foreign tourism as an element in pr china's economic development strategy

Since 1978, China has increasingly relied on foreign tourism as a part of its economic development strategy. This article examines this policy and pays particular attention to the risks of dependence on foreign exchange earnings from tourism, to variations in such earnings, and to their sustainability; and it suggests policy measures which may be adopted to reduce this risk. Problems encountered in managing the supply of hotels and transport systems are reviewed, leading to a discussion of the international competitiveness of the Chinese tourism industry.

Clem Tisdeil is Professor of Economics in the Department of Economics, University of Queensland, 4072, Brisbane, Australia; and Jie Wen is a lecturer in the Depart- ment of Hotel Management, College of Management, Zhongshan University, Guangzhou, 510275, PR China.

The authors began this article when they were both in the Department of Tourism, University of Nankai and are grateful for the facilities provided by Nankai University. They would like to thank an anonymous referee for constructive suggestions on an earlier draft of this article.

Final version submitted 3 July 1990; accepted 3 October 1990.

‘See p 113 in M. Uysal, Lu Wei and L.M. Reid, ‘Development of international tourism in PR China’, Tourism Management, Vol 7. No 2. 1986, PP 113-119. *See p 28 in Zhao Ziyang, ‘Advance along the road of socialism with Chinese charac- teristics’, in Documents of the TbirfeenN, National Congress of the Communist Party of China (7987), Foreign Languages Press, Beijing, China, 1987, pp 3-77.

Foreign tourism as an element in PR China’s economic strategy

development

Clem Tisdell and Jie Wen

Since 1978, PR China has pursued a policy of opening its doors to the outside world in order to promote economic development and to improve the economic competitiveness of its industry. Deng Xiaoping indicated in June 1989 that China’s open door policy is to continue and this has in fact happened. Since foreign tourism plays an important role in this policy, it has continued to be encouraged. According to Uysal, Lu Wei and Reid:

As a means of economic growth and a basis for international friendship and mutual understanding, Chinese tourism, now termed a ‘smokeless industry’ by Chinese leaders, has found an important position in the grand plan for the realization of the Four Modernizations.’

Foreign tourism is seen as a means to accumulate funds for the modernization programmes, to enhance the friendship of the Chinese people with the rest of the world and to increase Chinese income and employment levels. In the 1980s Chinese tourism policy became increasingly concerned with the economic benefits to China of foreign tourism whereas the main emphasis used to be on the political benefits to China. This is not to say that political and cultural benefits are ignored - ‘suitable’ literature about China is available to tourists free of charge at many hotels and airports.

The Thirteenth National Congress of the Communist Party of China (1987) accepted the view that the expansion of tourism is important to the economic development of China because tourism can be a significant industry for earning foreign exchange. In that regard Zhao Ziyang

stated that:

Our capacity to earn foreign exchange through export determines, to a great extent, the degree to which we can open to the outside world and affects the scale and pace of domestic economic development. For this reason, bearing in mind the demands of the world market and our own strong points, we should make vigorous efforts to develop export-oriented industries and products that are competitive and can bring quick and high economic returns.*

This report, on behalf of the Central Committee of the Chinese Communist Party (CCP), goes on to mention specifically that more should be done to expand the export-oriented tourist industry and so increase the amount of foreign exchange available to China.

0261-5177/91/010055-13 0 1991 Butterworth-Heinemann Ltd 55

Foreign tourism as an element in PR China’s economic development swalegy

Notes: ‘State Statistical Bureau, Statistical Year Book of China: 1988. Chinese Statistics Publishers, Beijing, China, August 1988. Yitate Statistical Bureau, Customs Slatislics, Chinese Statistics Publishers, Beijing, China, January 1989. ‘Zhang Guangrui (text reference 7) as derived from The Yearbook of Chinese Tourism Statis- tics (1988, 1989) and other sources of The China State Administration for Travel and Tourism (SAlT). ‘1989 figures as reported in People’s Dai/y, 5 April 1990.

3See p 60 in RF. Dernberger, ‘China’s economic reforms’, in C.E. Morrison and R.F. Dernberger, eds, Asia-Pacific Report 1989. FOCUS: China in the Reform Era, East-West Center, Honolulu, Hawaii, 1989, pp 53-64.

Sources: Based on State Statistical Bureau, Customs Statistics. Chinese Statistics Publishers, Beijing, PR China, January 1989. Figures for 1989 as reported in Intertrade Monfhly, May 1990, Beij- ing, PR China.

56 TOURISM MANAGEMENT March 1991

Table 1. Value of PR China’s exports, international tourism receipts in current US $ (x 10”) and Its tourism receipts as a % of export receipts.

