TOURISM IN CHINA--TAKING ON NEW IMPORTANCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000202120001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: October 19, 2009
• Sequence Number: 1
• Publication Date: November 18, 1985
• Content Type: REPORT

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21L
Central Intelligence Agency
Washington, D. C. 20505
DIRECTORATE OF INTELLIGENCE
18 November 1985
Tourism in China--Taking on New Importance
Summary
Tourism is playing an increasingly important role in China's eco-
nomic growth. Premier Zhao has acknowledged tourism's earning poten-
tial, and has targeted the industry for national development. China's at-
tempt to appeal to foreign visitors has spurred construction in scenic
areas--helping to develop local economies and improve nationwide servi-
ces. Beijing hopes to attract 4 million tourists (not including Overseas
Chinese) annually by the end of the century--a goal that we estimate
could yield $5-6 billion. Achievement of this goal, however, will require
continued investment--both foreign and domestic--in accommodations,
transportation, and other infrastructure, and improvement of travel, finance,
This memorandum was prepared by Development Issues Branch, Office of East Asian
Analysis. Information available as of 18 November 1985 was used in its preparation.
Comments and queries are welcome and may be directed to the Chief, Development Is-
2X5
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Tourism--Bringing in Revenues
In a 1984 economic work report, Premier Zhao ranked tourism and the sales of
arms and oil as China's three main growth sectors for the future. Last year, China took
in more than $1 billion from tourists, 20 percent more than it did in 1983 (see table 1).
At least one-fifth came from spending in the southeastern provinces, of Guangdong and
Fujian, where overseas Chinese (see the inset) are frequent visitors.
Overseas Chinese: Come Back to the Homeland and Bring Money
The vast majority of visitors to China's mainland are overseas Chinese--
that is, ethnic Chinese of foreign citizenship. More than 11 million overseas
Chinese entered China last year. Nearly three-fourths of them visited the
southeastern provinces of Guangdong and Fujian, primarily from nearby Hong
Kong and Macao.
China actively encourages visits by overseas Chinese. Their spending
bolsters foreign exchange revenues and overseas Chinese firms are a lucrative
source of foreign investment as well. China maintains separate accommoda-
tions for overseas Chinese and offers preferential rates for most services, in-
cluding air fares equivalent to those charged for Chinese citizens. To entice
additional tourist trade among overseas Chinese, China has added direct flights
from places with large Chinese populations such as Hong Kong, the Philippines,
and Singapore. Further, China plans construction of additional hotels and other
facilities specifically for overseas Chinese.
According to Chinese statistics, the number of tourists visiting China increased
25 percent in 1984 alone. The majority of visitors continue to be ethnic Chinese from
Hong Kong and Macao--many entering China for traditional holiday periods. Yet other
visitors are arriving in ever greater numbers. Last year, Japan accounted for one-third
of the total foreign (non-ethnic Chinese) guests.
Officials hope to host 4 million foreign tourists yearly by the end of the century.
To attract additional visitors, Beijing has been liberalizing its controls on travelers:
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Table 1
Tourist Traffic to China
Foreign
Overseas Chinese
(In Thousands)
Total
1979
360
797
1,157
1983
870
8,607
9,477
1984
1,100
11,750
12,850
1985
First Half
Total Earnings
(US$ Millions)
260
940
1,130
? Although commercial tours still dominate the industry, individual travel is adding
a new dimension. In fact, Chinese travel officials estimate that individual travel-
ers may account for up to 30 percent of tourists by 1990.
? Travelers may now drive cars themselves in designated areas, thus avoiding reli-
ance on taxi services.
? There are now 265 cities open to overseas tourists,.of which only 159 still re-
quire travel permits.
? Overseas Chinese may make short business trips or visit relatives without special
visas.
? Tourist bureaus around the country may now bypass the central China Travel
Service to arrange travel for foreign visitors.
more than $60 million in local funds to improve local services in support of tourism.
According to Gao Yin, Director of China Travel Service, China will invest at least
$300 million of nationally budgeted funds in tourist facilities by 1990. In addition, Beijing
has devolved authority for tourism development to the local level, permitting additional
investments without central direction. For example, the State Council designated Hang-
zhou as one of China's top three scenic spots, with a free hand to approve tourism
projects regardless of the amount of foreign exchange involved. Hangzhou has allocated
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China's more isolated regions also plan to develop their tourism potential.
Xizang (Tibet) wants to exploit its mystique; half of the 43 major construction projects
now under way are linked to the tourist industry. Collective households are even oper-
ating hotels and car rental agencies. Since opening in 1980, Xizang has received only
about 10,000 tourists, but the provincial government hopes to attract 200,000 yearly by
the end of the century.
A Touch of New England?--Bed and Breakfast in China
Even China's smaller localities are stretching their resources to entice
tourists. At peasant-run hotels in Shandong province, guests sleep on tradi-
tional heated brick beds, raise chickens, and help villagers with farm work. In
one village, all 260 families have rooms for tourists and hosted 600 visitors over
the past two years. A peasant community near Zibo invested $160,000 to de-
velop a karst cave as a tourist attraction, and in the following six months
earned more than $40,000.
Shortage of Midpriced' Accommodations
more than 50 percent to support the tourist volume that Beijing wants in the year 2000.
