FDI in China's Tourism Sector
Transcript of FDI in China's Tourism Sector
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Foreign Direct Investment in China’s Tourism Sector
Abstract: This short paper aims to show the importance of Foreign Direct Investment in Tourism
on China’s development of its Tourism sector. International tourists are continuing to show
interest in visiting China. The continual annual growth in international tourist arrivals attracts
investors to China’s tourism sector. In addition, domestic tourism has also continued to increase
yearly. However, FDI in tourism is concentrated mainly in certain popular regions. This has
drawn attention to the disparity of foreign receipts among the various regions of China, which in
turn affects expenditure on infrastructure, tourism development and local income per capita.
The tourism industry is one of the world’s largest and most complex industries. It
incorporates transportation, accommodation, catering, hospitality, natural resources,
entertainment and other facilities and services (such as shops, banks, travel agents and
tour operators). Due to the complexity of the industry, it is difficult to examine Foreign
Direct Investment (FDI) activities in the tourism industry. There are no standardized
measures used in Foreign Direct Investment in Tourism (FDIT) statistics at a national or
international level that corresponds fully to the wide range of activities that tourism
incorporates (Yu 2008).
Since 1979 China has undergone rapid growth to some extent due to Foreign Direct
Investment (FDI) (Kyrkilis, Delis & Pantelidis 2010). In the years between 1982 and
1991 the average foreign direct investment in China was US$ 2.5 billion. Subsequently,
after China's entry to the WTO in 2001, China’s investment system entered an expanded
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internationalization stage and the country has now become the top recipient of FDI
among developing countries (World Investment Report, 2006).
China’s tourism industry has become a well-regarded investment opportunity for foreign
investors since the 1980’s. With high growth in foreign tourist arrivals and tourism
revenue, the tourism industry is an important factor in China’s economic development.
Figure 1 reflects the growth of international tourism and receipts obtained from
international tourists visiting China.
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Source: National Bureau of Statistics of China - Yearbook
International Tourist Arrivals & Tourism Receipts
International Tourist Arrivals (Thous.) LHS.
Tourism Receipts (Million US$) RHS
GFC
SARS
Figure 1: International Tourist Arrivals & Tourism Receipts
As can be seen from Figure 1, tourist arrivals and tourism receipts have increased
significantly during the period 1978 to 2010. International tourist arrivals have increased
from 1.8 million (0.2 million foreigners) in 1978 to 133.8 million (26 million foreigners)
in 2010, while receipts from international tourist arrivals have also increased from
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$US263 million to $US45.8 billion in 2010 (National Bureau of Statistics of China –
various years).
FDI in China’s tourism industry not only provides capital for the development of the
industry, but also brings advanced technologies and management skills to China, and
provides opportunities for China to develop its own tourism.
Development of China’s International Tourism
Emperors, scholars, and monks were frequent travellers in ancient times, due to their
positions of power, intellectual interests, or free time. However, it was not an activity of
the ordinary masses (Zhang, Pine & Zhang 2000).
The well-known international travel agency, Thomas Cook and Sons, opened offices first
in Shanghai, then in Beijing, providing services for foreign and rich Chinese. China
Travel Service was the first Chinese travel service established in 1923 by Shanghai
Commercial & Savings Bank in Shanghai. The business was short-lived, due to the wars
that followed.
Zhang, Pine & Zhang (2010) describe China's tourism business since 1949 as undergoing
four major stages of development:
1949-66
Tourism as part of Foreign Affairs
1966-78
Standstill
1978-85
Tourism as an important Economic Activity
1986-...
Tourism as a Sginificant Contribution to the National Economy
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Figure 2: The main stages of China's Tourism Development since 1949
Since 1986, China has recognized the importance of the tourist industry and has included
it into their national plan for economic development. With China, entering the WTO in
December 2001, the tourism industry had to survive without protectionist government
policies.
Tourism Demand
The direct contribution of tourism accounted for 2% of China’s GDP in 2010, while the
impact of tourism to the overall economy is much greater.
The continual yearly increase in the number of tourists visiting China generates demand
for hotels and as a result, more investment is required. The hotel industry has become
more global with international hotel chains spreading around the world, influencing
FDIT, to meet the growing tourism demand, particularly in China.
In China’s tourism industry, hotel services play an important role in improving tourist
services, creating employment opportunities and increasing public revenue, therefore,
local governments are eager to promote development and investment opportunities for
hotel services. To capitalize on the growth, and major events (the Olympics 2008 and
Shanghai World Expo 2010) many multinational hotel chains have expanded into China.