Year

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

Exports”~ (US $ x 106) (rounded)

13 660 18 270 22 010 22 320 22 230 26 140 27 350 30 940 39 440 47 540 52 490

Tourism receiptsc (US $ x 109

Tourism receipts/ exports %

449.27 3.2s 616.65 3.37 784.91 3.57 843.17 3.78 941.20 4.23

1131.34 4.33 1 250.00 4.57 1 530.85 4.95 1 845.27 4.78 2 220.00 4.67 1 800.00 4.29

Since 1978 when China relaxed its restrictions on foreign tourists, China’s receipts from international tourism have expanded greatly. They increased at current prices from US $262.9 million in 1978 to US $1845.27 million in 1987, that is more than seven times in a decade. The number of international tourist arrivals in the same period rose from 1.8 million to 26.9 million with the total number of foreigners arriving going up from 0.23 million to 1.7 million. The remaining expansion in arrivals was accounted for by arrivals of overseas Chinese and compatriots. By 1988, China was earning US $2220 million per year from foreign tourists but this fell back to US $1800 million in 1989 due to the effect of the political disturbances of May and June 1989.

Given the emphasis placed upon international tourism as a part of China’s development strategy, we wish in this article to assess this policy, taking into account the degree of dependence of China on foreign tourism for foreign exchange, its ability in managing the development of its tourist sector and the international competitiveness of China’s tourism industry.

Dependence on foreign tourism

With its opening up to the outside world, the Chinese economy has become more dependent on world trade. In 1987, the value of Chinese imports plus exports amounted to almost one-third of its national income .3 In 1989, it had increased to more than 40%. China’s export receipts have increased markedly in real terms since 1979 (see Table 1) and showed particularly rapid growth in the period 1984-88.

However, during the same period, China’s expenditure on imports grew rapidly (partly because imports of capital goods were increased in conjunction with the modernization programme) and consequently deficits arose in commodity trade (see Table 2). Overall, the balance on the current account of international transactions was in deficit towards

Table 2. Value of Chinese exports, imports and balance of trade (US $ x 108) 1981-1989.

Year Value of exports Value of imports Trade balance

1981 22017 22015 -8 1982 22 321 19285 -3 036 1983 22 236 21 390 836 1984 26 149 27410 1 271 1985 27 350 42 252 -14 902 1986 30 942 42 904 -11 962 1987 39 449 43 218 -3 779 1988 47 540 55 250 -7 710 1989 52 490 59 140 -6 650

41bid. 5People’s Daily, 14 February 1988; and 1 March 1989. %.A. Tisdell, ‘Tourist demand, the national gain from international tourism and the pricing of tourist services’, Nankai Econo- mic Study Journal, No 3. June 1990, pp 4144. (In Chinese.) 7Zhang Guangrui ‘Ten years of Chinese tourism: profile and assessment’, Tourism Management, Vol 10, No 1, 1989, pp 51- 62.

Foreign tourism as an element in PR China’s economic development strategy

the end of 1984-88 and was largely financed by direct foreign investment in China plus some borrowing from abroad.

A combination of factors has led to China’s trade deficit since 1984. These include a relatively high rate of inflation at home (and failure to depreciate the yuan in line with this inflation), the need for imports to support China’s modernization programme, eg imports of machinery embodying new technology and the presence of trade barriers in foreign countries. Furthermore, as reported by the China Daily, failure of Chinese suppliers to deliver goods in accordance with the quality stipulated in contracts has created problems for export. This indicates that more attention to quality control is needed and, in some cases, more consideration should be given to genuine fulfilment of contracts.

Receipts from foreign tourism form a signficant component of China’s foreign exchange income on its international current account. As is apparent from Table 1, China’s receipts from foreign tourism expressed as a percentage of commodity exports averaged almost 5%. This percentage increased steadily between 1979 and 1986 but showed a slight decline in 1987 and 1988. With the political disruption in 1989 it showed a noticeable decline, even though it still remained over 4%.

It should be noted that tourism forms a part of invisible trade (trade in services or non-product trade) rather than a part of the export trade in goods. Nevertheless, the percentage in the last column of Table 1 gives some indication of the relative importance of foreign tourism in China’s international transactions. The figures show that since China has increased its relative dependence on foreign trade and foreign tourism earnings have increased as a percentage of trade (or fallen only slightly), China has also increased its relative dependence on foreign tourism as an exchange earner in the period under consideration.4

Net receipts from tourism accounted for about one-third of China’s foreign exchange earnings from its non-commodity foreign trade (invisible trade) in 1987 and 1988.5 Receipts from tourism are the largest component of China’s foreign exchange earnings from its invisible trade, both in gross and net terms, ie net of expenditure by Chinese who travel abroad, but not taking account of import leakages from foreign tourists.6 But by world standards, China’s earnings from invisible trade are relatively small.

Even when import leakages from expenditure by international visitors are taken into account, foreign exchange earnings from visitors to China are likely to remain significant, and are important for the 10 cities which the foreign visitors mainly visit in China and which are identified by Zhang Guangrui.’ However, the size of the import leakages and the reason and rationale behind them would benefit from further investigation.

Even though there was no major disturbance in China in the 10 years to the end of 1988, the rate of growth in both the number of overseas arrivals and China’s international tourism receipts varied greatly throughout the period. The political disturbances in China in May and June 1989 caused a considerable reduction in foreign tourist arrivals compared with 1988.

