Unlikely Weapon, view of ChinaTourists
Decades of explosive economic growth has handed China numerous tools it can use to exert its influence abroad
Posted by Jian Ping Sun on Thursday, 19th July 2018
Massive defense outlays, foreign direct investment and the sprawling Belt and Road Initiative are the most visible expressions of China’s economic might. But amid these earthshaking projects, the Chinese consumer has slowly gained clout. And as mounting trade tensions with the United States have shown, China can and will regulate access to its growing market.
China has already brandished the carrot and the stick of access to Chinese consumers for agricultural, luxury and manufactured goods. But one overlooked tactic is its control over how many of its citizens it allows to go abroad and where they can visit. Tourism is an unlikely tool of statecraft, but the massive growth in the number of outbound Chinese travellers means their combined economic weight can have sharp consequences that Beijing will continue to use.
Weaponizing the Middle Class
China’s rise has lifted many boats. Today, the Chinese middle class matters on the world stage. And access to that market is an attractive lure that the government can extend or retract at will.
In 1999, under 3 percent of China’s population — around 29 million people — could have been considered middle class according to Pew Research benchmarks based on levels of disposable income. By 2013, that number had ballooned to 421 million people, or over one-quarter of its population. This rise brought with it a growth in spending on goods, conveniences and leisure.
While the average Chinese citizen is not lavishly wealthy according to most metrics — China’s gross national income (GNI) per capita is still far below those of many developed countries, and its ratio of consumption to gross domestic product (GDP) is comparatively low — the sheer number of Chinese consumers means the scale of their spending can be staggering. Markets there for luxury goods, technology and food products have risen precipitously, and the travel sector has grown along with them.
Despite its relatively late start, China now outsends and outspends all other countries in tourism. Beijing only began allowing international tourism in the 1978 reform period, but tourism has grown dramatically since the country truly opened up in the late 1990s.
Over the past two decades, Chinese tourism has risen by a factor of 25, climbing from 5.3 million in 1997 to130 million in 2017. That year, Chinese tourists poured $258 billion into the global economy. This puts their spending at double that of U.S. tourists and triple that of German ones. China is now the top origin point for tourists visiting Thailand, Japan, South Korea, Vietnam, Russia, the Maldives, Indonesia, North Korea, the United Kingdom and South Africa.
And there is much room to grow. Currently only 10 percent of the Chinese population holds a passport and travels overseas, compared to 35 percent in the United States and 25 percent in Japan. But Goldman Sachs projects that by 2025, more than 220 million tourists per year will venture forth from China.
How China Controls Tourism
By dint of China’s sheer size, its massive tourist boom has and will continue to change markets worldwide.
Moreover, the Chinese government will be able to direct and regulate this flow to punish or reward countries as it pursues its foreign policy goals. Unlike other near-peer tourism senders, the structure of China’s tourism sector makes it relatively easy for the central government to act as gatekeeper to this lucrative market.
The most rudimentary lever Beijing has to direct tourism flows is by granting countries Approved Destination Status. This designation regulates where Chinese package tour groups are authorized to go and how tours are marketed in mainland China. Therefore, this designation causes an average rise in Chinese tourist flows of over 50 percent. As of 2017, 146 countries have been given this status, which Beijing has wielded to shape behavior.
But it is within China’s travel sector that Beijing exerts its greatest influence. Chinese travel agencies are particularly important because they send group package tours overseas, accounting for a full 44 percent of Chinese tourism abroad.
China has 25,000 licensed travel agencies, but only 2,000 have government authorisation to operate in the outbound sector. And no foreign agency operates outbound services for Chinese nationals.
China has already used access to its lucrative tourism market to for further it geopolitical goals overseas.
Perhaps China’s earliest use of tourism flows for statecraft was in Turkey. In 2000, China was trying to bring a derelict Soviet vessel through the Bosporus to use as a basis on which to build its first aircraft carrier. When Turkey blocked the ship’s progress for 16 months, Beijing used the sweetener of inbound tourist flows to Turkey to secure its passage.
Since successfully using tourism as an incentive in 2001, ups and downs in Turkish-Chinese relations have led to drop-offs in tourist flows, which expanded dramatically after the 2013 launch of the Belt and Road Initiative This was on display during 2015 tensions over Chinese treatment of their Turkic Uighur minority, which brought about a massive 53 percent decrease in tourist flows.
South Korea is the most recent and most dramatic example of Chinese influence through tourism. In March 2017, when South Korea began deploying the Terminal High Altitude Area Defense (THAAD) missile defense system that China had long objected to, Beijing imposed an unpublicized ban on tour groups to South Korea by threatening to impose fines on Chinese agencies who booked them and revoke their licenses. This had a devastating effect on South Korea’s tourism industry. The ban plunged Chinese tourist numbers from 7 million in March through December 2016 to 3 million in 2017. In February 2018, which attracted only 20,000 of the 200,000 Chinese travelers projected. All told, South Korea’s travel industry missed out on an estimated $6.82 billion in revenue.
As China’s tourism pressure on South Korea is winding down, it appears to be mounting against Taiwan, which is highly reliant on Chinese tourism. Beijing has allowed group travel to Taiwan since 2008 and, by 2015, flows peaked at 4.18 million — 40 percent of total arrivals. But in 2016, Taiwan’s presidential election appeared to favour a party that China fears will move against its interests by abandoning the "One China" policy. In retaliation, Beijing appeared to cut off tourist flows. The number of Chinese tour groups dropped 60 percent and, despite rises in arrivals from other sources, Taiwan’s tourism sector lost out on a little more than $2 billion in potential revenue.
And tourism is not the only way Beijing can pressure the tiny island. Taiwan’s standing on the world stage increasingly depends on a shrinking list of diplomatic allies. However, most of those allies are smaller nations in the global south that have a hard time turning down lucrative Chinese tourism. Six of the 10 countries that have cut ties with Taiwan since 2005 have received the designation as Approved Destination Status from Beijing, and Vanuatu and Fiji received it in exchange for refraining from recognizing Taiwan diplomatically. And among Taiwan’s 17 remaining diplomatic allies, the tiny tourism-dependent nation of Palau is in a particularly precarious position: 47 percent of its tourists arrive from China.
China will continue to weaponize tourism, and Japan is a prime target given its increasing competition with China. As Japan tries to manage its graying and declining population, Tokyo is focusing on tourism to boost consumer spending and tax revenue. Tourism into Japan has been rising in recent years thanks in no small part to Chinese tourists, and Japan’s economy now brings in the third-largest amount of aggregate revenue from tourism. And China has already used tourist bans to try to influence Japanese behavior. Amid the Senkaku Islands tensions of 2012-2013, for example, China dropped its tourism outflows to Japan by 24 percent. Beyond Japan, other potential targets of Chinese tourist cutoffs are the strategically important regions of South and Southeast Asia, the top regions for Chinese visitors. And in Southeast Asia, Chinese tourists are the largest inbound group to both Thailand and Vietnam, while the Philippines has seen a massive rise in arrivals. This upswing gives China a potent tool to inflict economic harm if relations with any of these countries sour over the South China Sea or the Belt and Road Initiative.
Not the End
China’s rise and the growth of its consumer markets will continue in the coming decades, increasing Beijing’s already impressive influence on the world stage.
As China continues to use economic statecraft to pursue its foreign policy goals, businesses invested in travel, infrastructure and air travel could have their operations affected by sharp cut-offs motivated by geopolitical factors.
Editor: Judy Smith