China has more than 300 hotels catering to foreign tourists. Many are built with
foreign investment--primarily from Hong Kong and Japan, but with increasing participa-
tion from the United States and Middle East. At least 200 joint-venture hotels are
planned through 1987. Resorts and theme parks, built with Hong Kong participation, are
popular in the south. Even Europe's Club Med plans a resort in Shenzhen, near Hong
Kong. However, most of these foreign investments are in construction of luxury hotels,
and as a result there is a shortage of less expensive rooms and accommodations for
Overseas Chinese. We believe that the number of tourist rooms will have to increase by
Hotel construction is proceeding at an almost frantic pace in some areas. For
example, last year 6,000 new tourist beds were added in Beijing, bringing the total to
some 27,000. Guilin, another tourist mecca, boasts five ioint-venture hotels opening
next year, increasing capacity by 2,200 beds.
Among major US participants, Hilton International has signed an $85 million joint
venture with Hong Kong's Cindic Holdings for a hotel in Shanghai. Construction of a
$170 million joint-venture 700-room hotel and residential complex in Shanghai will be-
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gin in 1986. American International Group is the largest single investor in the project
with a $30 million share--the hotel will increase the number of tourist beds in Shanghai
by about 25 percent.
While we expect that foreign investment will continue to play a significant role in
China's hotel construction, we also anticipate that operating problems in existing
projects will deter some investors. Erratic power supplies and awkward long distance
communications threaten the smooth operation of some hotels. Financial arrangements
and management practices are cumbersome stumblingblocks that may also put off some
potential investors.
China's hotel construction may also be temporarily restrained by the highly pub-
licized drawdown of foreign exchange in early 1985, which, we believe, has fueled a
more cautious attitude toward large-scale infrastructural development. Senior officials
in one port city worry that some 60 tourism projects will be postponed at least one year
because of a 50-percent cut in national-level funding. We expect, however, that funding
will be reinstated once Beijing believes it has regained control of foreign exchange out-
flows.
Transportation System Overburdened
The increase in tourist travel has been a particular strain on China's rail system.
Nonetheless, the rail system bears the majority of passenger traffic, to the point that the
number of passengers can exceed nominal capacity by as much as 70 percent. China is
trying to increase the number of passenger cars available and expand rail stations to
ease the burden. To meet the growing passenger volumes, China needs to shift local
traffic to the limited road system and long distance passengers to flying, and leave the
railroads to handle medium-range travel needs.
But, according to press reports, 1.25 million air passengers were turned away in
1984. Before air service can accommodate more passengers, China must replace obso-
lete aircraft and expand its fleet. China has spent at least $1 billion on aircraft from the
United States, Britian, and USSR thus far in 1985. The Chinese may also buy passenger
helicopters to shuttle tourists to the Great Wall, archeological digs, and other tourist
sites in rugged terrain. Additionally, China's national airline has purchased a computer-
ized reservations system to improve booking services.
The problems surrounding Beijing's Great Wall Hotel have aroused considerable con-
cern among investors, for example. Opened in 1984, the hotel was financed by a
consortium of Western financial entities. Not long thereafter, it became apparent that
the Great Wall could not repay its $72 million construction loan on schedule. Since
then, the hotel has signed a management contract with Sheraton to employ proven
administrative techniques and put the venture on sound financial footing.
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Beijing decentralized its air service last year to permit regional airlines and thus
encourage competition to improve service. The first regional airline approved by the
State Council began operations in January 1985 in Xiamen. We expect that China will
have to expend considerable effort and funds to acquire new aircraft, build new airfields,
and train flight and support personnel to meet projected needs.
Reforms in the driver-incentive system of China's state owned taxi company
should help relieve another source of tourist complaint and improve taxi service. China
is also buying vehicles--mostly Japanese--to expand the fleet, and has sought road
construction assistance to help develop its highway system.
Fears of Foreign Influence
The influx of foreign visitors has brought exposure to Western ideas and material
goods that some Chinese officials fear will arouse dissatisfaction among the populace,
especially among the young. Customs officials are under orders to confiscate such
items as religious materials, pornography, and some music recordings to limit so-called
spiritual pollution.
Rising demand for foreign currency is also creating a problem, especially in the
southern provinces near Hong Kong. There, vendors, hotels, and restaurants that cater
to tourists charge lower prices when customers pay in foreign exchange. Provincial
governments are trying to crack down on this dual pricing, which would hinder local ef-
forts to acquire foreign exchange. While that may slow progress on some locally fi-
nanced tourism projects, we do not believe the effect would be significant.
Prospects for Tourism
We expect that China will continue to stress the benefits of tourism to both the
national and local economy. However, without major investment in hotel construction
and transportation, China probably will not reach its year 2000 foreign tourist targets.
We expect that China will continue to rely heavily on foreign investment for infrastruc-
ture development, but that progress will be slower than officials hope because of bu-
reaucratic inefficiencies and investor wariness. Meanwhile, China will continue to seek
Western transport equipment, telecommunications services, and operating systems to
sustain tourist-sector development. In spite of the costs and potential problems, we
believe China will continue to stress tourism in order to exploit its potential for earning
needed foreign exchange and as a significant stimulus to local economic development.
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