The instability of China’s foreign exchange receipts from international tourism can be seen in Table 3. It shows the absolute annual differences in China’s international tourism receipts and their annual percentagC rate of change. In the decade 1979-88, annual percentage rates of change fluctuated from a low of 7.4% to a high of

TOURISM MANAGEMENT March 1991 57


Table 3. Annual variations in PR China’s international tourism receipts, 1974-1999.

Note: ‘From Zhang Guangrui, text reference 7.

Year

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

Tourism receipts’ (US $ x 100)

449.27 616.65 784.91 843.17 941.20

1131.34 1250.00 1530.85 1845.27 2220.00 1800.00

Absolute 36 annual annual difference variation in in tourism receipts tourism

(USS x 100) receipts

167.38 37.26 168.26 27.29

58.26 7.40 98.03 11.63

190.14 20.20 118.66 10.49 260.85 22.47 314.42 20.54 374.73 20.31

-420.00 -18.92

37.26%. Even in the five years 1984-88 growth rates varied from a low of 10.49% to a high of 22.47% even though in most years growth rates were close to 20% per annum. However, the growth rate for 1989 is negative (-18.92%) because of the political events in China in mid-1989.

Risk and sustainability

This (apart from the instability of receipts) highlights the risk of depending on foreign tourism for foreign exchange. While foreign tourism can be profitable, it involves risks which most other forms of earning foreign exchange do not. In the case of tourism, the consumer must actually visit the country to consume the commodity, whereas this is not true for most other commodities earning foreign exchange. This being so, any risks to a tourist either in travelling to or from the country or while in the country can affect his or her decision to visit.

Thus the number of foreign tourists to a country may decline if law ,and order is threatened in the host country because of such factors as political and social disruption, terrorism, warfare and increased criminal activities affecting tourists, eg theft, violence and rape. Similarly, heightened risks of hijacking and kidnapping will adversely affect tourism. So will an increased incidence of environmental mishaps and a greater likelihood of contracting disease, especially an incurable one. In fact, a risk of any inconvenience to foreign travellers, eg strikes in the domestic airline industry in Australia in 1989, will deter foreign visitors.

There are many examples of which the following represent a selec- tion. The coup in Fiji in 1988 led by Colonel Rambuka initially had a major adverse impact on international tourism to Fiji. Violence, kidnapping, hijacking and political instability in the Middle East, eg Lebanon, has reduced the number of international visitors to the area. In China, insurgency in Tibet has affected international travel to this province. In Papua New Guinea, the increased incidence of violent crimes, against travellers has reduced the willingness of foreign tourists to visit this country.

It should be noted that variations in the number of international visitors in response to political disturbances within a country are not likely to be limited to the pure tourist or holiday-maker component of foreign visitors - business visits may also be sensitive if the disturbances adversely affect business confidence in the country. This is because direct investment .becomes more uncertain and doubts may be raised about the ability of residents of the country to fulfill business contracts. But other categories of visitor may also be affected, such as those


Foreign lourism as an element in PR China’s economic development strategy

involved in international educational exchanges. Possibly the least sensitive component of the numbers of international visitors could be the group visiting friends and relatives.

‘Zhao Jian ‘Overprovision in Chinese hotels’, Tourism Management, Vol 10, No 1, 1989, pp 63-66. ‘Zhang Guangrui, op cif, Ref 7; and Tour- ism Planning and Statistics, 20 February 1989, p 53. “Ibid. ’ ’ ibid.

Resources

Risk or volatility of demand in an industry becomes a particular problem when the resources used in the industry are specific to it or to particular market niches within it. This applies to many resources used in the tourist industry. For example, hotels are relatively specific even though they can in some cases be converted to office blocks. In China, hotels for foreigners, Bin-guan, are markedly differentiated from those for Chinese citizens, Lii-guan. The quality of the hotel is differentiated by market segments. Lii-gum are of a much lower standard than Bin-guan and little flexibility exists for Chinese to use hotels designed for foreigners and vice versa. Furthermore, most hotels designed for foreigners are relatively high class. It is reported for example that 50% of hotels in Beijing are high-class hotels whereas 70% of foreign visitors wanted low- or middle-class hotels.” Hotel design can limit flexibility. If there were less concentration of high-class hotels, this might provide more flexibility for alternative use, eg for Chinese tourists or for offices.

But this low flexibility may also be present for other tourism services. If the transport system is expanded and shaped in response to the demands of foreign tourists and travellers, a collapse in that demand may mean difficulties in obtaining alternative uses for many of the transport services. For example, there may be overexpansion of air transport, airports or soft compartment rolling stock for trains relative to the appropriate level of demand for these services locally, given the less developed status of China. This is not to say that foreign tourism is too risky to be worth developing, but to point out risks which may be overlooked.

