important that promotion budgets are upgraded to ensure continuing competitiveness. Moreover, travel and tourism should enjoy the same incentive regimes as other industry and export sectors. Whether the government can involve the private sector in decisionmaking and provide incentives for increased investment–as well as integrate infrastructure, fiscal, education, and training policies and programs into the tourism-based economy–will determine the difference between a stagnant tourism industry and a vibrant one.

Scott Wayne is special adviser to the president and is director for North America of the London-based World Travel & Tourism Council (WTTC). This article is based on a 1998 WTTC report, China and Hong Kong SAR: The Economic Impact of Travel and Tourism. WTTC's research partner is the WEFA Group, a Primark Company.