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Chinese Tourists Are Beijing’s Newest Economic Weapon
Palau is the latest nation to find that offending China means empty hotels.
In early 2017, South Korea decided to deploy the U.S.-made THAAD missile defense system, designed to protect against possible attacks from its northern neighbor. That didn’t make a much larger—and usually friendlier—neighbor happy. China saw THAAD as a potential threat to its own security and reacted swiftly and strongly. Alongside the expected reactions—restrictions on South Korean businesses and trade and the cancellation of K-pop shows—came a new response: restricting tourists. In the months after the THAAD launch, South Korea saw a sudden 40 percent plunge in Chinese tourists—who, previously, accounted for nearly 50 percent of all arrivals into the country, severely impacting the tourism industry.
“The Chinese government threatened tour agencies that booked package tours to South Korea with fines, to great effect,” said Evan Rees, an Asia-Pacific analyst at Stratfor.
It was the first successful large-scale use of tourism to damage a major economy. And what happened in South Korea could be a sign of things to come. In a little more than a decade, China has gone from a minor player to the most important country of origin for tourists across the Asia-Pacific region. Whether it’s Japan, Thailand, Taiwan, Singapore, or Bali, Chinese are now the largest inbound group of tourists, with 129 million making overseas trips in 2017. In many cases, they also spend far more per visitor than their Western or Asian counterparts.
Due to its unique ability to control outbound tourists, China can use tourism as a tool of pressure, giving it a new form of soft power never seen before on the global stage. And the country is beginning to use it. Last year, it was directed at South Korea. Today, the target is tiny Palau due to its ongoing diplomatic recognition of Taiwan. Tomorrow, it could be Japan, Thailand, Indonesia, the Philippines, or any country that gets into a geopolitical spat with China. The nature of China’s inbound and outbound tourism markets makes this a coercive tool with few effective countermeasures.
The main lever of control is the tour agencies that arrange the group travel that makes up 58 percent of China’s outbound tourism. Like every Chinese company, the tour firms are heavily dependent on their ties to the government and have no choice but to fall in line.
“The Chinese government has a huge hand in the tourism sector,” Rees said. “Of the top five travel agencies, three are state-owned. Beijing has many ways to meddle in the flow of tourists that are unparalleled in any other country.”
And there’s no effective countermeasure. Unlike the mostly physical goods that are currently being marked for tariffs by the United States and China, there is no substitution for China’s blocking outbound tourists.
There are two factors at play here. The first is that democracies’ ability to restrict their citizens’ travel is much more limited. Short of outright legal bans, such as the one the United States once imposed on Cuba, South Korea can’t divert its tourists away from China—and any such ban would be a massive escalation.
Second is that relatively few foreign tourists visit China. Thanks to a range of problems from hard-to-get and expensive visas to a lack of tourist facilities to pollution, China’s rise has not made it a popular tourist destination, and its inbound numbers remain relatively small, only growing by about 30 percent from 2004 to 2016, compared with a more than 400 percent rise in outbound tourists. That means except for the uniquely situated special administrative regions of Hong Kong and Macau, foreign tourists are not an important driver of any city or regional economy. That makes tourism uniquely immune to retaliation—and good luck trying to make an international case out of it.
“Tourism as a coercive tool is hard to prove,” Eduardo Saravalle, a researcher on security and economic issues, commented. “If China imposed trade restrictions, there might be the possibility of going to, say, the [World Trade Organization], but tourism is a tough one to respond to.”
Only one country has withstood China’s use of tourism as a weapon, thanks to its long history of dealing with China’s attempts to punish or isolate it. In Taiwan, there was little surprise when the election of the pro-independence leader Tsai Ing-wen in 2016 rapidly led to restrictions on Chinese tour groups visiting the island.
But Taiwan’s tourism industry did not suffer as much as South Korea’s or Palau’s because of an ongoing effort to diversify inbound tourists. Instead, it replaced Chinese tourists with those from other emerging economies, such as Indonesia and Malaysia, lured by budget flights and expanded visa-free access.
“Taiwan is an old hand at dealing with Chinese statecraft,” Rees said. “[It is] very much ahead of the game on this.”
There are limitations to this strategy, of course. No country in the Asia-Pacific region can match China’s sheer size. It’s already the world’s top outbound tourist market, and with the increasingly prosperous residents of second- and third-tier Chinese cities now joining the boom, there’s no end in sight. While these tourists mostly head to China’s immediate neighborhood, the scope of travel is widening, putting more countries at risk of backlash. France, Italy, and Australia are already seeing increasing numbers of inbound Chinese tourists.
One thing to watch is the growth of independent Chinese travelers and whether they respond to state pressure in the same way. Right now, the government does not have such direct control over their travel destination choices—though the coercive power of the state is widening.
“We’ve now got a generation of young, wealthy Chinese who have been traveling for 10 to 15 years,” said Christopher Ledsham, the chief communications officer for the China Outbound Tourism Research Institute. “For destinations such as South Korea or Taiwan, while there have been embargoes on group travel, there are still many independent travelers going.”
While the Chinese government can’t yet restrict independent tourists, another trend could impact their choices as well. The recent fury over the perceived ill treatment of a Chinese family by Swedish police went viral on Chinese social media, perhaps egged on by an increasingly assertive ambassador. The economic impact will likely be negligible as Sweden is not a major destination for Chinese travelers, but it’s not hard to imagine in the future a similar story, either real or manufactured, going viral about South Korea, Japan, Taiwan, or any other nearby country and having a real impact.
It’s not clear whether this will become a regular weapon in Beijing’s arsenal of coercive techniques. But it seems even the pleasure of travel is not immune to the growing power of the Chinese government.