Tourist-originating countries

Risk in relation to foreign tourism can also be affected by dependence on one or a few countries for the bulk of foreign tourists. Japan accounts for about one-third of foreign traveilers to China and the USA for just under one-fifth. Japan is the major source of foreign visitors to China and although the number of visitors from Japan grew rapidly in the decade to 1988, the rate of growth slowed markedly (to 2.5%) in 1988. One reason for this was a train accident near Shanghai on 24 March 1988 in which many of the victims were Japanese. The USA is the second largest source of foreign visitors to China. But the number of arrivals from the USA fell by 4.6% in 1988 compared to 1987, the first decline in arrivals from this source since 1978.”

Together Japan and the USA account for around one-half of all foreign travellers to China.‘a They most probably account for an even bigger proportion of total expenditure by all foreign travellers to China. So China is relatively dependent on two countries for a large proportion of its foreign tourism (overseas Chinese and compatriots excluded). Any difficulties in international relations or economic interdependence with these countries can have considerable consequences for the number of international travellers arriving in China. In fact about five non-communist countries account for around two-thirds of all foreign visitors to China.” However, in the first half of 1989, the number of international arrivals to China from western countries declined whereas



Table 4. Top 10 sources of foreign visitors to PR China in 1989 and variation in number of visitors compared to 1888.

country (1) Japan (2) USA (3) USSR (4) Philippines (5) UK (6) Singapore (7) Thailand (8) France (9) Australia (IO) West Germany

Arrivals (no)

3.58 800 215 000 86 300 73 400 72 200 57 800 54800 51 900 48700 47 100

% change from 1988

-39.4 -28.6

+133.6 +2.7

-25.2 -11.5 -16.6 -17.9 -20.2 -31 .a

source: China Travel News, 25 March 1990

‘*/nternafior~a/ Business, Beijing, China, 12 August 1989. 13China Travel News, 25 March 1990. “Zhongguo Liuyoubao, 28 July 1990.


those from the USSR and Eastern Europe more than doubled compared to the same period in 1988.i2

Table 4 indicates the number of arrivals of foreigners in China by the top 10 source countries in 1989 and shows the percentage changes in these arrivals compared to 1988. (It should be noted that China does not regard Chinese compatriots from Taiwan, Hong Kong and Macao as foreigners). The number of visitors from all these countries, except the USSR and the Philippines, fell markedly in 1988 compared to 1989. The number of visitors from the Philippines increased slightly (possibly reflecting the Chinese ethnic connection of many Filipinos and the fact that tourism to China has only been encouraged from the Philippines in recent years) but that from the USSR more than doubled. The latter was possibly a knock-on effect of the visit of Gorbachev to China in May 1989 and improvements in international relations between China and the USSR. The reduction in the number of visitors from Singapore in 1989 is less than for other countries showing a reduction, possibly due to the Chinese ethnic majority in Singapore.

The overwhelming proportion of overseas visitors to China are not foreigners but Chinese compatriots and overseas Chinese. While the number of foreigners visiting China fell by 20.7%, the number of Chinese compatriots and overseas Chinese visiting China rose in 1989 compared to 1988. In 1989, the number of Taiwanese visitors to the mainland increased by 23.6% in comparison with the number in 1988 to reach 541 OO0.13 This made Taiwan a much greater source of visitors to China than Japan, the main foreign source. Nevertheless, China’s international tourism receipts fell because Chinese compatriots and overseas Chinese visiting China spend less on average than foreigners because, for example, they may stay with relatives or be more inclined to join heavily discounted package tours.

More recently, it was reported that overseas tourist arrivals in the period January to May 1990 were 11.23 million, a decrease of 0.6% compared to the same period in 1989.i4 Tourism receipts were US $0.75 x 10’ (US billion), down 10.7% compared to the same period in 1989 and suggest that it may be difficult to reach the National Tourism Administration (NTA) target of $2 X 10’ for 1990. The number of Taiwanese visitors, overseas Chinese visitors and those from the USSR continued to rise rapidly but the number of visitors from Japan and Europe continued to decline significantly. The number of Taiwanese visitors rose by 34.5%, the number of overseas Chinese visitors by 48.5% and the number of visitors from the USSR by 40.9% whereas the number of visitors from Western Europe and Japan decreased by 19.8% compared to the same period in 1989. Overall, visits by Chinese compatriots and overseas Chinese appear to have been more stable than the number of visits from more developed non-communist countries.

Apart from the above risk elements which may interfere with the steady growth in the number of foreign visits to China, other factors may make it difficult for China to sustain its rate of growth of foreign tourism. Most tourists visit China to sightsee rather than to participate in recreational activities. For example, many visitors come to see China’s historical sites and collections. These are less likely to generate repeat visits than are activities which change or for which the desires of individuals are repetitive, eg shopping, for some people gambling, or involvement in outdoor recreational activities. In this respect it might be noted that Hong Kong and Macao probably generate more repeat visits

Foreign tourism us an element in PR China’s economic development strategy

Table 5. Hotel room occupancy rates in PR China, 1987 and 1988, and % change in rates, 1987-1988, nationwide and for selected cities and provinces.

