There are still much less foreign tourists visiting China compared to pre-pandemic levels, slowing the post-pandemic recovery of the inbound tourism sector, which has in turn hobbled a multi-trillion yuan service industry. This has had knock-on effects for attracting foreign direct investments, which have fallen but remain key to economic growth. Ministry of Culture and Tourism data has shown Chinese travel agencies received 477,800 foreign tourists in the first six months of 2023, only 5.58% of the same period from 2019. The Ministry said 31.88 million foreigners came to China for tourism in 2019 and spent USD77.1 billion in China. That year, the combined contribution of the tourism sector – domestic and inbound – to China’s economy was CNY10.94 trillion, 11.05% of the gross domestic product (GDP).
Group tours from Western countries have almost completely disappeared from China, said Steven Zhao, CEO of the Guilin-based online travel agency China Highlights. Many agencies have quit planning itineraries for them, he said. “It’s a vicious cycle,” Zhao said. “If you have no products, you can promote, but no one wants to come.” Travel agencies and hotels are getting by mainly on domestic travel, with Zhao saying the summer holiday was a boom period. Domestic travel will bring USD700 billion in revenue to the travel sector this year, ForwardKeys said.
“After encountering difficulties while attempting to visit China, business executives may cut their trips short and could eventually ditch their investment plans,” Nomura’s Chief China Economist Ting Lu said in a September research note. “This could lead to less supportive voices for engagement with China among foreign business executives,” he said. “With visits by foreign scientists, technicians and corporate executives potentially failing to recover, the pace at which China climbs the value ladder could slow materially.”
Beijing’s firm control on national security and intensified anti-espionage probes have triggered concerns among foreigners and business executives over their future trips, the South China Morning Post reports. This in turn may have weighed on the operations of foreign businesses in China and their future investment decisions in the market – at a time when confidence is already fragile. Some Western academics and businesspeople fear being stopped in China for any links to people or institutions that the government does not like, while nobody knows what the rules are. Foreign direct investment (FDI) dropped year-on-year by more than 9.8% in the first seven months of 2023 to USD111.8 billion, the Ministry of Commerce said.
Continued declines in inbound foreign investment this year, as well as the supply chain diversification away from China amid geopolitical issues, have raised the alarm on China’s 2023 economic growth. Sluggish inbound tourism is hurting China’s attractiveness for overseas investment and exacerbating geopolitical risks, said Chong Ja Ian, Political Science Professor at the National University of Singapore. “Often investors need to go on the ground to get a feel for the environment and meet with people to develop a more holistic picture on which to make their decisions,” Chong said. Limited contact could lead foreigners to see China only as it is portrayed in the media, he said. Reduced contact also raises the odds of public relation crises between China and other countries, in turn making it difficult for Beijing to reach any diplomatic compromises, Chong added. “Given the competitive relationship between the United States and the PRC, such dynamics are likely to become more acute for the two populations,” Chong said.
China unveiled measures in August designed to make it easier for employees of foreign companies to get visas, but Chong added that the leadership’s priority on security may stymie its goal of attracting more foreign investment. Back in 2019, tourism had driven up job creation, employing a total of 79.87 million people directly and indirectly. This accounted for 10.31% of the country’s total employed population. This is now a headache for Beijing, with the gap between 2019 and 2023 expected to impact China’s wider economy and near-term investment climate.
“For a developing economy, attracting inbound tourism is a necessary component of its economic diplomacy,” said Zha Daojiong, Professor of International Political Economy at Peking University. “China’s economic policymakers have every reason to view the poor performance of inbound tourism this year as a loss larger than income for its travel industry,” Zha said. He called tourism “one of the most effective measures to help deflect maligned policy intent towards China” in the face of international supply chain decoupling.
