Tourism constitutes a key pillar of the Chinese government’s efforts to transform the country into a global leader. One aspect of this is by encouraging outbound Chinese tourism to countries around the world to illustrate that a relationship with China is potentially lucrative. However, arguably more important for the Chinese government is part of efforts to drive consumer spending to help China transition from an export-oriented economy to a consumption-oriented economy. In this regard, the growth of domestic tourism is much more significant for the government than outbound tourism, and the numbers for 2017 show how domestic tourism growth is far outstripping outbound tourism.

Chinese domestic tourists are making more trips and spending more per trip. Outbound trips are on the rise, but outbound tourists are spending less per trip

According to Ctrip and the Chinese Tourism Academy (CTA), 2017 saw record numbers of Chinese citizens going abroad. In total, Chinese travelers made 130 million trips abroad, resulting in $115.29 billion in spending. This means growth of 7 percent and 5 percent in the number of trips and spending overseas respectively. That means more Chinese travelers are going abroad that ever before, but are spending less on average per trip.

Conversely, China’s domestic tourism industry raked in $720 billion in revenue and Chinese tourists made 5 billion domestic trips. That represents growth of 15.9 percent and 12.8 percent in revenue and the number of trips respectively.

Unlike outbound tourism, Chinese domestic tourists are not only traveling more but spending more per trip. All of this is good news for a government hoping to drive China’s consumption-oriented economic transformation.

This rapid growth in both trips and revenue is especially good news for the Chinese government

The task of transitioning the Chinese economy into a consumption-driven economy has proven especially challenging in China, in part because Chinese consumers save a much larger portion of their incomes compared to most other countries.

According to the World Bank, in 2016 the global average of gross savings to GDP was 24.4 percent and the United States had a gross savings rate of 18.09 percent. China, on the other hand, had a gross savings rate of 46.05 percent.

China’s traditionally high savings rate has proven to be a substantial impediment to China’s macroeconomic goals

A high savings rate isn’t necessarily bad for any economy. In times of economic distress, it means that consumers are more likely to have personal safety nets that can help ride out economic hardship. However, money saved is money not going directly into the economy via consumption of goods and services to drive growth.

In terms of consumption, the world’s second largest economy is lagging behind the rest world despite its rapid growth in GDP. For example, the ratio of consumption to GDP in the United States stands at 68.83 percent, compared to 58.35 and 39.01 percent for the world average and China respectively.

It’s for these reasons that the rapid growth of domestic tourism is a particularly encouraging sign that China is on its way to encouraging consumption growth. While outbound tourism is by far more lucrative per tourist than domestic tourism when it comes to Chinese tourists, a large portion of this revenue is spent outside of the Chinese economy. That’s money that’s leaving circulation within the Chinese economy and cannot be taxed by the Chinese government.

The Chinese government wants its tourists to travel abroad with Chinese companies to reduce the amount of capital leaving China

While many Chinese tourists book through Chinese online travel agencies (OTAs), fly abroad via Chinese airlines, and travel with Chinese tour groups, Chinese tourists inevitably need to book local accommodation and meet their daily needs by purchasing goods and services through local businesses. That’s not to mention the large amount of money Chinese tourists spend at duty-free shops and other retail outlets. With a Chinese government keen on curbing capital flow out of China, encouraging the growth global Chinese tourism companies is increasingly important for the state.

Along with tracking the flow of capital both in and outside of China, the rise of mobile payments like Alipay and WeChat Pay ensures that more of outbound tourist spending returns to China.

Conversely, in China, tourists are all but guaranteed to travel exclusively with Chinese companies and most still take state-run transportation, whether it’s Chinese rail or state-owned airlines. Moreover, most major tourists sites in China are run by the state. Thus, domestic tourism results in high-levels of consumption in a short period of time, which means a substantial level of revenue for the Chinese government either through taxable transactions or ticket sales.

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