Difference % change in Geographical 1987 1988 in % occupancy area (%I (%) 1987-l 988 rate

Nationwide 83.0 76.2 -6.8 -8.2 Beijing 89.3 85.5 -3.8 -4.6 Guandong 78.6 85.6 70 8.9 Shanghai 89.8 75.6 -14.2 -15.8

Source: Jiangsu 70.8 71.4 0.6 0.8

Zheijiang 74.4 74.3 - 0.1 0.1

Based on Tourism Planning and Statistics, Guangxi 61.9 60.3 - 1.6 -12.0 National Tourism Administration of PR China, 20 Shaanxi 73.3 64.5 - 8.8 -12.0 February 1989.

by international tourists than does China because of the difference in the nature of their tourist attractions.

Effectiveness of resource management

Problems have emerged in China in managing tourism development, in keeping the supply of tourist facilities in balance with the demand and in maintaining the correct balance between complementary tourist -facilities such as the supply of hotel accommodation and the provision of transport services.

“Op tit, Ref 8. “Ibid, p 63.

“See p 90 in J. Nickum and J. Dixon, ‘Environmental problems and economic modernization’, in C.E. Morrison and RF. Dernberger, eds, Asia-Pacific Report. Focus: China in the Reform Era, East- West Center, Honolulu, Hawaii, 1989, pp 83-91.

Hotels

The supply of hotels appears to have expanded beyond the demand of foreigners for the type of hotel accommodation provided at the price charged. The excess was apparent even before the political demonstra- tions and disruptions of mid-1989. Zhao Jian attributes this to the irrational management of the hotel industry.15 He blames problems such as overprovision of hotel accommodation, a disproportionate allocation of finance to the construction of high-grade hotels for foreign tourists, and regional imbalances in hotel provision, on a ‘lack of knowledge about the hotel industry, an unreasonable investment policy, and archaic finance and management systems’. ”

The overall failure to match the supply of hotel rooms with the demand can be seen from Table 5 which also indicates a falling occupancy rate of hotel rooms due to the expansion in provision. The occupancy rate of hotel rooms in China in 1988 was estimated to be 76.2% compared to 83.0% in 1987. Thus the occupancy rate in 1988 was 6.8% lower than that of 1987. Most regions showed a decline in occupancy rates. Guandong was the main exception showing a 7% addition to its occupancy rates. Regional disparities in occupancy rates were large in 1988 and their variance increased in comparison to 1987. In 1988, occupancy rates ranged from a low of 60.3% in Guangxi to a high of 85.6% in Guandong. The economic expansion of the Pearl River area, the proximity of Guandong to Hong Kong, and the importation of hotel management skills from Hong Kong to the area, may help to explain the high hotel occupancy rate in Guandong Province. The low occupancy rate in Shaanxi Province (of which Xian is the capital) may be a function of rapid hotel building in the area plus the inability of the transport system to cope with tourism to the area. The large fall in occupancy rates in Shanghai in 1988 could have been due to a substantial extent to a reaction by tourists to the hepatitis A epidemic in the city and the train accident near Shanghai in which many Japanese were injured or killed.”



18Tourism Tribune, Vol 4, No 1, Beijing, China, 1969, p 1. ‘%.A. Tisdell, ‘Separation of ownership and management, markets, their failure and efficiency: possible implications for China’s economic reforms’, Asian Econo- mies, No 75, June 1990, pp 41-55. 2oOp tit, Ref 6, p 65; and op tit, Ref 7, p 55.

Overexpansion of accommodation (often of a type not in popular demand) and the imbalances in the provision of tourist facilities have arisen for a variety of reasons. First, there was a wave of optimism among CCP leaders about the economic prospects for foreign tourism in China. This has resulted in the widespread availability of soft loans (even some free of interest) and grants for hotel construction. Loans have been at interest rates below the rate of inflation. Inability to repay loans rarely results in foreclosure because of political considerations. Thus hotels are under little pressure to take account of market realities. This has led to the building of hotels without adequate analysis of demand or adequate project evaluation and does not make for economic responsibility.

Decentralization in decision making in these circumstances has resulted in severe lack of coordination in decision making in the provision of hotels, especially since so many different bodies within China can build hotels. In fact there are reported to be more than 1300 hotels in China at present belonging to more than 350 different organizations.” Apart from foreign joint venture investment in hotels in China, five types of organization may provide hotels:

0 Chinese central government; 0 local government (provincial and city); 0 government departments, eg NTA, army; 0 collectives (in the cities and rural areas); 0 in a few instances, individuals.

While in principle bodies building hotels are required to obtain the approval of the Chinese central government, this has not always been necessary and constraints do not appear to have been systematically and strongly imposed. So lack of economic discipline both by markets and by the Chinese central government has occurred.

A further factor leading to poor decision making in the supply of hotels has been the failure to separate hotel management and ownership (that is, the trustees of the investment for the people).” Often the trustees are motivated by political rather than economic considerations. This may lead them to favour the building of hotels in their own locality, or in areas favoured for personal reasons and may result in their detrimental interference with management.

