China’s Tourism Deficit

19 Feb

Tourism brings great economic benefits to any country, but in China it could prove crucial if their continued growth is going to prove to be sustainable. Having invested very heavily during the global recession to maintain China’s explosive growth whilst the rest of the world slowed down, China’s State Council took on a lot of debt with public debt currently standing at an estimated 27% of GDP. 

The State Council assumed this investment to be safe, with China’s GDP and more importantly GDP Per Capita growing so rapidly – since the turn of the millennium, the average Chinese person has become over 6 times richer – China would simply grow its way out of debt. However, for this assumption to hold true, the Chinese people need to spend their new “riches” which they are not known for doing. China’s savings rate stands at over 30% – to compare, the US and UK’s savings rate hovers around the 5% mark.

Therefore, one of the best ways to bring money into the country is through tourism. Instead of relying on the Chinese to spend their own money, entice tourists from the West to spend their money in China. In fact, 5 years ago, this was the case in China – visitors from outside the mainland spent more in China than the mainland’s own travellers spent overseas. The World Tourism Organization explains this with the fact that only the wealthiest 10% in China can afford to go abroad. However as the Chinese continue to get richer, more and more people can afford to travel abroad – from 2012 to 2013, China’s outbound tourism increased by 18%. Meanwhile, the strengthening of the RMB or Yuan makes China a less attractive place to visit – inbound tourism decreased by 2.5%. 

As a result of this increase in outbound tourism and decrease in inbound tourism, China’s deficit in travel spending rose to $80bn. Even for a country of Canada’s size, this still accounts for 1% of GDP which is fairly significant and something the State Council should try and influence. If China can regain a tourism surplus, they will have a much better chance of sustainable growth for the next few years.

 

http://www.economist.com/news/china/21596568-china-has-worlds-biggest-trade-deficitin-services-number-great-import

http://www.forbes.com/sites/profdrwolfganggarlt/2013/11/21/chinas-outbound-tourism-growing-by-18-and-no-sign-of-slowing-down/

http://www.forbes.com/2010/02/02/china-saving-marriage-markets-economy-trade.html

http://www.bbc.co.uk/news/business-26225205

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: