There’s a certain amount of irony in regards to the current Sino-American trade tensions. While American authorities are complaining about the $375 billion trade deficit with China, Chinese authorities are having trade and financial woes of their own, in part due to international tourism. Analysts at Standard Chartered are predicting that a “moderate shock” could result in a deficit for China’s current account for the first time since 1993. The growing number of Chinese residents going and spending abroad as tourists is cited as one of the biggest contributing factors.
The rapid growth of outbound tourist spending is putting the surplus in the total balance of money flowing in and out of China at risk
An economy’s current account is the sum of the balance of trade, net income from abroad, and net current transfers. Tourist spending abroad is counted as an outward flow from an economy. Chinese tourists made 130 million trips abroad and spent $115.29 billion last year and the growth of these figures shows no signs of stopping. While it is undeniably yet another expression of China’s growing global economic influence, tourism outflows will be something that Beijing will likely have to address in regards to the country’s current account for years to come.
Standard Chartered estimates that China’s current account will fall to 1 percent this year and to 0.5 percent in 2019. However, if Sino-American trade relations deteriorate even more or there is some other economic shock, a decrease in value of the RMB (yuan) is possible. In past years, a depreciating yuan has led to flows of capital out of China, as investors, firms, etc. look for foreign destinations where the value of their capital will hold or grow in value. This may erase China’s now small current account balance.
In some ways, a shrinking account surplus is an expected outcome of Beijing’s economic efforts to boost Chinese consumption
Trade tensions notwithstanding, the shrinking account surplus is indicative of several fundamental economic and industry issues in China, but these factors are not necessarily negative influences on the Chinese economy or the tourism industry. First, China’s overall trade surplus has been on the decline for the past few years, although it’s still quite high at $422.5 billion. This trend will likely continue. It’s an understandable outcome of Beijing’s efforts to transition China’s economy from production-oriented to consumption-oriented. Needless to say, a Chinese economy with a stronger consumer base certainly bodes well for the global tourism industry.
Another issue highlighted here is China’s struggles to sell its services globally, and the country has a $22.3 billion deficit in its trade balance for services. This figure is predicted to continue growing.
Finally, with tourism being the primary driver of a declining current account surplus, it’s made even clearer how few international tourists China attracts. The number of international arrivals to China has yet to surpass 30 million, meanwhile, the number of outbound trips made by Chinese tourists reached 130 million last year. It’s a somewhat strange situation given that China has a large number of famed historical sites and culinary traditions.
The poor state of China’s inbound tourism industry is something that Ctrip Chairman James Liang recently pointed out. To ameliorate the situation, Liang suggested easing visa requirements for foreign nationals in China, among other things.