In the case of hotels in major tourist cities, government officials may heavily influence the type of hotels being constructed. Zhao Jian reports that the popular inclination in China is to build high-class hotels for foreigners and there has been an excessive concentration on building such hotels. *’ He goes on to p oint out a survey of hotels in 15 tourist cities in China which revealed that 70.4% are in the four-star and de luxe class. A market investigation in 1985 of foreign visitors to Beijing found 35% to be wanting economy class, 60% middle class and only 5% de luxe. He suggests that most hotel projects are based on guesses about tourism demand and the construction of many hotels depends entirely upon the goodwill of government officers whose attitudes are often not based on a correct perception of real need.

Transport

As suggested earlier, construction of hotels has sometimes moved ahead of the availability of transport, thereby contributing to transport bottle- necks and delays, and underuse of the capacity of hotels. The case of


2’Op tit, Ref 7, p 57. “Ibid.


Xian and Shaanxi has already been mentioned. Qufu is also reported to face similar difficulties. For example, travellers arriving in Tianjin may have to wait several days before getting suitable connections to Qufu. Especially in ‘remote’ areas the capacity utilization of hotels is said to be low. This is possibly due to a combination of transport difficulties and unrealistic expectation that sufficient supply of hotel accommodation is a!! that is needed to attract foreigners. However, it would be incorrect to believe that such misperceptions are limited to China. Small communi- ties in western countries often see tourism as a means to their economic salvation but do not have an adequate appreciation of the difficulties of attracting foreign tourists. Nevertheless local bodies often embrace the tourism expansion option enthusiastically.

Zhang Guangrui believes that transport barriers in China are now the main limitation to expansion of foreign tourism in China, whereas in the past shortage of hotel accommodation was the most serious prob!em.*i While he suggests that the shortage of hotel rooms has been overcome, this is really only true in the macro or aggregate sense because lower-priced budget-type accommodation of a good clean standard still appears to be in short supply because of China’s concentration on de luxe-style hotels for foreigners. However, it is also true that China has taken great strides in expanding its transport network, especially its airline network, to cope with foreign tourists. Zhang Guangrui highlights some of China’s achievements in this area.** It also should be borne in mind that China is still a less developed country and one would therefore expect it to encounter difficulties with its transport system similar to many other less developed countries. But as pointed out earlier, a transport system which is developed to cater for foreign tourists may result in a transport infrastructure which lacks flexibility or adaptability in relation to local needs.

Despite the fact that China’s airline CAAC transported over 14 million passengers in 1988 and in the period 1978-88 increased its transport capacity by almost eight times, passengers were still seriously inconvenienced. For example, the Shanghai branch of the China Travel Service reported that in the summer of 1988 ony 40.2% of their group tourists could leave Shanghai by aeroplane as planned. Of those who left Shanghai by train, 34.3% had to change their timetable and some had to leave by bus because of unavailability of aeroplanes or trains. The situation in Xian and Guilin was even worse.

Market forces

In the Chinese tourist industry, more account needs to be taken of market forces in providing hotels and tourist facilities. Market forces should also be used to a greater extent to discipline firms and management in the industry, and in particular market-related policies should be adopted in relation to loans, and terms and conditions of loans should be adhered to more strictly. Organizations would then be less willing to commit themselves to uneconomic hotel ventures. This is not to say that markets can be relied on safely to direct a!! tourist development. Market mechanisms may fail for example to take account of adverse environmental spillovers from tourist development. But the current situation is unsatisfactory since neither the market nor central authorities are providing discipline, coordination and direction of tourist development.

It might be observed that in providing tourist facilities for foreigners it is also necessary to keep in mind the interests of the local Chinese.

TOURISM MANAGEMENT March 1991

Foreign tourism as an element in PR China’s economic developmenl strategy

There is sometimes a conflict of interest between foreigners and local groups of Chinese. Funds, for example, may be directed to building hotels for foreigners rather than for local Chinese, or for providing transport for foreigners rather than local Chinese. When crowding at tourist sites occurs, eg in the Forbidden City, it may be indigenous Chinese who have to make way for foreigners. To decide what should be the correct balance is difficult but it is an important issue.

It might be noted that the total number of domestic travellers in China is continuing to expand.23 Together with international travkllers these tourists are environmentally overtaxing a number of China’s tourist attractions, eg Zhuo-zheng Garden in Suzhou, where some deterioration has occurred. Policies need to take account of the ecological and cultural sustainability of the attractions under tourist loads. In some circumstances also, the use of traditional Chinese culture as a means to attract tourists may lead to over-commercialization and its eventual destruction, a result which may not be in the interest of the local people.

Greater attention should be given fo the flexibility and adaptability of projects undertaken to provide for foreign tourists. Is it possible to design more hotels so they can be used by economy-conscious foreign tourists and by indigenous Chinese? In this regard it has been observed that de luxe hotels for foreigners are sometimes used by CCP cadres at state expense. But this may be more a reflection of privilege than an economic alternative use for such accommodation.

Competitiveness of the Chinese tourist industry

Opening up to the outside world, as China has done, requires a country to meet foreign competition. This is as true of the tourist industry as of any other industry which involves international exchange of goods or services. Foreign tourists visiting China have alternative destinations which they can visit and, depending upon the relative prices, quality, range and reliability of tourist services in China, they may substitute alternative destinations. It is, therefore, important to consider the international competitiveness of China’s tourist industry.

