China Needs More Foreigners
(Bloomberg View) -- For decades, China has sought to expand its "soft power," or the ability to extend influence through non-military means. It spends some $10 billion a year promoting language schools and building universities overseas. It's pushing entertainment companies to expand in foreign markets. And it has long been hoping to lure foreign travelers, just as the U.S. and Europe do.
State media have said that the plan is to "develop tourism into a major driver of economic transformation and upgrading." But that effort is faltering: Inbound tourism last year rose by only 3.8 percent, with roughly 80 percent of those visitors coming from Hong Kong, Macau or Taiwan. One reason is that, for all its global aspirations, China isn't at all welcoming to foreigners.
Its visa process offers a case in point. Citizens of only 13 countries are allowed visa-free entry to China (compared with 38 countries allowed by the U.S.). Everyone else must obtain a visa in advance. In the U.S., Chinese visa centers have the foot traffic associated with a Lunar New Year festival. A visa costs $140, but unless you're prepared to wait on line for hours to hand-deliver your application, you should expect to pay another $100 or more for a service to do so for you.
Such restrictions create significant economic barriers. One recent study found that a visa requirement for a given country will reduce inbound travel by 70 percent. In 2015, mainland China received just 2 million visits from Americans. By comparison, Hong Kong -- which makes up less than 3 percent of China's gross domestic product and less than 1 percent of its population -- received 1.8 million visits.
China has often worsened this problem by using tourism to further its political aims, notably in disputes with Taiwan and South Korea. It rarely seems to dawn on the government that foreign consumers can reciprocate. After China restricted travel to South Korea in a spat over a missile-defense system, South Koreans responded by staying away. In May, their arrivals to China were down 42 percent over the previous year, while visits to Japan were up 85 percent.
All this has implications for macroeconomic stability. According to a recent Federal Reserve Board working paper, as much as $190 billion in outflows may have left China disguised as tourism-related consumption. By comparison, China receives about $35 billion a year in foreign exchange from tourists. According to official balance-of-payment statistics, China ran a travel deficit of $217 billion in 2016. That was equivalent to 44 percent of its entire trade surplus in goods. For a country keen to prevent capital outflows, a lack of tourists is hitting right where it hurts.
But that's only one symptom of a broader wariness of foreigners. In many parts of China, immigrants are almost unheard of. As recently as 2013 (the latest estimate available), less than 1 million foreigners lived in all of China -- an amount exceeded by some individual American cities. Even Japan, which isn't exactly a hub for immigration, has twice that amount. Multiple studies have shown that immigrants tend to boost economic growth, entrepreneurship and innovation, yet in China they're all but unknown.
Solving these problems will be politically difficult. But one obvious step for China is to simplify its visa system. Other Asian countries, notably India and Vietnam, have lately made serious efforts to make their application processes simpler and cheaper. If China wants more foreign tourists -- and their hard currency -- it should make it easier for them to get there.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Christopher Balding is an associate professor of business and economics at the HSBC Business School in Shenzhen and author of "Sovereign Wealth Funds: The New Intersection of Money and Power."
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