Among the World’s top 300 corporate chains ranked by Hotels magazine, about 10 %
have entered China, e.g. Hilton, Hyatt (USA), Shangri-la-Hong Kong, Marriott (USA),
Accor (France), and some mega-chains like Starwood and InterContinental Hotels (UK).
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FDI entry into China’s hotel sector not only solves capital shortages in local hotel
development but also brings unique management experience to the whole hotel industry.
Travel agencies are another field in China’s tourism industry that enjoys high FDIT.
Travel agencies provide tourism-related products and services such as arranging
transportation and accommodation. Travel agencies were highly regulated by the
Government. Only recently, has China deregulated the travel industry and allowed
foreign companies unlimited access to the domestic market. In late May 2011, the
National Tourism Administration announced that three Chinese-foreign joint venture
travel agencies would begin operating in China’s outbound tourism market (the three
travel agencies are: TUICHINA from Europe, CITS Express Travel Agency Co., Ltd.
from the United States and JTB New Era International Travel Co., Ltd. from Japan)
(China Travel Trends 2011).
Tourism features are another area where FDIT is attracted because of China’s history and
its natural scenery. Tourists who are interested in enjoying natural scenes and
experiencing adventures like to visit China on leisure tours. The total profit margin from
these tours is much higher than that of the travel agency industry and hotel services (Xi
2010).
In addition, FDI in the manufacturing sector also contributes to the development of
business travel.
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Relationship between FDI and Tourism
An empirical study by Tang (2007) has found that there exist a causal link between
tourism and economic growth in China. Tang has shown that a tourism-led growth has
been a major contributor to China’s economy. Tourism brings foreign exchanges and
contributes to government revenues. Moreover, tourism promotes regional economic
development and generates FDIT and domestic investment in tourism. Further analysis
by Tiwari (2011) supports the relationship between tourism, FDI and economic growth.
Figure 3: International tourist arrivals and FDI
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Source: National Bureau of Statistics of China - Yearbook
International Tourist Arrivals & FDI
International Tourist Arrivals (Thous.) LHS
FDI (Million US$) RHS
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SARS
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Unequal Distribution of FDI among Regions
While FDIT has had a strong impact on China’s overall economic development, the
unequal distribution of FDIT between different regions has skewed regional economic
development. As shown in Figure 4, International tourism receipts are still heavily
concentrated in the coastal areas. As such FDIT tends to flow into coastal regions.
However, the inland province of Hubei attracts a large comparative share, which may
partially be attributed to the Three Gorges on the Long River, a natural attraction
(Atherinos 2003).
Figure 4: Distribution of Tourism Receipts by Region
Eastern (Coastal) Region
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Source: National Bureau of Statistics of China - 2011 Yearbook
Distribution of Tourism Receipts by Region
Tourism Receipts (Million US$)
MEAN
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The tourism industry is growing at an annual rate of 10.4%. By 2020, China will be the
world's top tourist destination according to the World Tourism Organisation. In addition,
outbound tourism from China is growing and by 2020 China will also be the largest
source of international travelers. The opportunity for investment by foreign companies in
China’s tourism industry will continue to grow and FDIT will continue to increase over
the coming years.
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References
Atherinos, Eleftherios., (2003), “Tourism in China: Regional Distribution and Economic Impact”, Estudios Económicos Regionales y Sectoriales. AEEADE. Vol. 3- 2 (2003)
China Travel Trends. http://www.chinatraveltrends.com/2012/01/top-10-chinese-tourism-news-items-of-2011/ Dimitrios, Kyrkilis., Taxiarchis, Delis., & Pantelis, Pantelidis., (2010), “Foreign Direct Investment and the Tourism Industry, the Case of China.” http://idec.gr/iier/new/3rd%20Panhellenic%20Conference/KYRKILIS-DELIS-PANTELIDIS-FDI%20AND%20THE%20TOURISM%20INDUSTRY-%20THE%20CASE%20OF%20CHINA.pdf
National Bureau of Statistics of China. (various years). China Statistical Yearbook 2011. Beijing: China Statistics Press.
Tang, Sumei., (2007), “Foreign Direct Investment and its Impact in China: A Time Series Analysis” Griffith University, Thesis.
Tiwari, Aviral Kumar., (2011), “Tourism, Exports and FDI as a Means of Growth. Evidence from Four Asian Countries”, The Romanaian Economic Journal, Year XIV, no. 40 pp. 131-151
Yu, Jian., (2010), “Early Development of Foreign Direct Investment in the Travel Trade Industry of China: 1998 – 2007”. University of Exeter, Thesis.
Zhang, Guangrui., Pine, Ray. & Zhang, Hanqin Qiu., (2000),"China's International Tourism Development: Present and Future", International Journal of Contemporary Hospitality Management, Vol. 12 Iss: 5 pp. 282 - 290