The relative price of Chinese tourist services tends to be higher than that of its nearby competitors. 24 The price of hotel accommodation in China appears to be higher on the whole than in Hong Kong, Thailand, Singapore and the Philippines. Recent inflation in China combined with a reluctance to devalue its yuan has tended to increase China’s price disparity relative to its competitors in the outside world.

Furthermore, the range and variety of tourist attractions in China may be less than in competing countries. The mainstay of China’s foreign tourism is its historical and natural resource attractions, as well as for some visitors its cultural attractions. While it has significant attractions in this regard, other countries may offer a similar range of attractions as well as nightlife, possibilities of gambling, greater scope for outdoor recreation and greater variety of goods and lower prices for shoppers. Furthermore, as discussed earlier, China has only a limited variety of tourist accommodation which is slanted too much in favour of

23Tourism Tribune, Vol 4. No 2, 1989. D 9. de luxe hotels. ‘%.A. Tisdell, ‘Tourism in Australia. &d between Australia and China’, Nankai

Quality, service and presentation are often below that offered by

Economic Study Journal. No 4, August competitors at a comparable price. For example, China Airlines does 1989, pp 41-44 (in Chinese). not give a choice of menus on international flights, headsets are of


Foreign row-km as an element in PR China’s economic development strategy

relatively low quality and it is not possible to make in-flight purchases of gifts. Punctuality of flights, especially internal flights, can also be a problem.

The relative competitiveness of the Chinese tourist industry can be gauged to some extent by the relative cost of package tours from Sydney and Melbourne, Australia. Package tours for eight days and six nights in China range from A $1860 to A $2138 per person on a twin-share basis (Qantas Jetabout, ‘China’, 1988). For Hong Kong, Qantas Jetabout Holidays (1989-90), as quoted in ‘Great Escapes’, range in price from A $1214 to A $1385. For Thailand for six days and five nights, they vary from A $1085 to A $1385. Even in the case of Japan, for seven days and five nights, Qantas Jetabout quote A $1493. Of course, destinations even closer to Australia such as Singapore and Bali are still cheaper. For example, Singapore prices range from A $922 to A $1178 for a stay of five days and five nights for Qantas Jetabout Holidays on the same basis as above. A visit to China is therefore more expensive for Australians than a visit to these alternative, attractive destinations. To visit China (even if one does not travel extensively in China) costs even more than a similar visit to destinations close to mainland China such as Hong Kong and Japan.

Service standards

While to some extent judgment about standard of service is subjective, many writers are critical about the standard of service in the Chinese tourism industry. For example, Uysal, Lu Wei and Reid say ‘By comparison with world standards, the Chinese tourist conditions and service standards are still 10w’.~~ Choy, Dong and Wen claim that Chinese hotels have difficulty in meeting international service standards.2” In their view, foreign-managed hotels only maintain standards by bringing in expatriates to oversee operations. They suggest that:

The problem is to some extent due to lack of understanding or appreciation of international service standards by Chinese workers but in recent years, the problem seems to stem more from a lack of motivation. Most of the service workers have limited, if any, opportunity for advancement in management, and their wages do not afford significant increases in their personal standard of living.”

Zhang Guangrui suggests that the problem of poor service is conspicu- ous in the Chinese tourist industry and argues that while social factors play a role, lack of education and training in tourism management is the major source of the problem. 28 He argues that tourism education in China should be expanded and made more relevant to the Chinese tourism industry.

But the availability of tourism education and training in China has expanded and is continuing to develop. Furthermore, tourism management is being strengthened by:

0 joint hotel ventures; 0 sending Chinese staff abroad for training; l China’s establishing hotels in Hong Kong and Singapore.

These provide links and valuable openings for additional training for managers from China. However, there is still scope for much more progress to be made.

Given the current lack of international competitiveness of the

z50p cit. Ref 1, p 118. 26D.J.L. Choy, Li Dong Guan and Zhang Wen, ‘Tourism in PR China: Market trends and changing policies’, Tourism Manage- ment, Vol7, No 3, 1986, pp 197-201. 271bid, p 200. “Zhang Guangrui, ‘Tourism education in PR China’, Tourism Management, Vol 8, No 3, 1987, pp 262-266.



2s1bid, p 264. 30R. Garnaut, Australia and the Northeast Asian Ascendancy, Australian Govern- ment Publishing Service, Canberra, Au-

- Stralia, 1989. 31 D. McKee and C. Tisdell, Developmental Issues in Small Island Economies, Prae- ger, New York, USA, 1990.

Chinese tourism industry, it seems clear that China will be unable to achieve the targets approved by the State Council for the development of tourism. China planned to receive five million foreign tourists yearly by 1990 and 10 million yearly by the year 2000.29 But in 1988 there were only 1.84 million foreign visitors. Even with the absence of the disruptions caused by the political disturbances of May and June 1989, China would have been unlikely to reach even half of its planned target of foreign tourists for 1990. The figures are unrealistic given the poor international competitive position of the Chinese tourism industry.

