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

Foreign Direct Investment in China’s Tourism Sector 2

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.

0

10,000

20,000

30,000

40,000

50,000

60,000

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1978

1979

1980

1981

1982

1983

1984

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1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

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


$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


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).


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.


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

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

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40000

60000

80000

100000

120000

140000

160000

Source: National Bureau of Statistics of China - Yearbook

International Tourist Arrivals & FDI

International Tourist Arrivals (Thous.) LHS

FDI (Million US$) RHS

GFC

SARS


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

0

2000

4000

6000

8000

10000

12000

14000

Source: National Bureau of Statistics of China - 2011 Yearbook

Distribution of Tourism Receipts by Region

Tourism Receipts (Million US$)

MEAN


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.


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

http://idec.gr/iier/new/3rd%20Panhellenic%20Conference/KYRKILIS-DELIS-PANTELIDIS-FDI%20AND%20THE%20TOURISM%20INDUSTRY-%20THE%20CASE%20OF%20CHINA.pdf



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FDI in China's Tourism Sector

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