With many Chinese not having traveled abroad yet, raising income ought to be top priority

By Li Xunlei Source:Global Times Published: 2019/2/14 21:23:40

Illustration: Luo Xuan/GT

According to the latest data released by the State Administration of Foreign Exchange, China's tourism trade deficit reached $237.4 billion in 2018, an increase of $21.4 billion over the previous year. While the record high figure reflects the growing scale of outbound tourism consumption by domestic residents, it remains questionable whether the domestic demand is so strong that it even caused the record outbound tourism consumption.

However, by analyzing relevant reports and statistics, I believe some of the figures about China's tourism industry may be dodgy, which could therefore be misleading for investment decision-making and should be clarified.

According to the preliminary statistics of the China Tourism Academy, Chinese travelers made 140 million outbound trips in 2018, up 11 million from 129 million in 2017. To a certain extent, the steady increase in the number of Chinese outbound trips indicates that the consumption is still growing and not falling.

But the important question is how many people actually traveled abroad out of the 140 million outbound trips. According to the Annual Report of China Outbound Tourism Development 2018, Chinese trips to foreign countries and regions accounted for about 33.3 percent of total outbound trips in 2017. Assuming that the ratio remained unchanged in 2018, then the number of trips to foreign countries and regions came to about 46.67 million. Again assuming that half of the people who went abroad on average twice last year, then the number of Chinese who went to foreign countries and regions was approximately 31 million.

Moreover, the number of Chinese who go abroad is closely related with residents' disposable income levels and income growth. Data from the National Bureau of Statistics (NBS) showed that in 2017, the per capita disposable income of the high-income group reached 64,934 yuan ($9,604.71). For most of the residents in the high-income group, overseas tours remain as a kind of luxury spending, thus the per capita disposable income for residents that traveled abroad should be raised to at least 120,000 yuan a year. Yet this group probably numbers less than 100 million residents. In other words, the number of people who can afford the average cost of going abroad is theoretically less than 100 million.

Although many research institutions are optimistic about the development prospects for Chinese people's overseas tourism, the growth rate of private outbound trips was only 5.7 percent in 2017, compared to 22 percent in 2010 and 10.6 percent in 2015, showing a downward trend. This may actually reflect the decline in the growth rate of disposable income.

I don't agree with the so-called "consumption downgrade," as the Engel coefficient - the proportion of money spent on food in household expenses - fell to 28.4 in 2018. Yet, the slowdown in consumption growth, increased leverage ratio in home purchases and other factors have all impeded the pace of the consumption upgrade.

According to The Travel & Tourism Competitiveness Report 2017 released by the World Economic Forum, global tourism revenue contributed over 10 percent of the global GDP, but China's domestic tourism revenue was around 5.5 percent of its GDP, which has been the world's second highest since 2012. Compared with its economic volume, the Chinese tourism industry is not very well developed, which may have something to do with the overall low disposable income levels of Chinese residents. For example, in 2017, China's gross national income (GNI) per capita ranked 69th in the world, while the US GNI per capita was 6.5 times that of China during the same time period.

In recent years, various local governments have been making great efforts to promote the increase of local tourism revenues by building traditional towns, exploring and developing local history, local culture and other tourist resources. It is certainly justified for authorities to develop tourism, to expand domestic demand, to increase "green" GDP and promote an economic transformation. However, it should be noted that the development of a tourism industry is closely related to the growth of residents' disposable income. As the income level of residents rises, the tourism industry will naturally see a rapid development. In the context of the declining growth of residents' disposable income, it is completely unrealistic to achieve a rapid growth in tourism revenues. Furthermore, as various local governments are competing to develop tourism resources, this may lead to an "oversupply" within the tourism industry, and this will result in a low efficiency of fiscal expenditure and a waste of precious resources.

In short, it is of fundamental importance to find ways to improve the disposable income level of residents as well as social security and welfare, which is the prerequisite for sustainable prosperity.

The author is chief economist with Zhongtai Securities, based in Jinan, East China's Shandong Province. bizopinion@globaltimes.com.cn


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