Concluding comments

While there are risks in increasing dependence on foreign tourism as a source of foreign earning, tourism has some advantages over primary produce as a foreign exchange earner. Income from exports of primary products can be volatile and the long-term terms of trade appear to be against them. Demand for tourism is income elastic and appears on the international scene to be expanding at a more rapid rate than the demand for primary products. Foreign tourism therefore seems a worthwhile part of China’s portfolio for earning foreign exchange even taking into account the various risks associated with dependence on foreign tourism, eg the influence on foreign tourism of foreign confidence in the host country (as also is the case with foreign direct investment).

While China has made much progress in establishing its foreign tourist industry, China has several ways in which it can improve its international competitiveness, better coordinate its tourism development, and reduce the risks associated with foreign tourism. Beginning from a low base China has experienced rapid growth of foreign tourism in the last decade. But even so, the number of its foreign tourists (given the Chinese definition of what constitutes a foreign tourist) does not exceed that of Australia, a country with a vastly lower population and a country even more remote from those countries generating most international tourists. Nevertheless, having satisfied much of the pent- up demand for visits from overseas countries, China will find it increasingly difficult to expand the volume of its international foreign visitors unless its tourism industry becomes more competitive. But of course it is possible that China may learn by experience to take a more realistic attitude to the expansion of the foreign tourism industry than has been the case in the recent past. However, the prospects for China expanding its international tourism industry are favourable since it is well located in relation to the newly industrializing or more developed countries in northeast and southeast Asia which are expected to provide an expanding number of international tourists.30 Chinese ethnic and cultural connections in these areas should be an asset in attracting visitors from those countries.

Foreign tourism is a risky business for most countries, not only for China. However, China’s degree of economic dependence on foreign tourism is much less than for many small developing countries.31 Most new enterprises and those which provide prospects of economic growth involve risk and uncertainty and it appears to have been appropriate for China to expand its international tourism industry despite the exposure to additional economic risk. But with improved management and readjusted policies China can reduce these risks and continue to expand

TOURISM MANAGEMENT March 1991

Foreign tourism as an element in PR China’s economic developrnenr strategy

its international tourism industry. China has many tourist attractions which await promotion and development and it is well placed in relation to newly industrializing nations in Asia to obtain a reasonable share in the growth of the number of international tourists expected from this source. 32 China must learn from experience and improve both its management of the industry and its management of facilities and services within the industry.

Development of tourism industry

Because China is a developing country, it seems appropriate for it to take a long-term view of the needs of its people. This may be one of the reasons why foreign tourists are given priority over local citizens in access to tourist attractions. This enables the country to earn badly needed foreign currency to import valuable capital and know-how which can be used for economic development.

From 1979 to 1988, tourism was a leading industry in China in the sense of Hirschman. 33 This is significant for the pattern of China’s development because it is one of the first major service industries to be developed by China. China’s policy of developing this industry repre- sents a significant break with the traditional Stalinist model of economic development with its emphasis on promoting the growth of heavy industry. China has made significant progress in this regard and has achieved much in developing its tourism industry. But there has been unbalanced growth both within the tourism industry and in relation to complementary economic sectors and there is need for readjustment of policies. As suggested by a number of proponents, unbalanced growth is not necessarily bad for economic development.34 It can be a catalyst or stimulus for economic development. Nevertheless, the system can become too unbalanced and should be continuously assessed.

Even if China’s political disturbances of 1989 had not had an adverse economic impact on the tourism industry, the management of the Chinese tourism industry would still have been in need of major adjustment. The slowdown in the, growth of the tourism industry provides China with an opportunity for reconstruction. The previous over-rapid building of hotels, especially luxury hotels, should come to an end, supply should be more carefully adjusted to demand, and over-optimistic predictions of tourism demand should be avoided.

Following the political events of mid-1989, international tourism to China is recovering much more rapidly than might have been expected. This is due to several factors including:

0 the continuing firm commitment of China to an open-door policy; 0 the improving image of the Chinese government abroad; l the restoration of law and order and the lifting in January 1990 of

martial law imposed in parts of Beijing.

The holding of the 11th Asian Games in Beijing from 22 September to 7 October 1990 should have assisted recovery of foreign tourism to China as would other attractions sponsored by the NTA, such as the

320p tit, Re! 30. China Tourism Art Festival and the China Tourism Trade Fair. The

330. Hirschman, The Strategy of &v&p- NTA hopes to boost China’s earnings from foreign exchange from its ment, vale University Press, New Haven, USA, 1958.

target of US $2 X lo9 for 1990 to US $3.5 X lo9 - US $4 X lo9 for 1995.

%M. Gillis, D.W. Perkins, M. Roemer and This would imply nearly a two-fold increase of expected 1990 earnings in

D.R. Snodgrass, The Economics of De- 1995. This may be over-optimistic but a substantial increase can be velopment, New York, USA, 1983. expected in such earnings if lessons from past experience are heeded.
