China needs more foreigners for economic growth

For decades, China has sought to expand its “soft power,” or the ability to extend influence through non-military means. It spends some $10 billion a year promoting language schools and building universities overseas. It’s pushing entertainment companies to expand in foreign markets. And it has long been hoping to lure foreign travellers, just as the US and Europe do.

State media have said that the plan is to “develop tourism into a major driver of economic transformation and upgrading.” But that effort is faltering: Inbound tourism last year rose by only 3.8 per cent, with roughly 80 percent of those visitors coming from Hong Kong, Macau or Taiwan. One reason is that, for all its global aspirations, China isn’t at all welcoming to foreigners.

Its visa process offers a case in point. Citizens of only 13 countries are allowed visa-free entry to China (compared with 38 countries allowed by the US). Everyone else must obtain a visa in advance. In the US, Chinese visa centres have the foot traffic associated with a Lunar New Year festival. A visa costs $140, but unless you’re prepared to wait on line for hours to hand-deliver your application, you should expect to pay another $100 or more for a service to do so for you.

Such restrictions create significant economic barriers. One recent study found that a visa requirement for a given country will reduce inbound travel by 70 percent. In 2015, mainland China received just 2 million visits from Americans. By comparison, Hong Kong — which makes up less than 3 percent of China’s gross domestic product and less than 1 percent of its population — received 1.8 million visits.

China has often worsened this problem by using tourism to further its political aims, notably in disputes with Taiwan and South Korea. It rarely seems to dawn on the government that foreign consumers can reciprocate. After China restricted travel to South Korea in a spat over a missile-defence system, South Koreans responded by staying away. In May, their arrivals to China were down 42 percent over the previous year, while visits to Japan were up 85 percent.
 

All this has implications for macroeconomic stability. According to a recent Federal Reserve Board working paper, $190 billion in outflows may have left China disguised as tourism-related consumption. By comparison, China receives about $35 billion a year in foreign exchange from tourists.