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Foreign Direct Investment in Chinas Tourism Sector

Abstract: This short paper aims to show the importance of Foreign Direct Investment in Tourism on Chinas 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 Chinas 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 worlds 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, Chinas investment system entered an expanded

Foreign Direct Investment in Chinas Tourism Sector

internationalization stage and the country has now become the top recipient of FDI among developing countries (World Investment Report, 2006).

Chinas tourism industry has become a well-regarded investment opportunity for foreign investors since the 1980s. With high growth in foreign tourist arrivals and tourism revenue, the tourism industry is an important factor in Chinas economic development. Figure 1 reflects the growth of international tourism and receipts obtained from international tourists visiting China.

GFC

International Tourist Arrivals & Tourism Receipts

140,000 120,000 100,000 80,000 60,000 40,000 20,000 -

International Tourist Arrivals (Thous.) LHS. Tourism Receipts (Million US$) RHS

SARS

160,000

60,000 50,000 40,000 30,000 20,000 10,000

Source: National Bureau of Statistics of China - Yearbook

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 $US263 million to $US45.8 billion in 2010 (National Bureau of Statistics of China various years).

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Foreign Direct Investment in Chinas Tourism Sector

FDI in Chinas 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 Chinas 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

Figure 2: The main stages of China's Tourism Development since 1949

Foreign Direct Investment in Chinas Tourism Sector

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 Chinas 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 Chinas 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 Worlds 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).

Foreign Direct Investment in Chinas Tourism Sector

FDI entry into Chinas 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 Chinas tourism industry that enjoys high FDIT. Travel agencies provide tourism-related products and services such as arranging transportation and accommodation. Government. Travel agencies were highly regulated by the

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 Chinas 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 Chinas 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.

Foreign Direct Investment in Chinas Tourism Sector

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 Chinas 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.

SARS

160000

GFC

International Tourist Arrivals & FDI

140000
120000 100000 80000 60000 40000

International Tourist Arrivals (Thous.) LHS FDI (Million US$) RHS

140,000 120,000 100,000 80,000 60,000

40,000 20,000 0

20000
0

Source: National Bureau of Statistics of China - Yearbook

Figure 3: International tourist arrivals and FDI

Foreign Direct Investment in Chinas Tourism Sector

Unequal Distribution of FDI among Regions While FDIT has had a strong impact on Chinas 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).

Distribution of Tourism Receipts by Region

14000
12000 10000 8000 6000 4000 2000 MEAN
Eastern (Coastal) Region

Tourism Receipts (Million US$)

Source: National Bureau of Statistics of China - 2011 Yearbook

Figure 4: Distribution of Tourism Receipts by Region

Foreign Direct Investment in Chinas Tourism Sector

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 Chinas tourism industry will continue to grow and FDIT will continue to increase over the coming years.

Foreign Direct Investment in Chinas Tourism Sector

References
Atherinos, Eleftherios., (2003), Tourism in China: Regional Distribution and Economic Impact, Estudios Econmicos 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-DELISPANTELIDIS-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