Background
Travel and tourism had not been considered as an economic sector in China until 1978 when the prolonged economic reform and being open to the outside world began in the country. The general climate of economic reform and openness provides necessary conditions for the development of tourist industry, and meantime, tourism development facilitates implementation of the reform and open policy. Within less than 30 years since 1978, tourism in China has developed into a sizable industry, playing an increasingly important role in the country’s social and economic development. During this period, entering into World Trade Organization, a great event in the past decades for China, has further accelerated the process of opening up the tourism sector to the outside world.
Phases of tourism development
Tourism development in the past two decades or so can be roughly divided into two phases, i.e. the phase of cultivation and the phase of growth.
Phase of cultivation (1978----1991): tourist industry sprung up from the traditional planned economic framework. This phase again may be subdivided into two periods, i.e. the initial period from 1978 to 1984, the cultivation period from 1985 to 1991. Within this phase, the economic function of tourism was recognized, the industry’s position in the national economy was confirmed, and basic conditions for its development was laid down, however, the industry was still incomplete, its administration and operation were still confined to the planned economic system.
Phase of growth (1992----present): the tourism industry has grown into an important industry in the transition from the planned economy to the market economy. This phase may also be subdivided into two periods, i.e. the period of status upgrading from 1992 to 1998, and the period of steady expansion from 1999 up to now. In this phase, the industrial position of tourism as a growth point in the national economy has been confirmed, and its contribution to the country’s national social and economic development has become obvious, and its impacts, both positive and negative, have drawn attention from the society.
General policy of tourism
Positioning in the national economy
1978 was a turning point for tourism development policy in China as a result of the government’s decision of economic reform and opening up to the outside world. The goal set for developing tourism has been shifted from diplomatic relations to economic returns.
In the first stage of China’s tourism development since reform and open-up, a strategy of “appropriately faster growth” for tourism than other industries in the national economy has been adopted for certain years. Specific policies favorable to the tourism industry have been enacted. In the seventh social and economic master plan that was made in 1986, the national government declared tourism to be a comprehensive economic activity. For the first time ever, tourism was included in China’s national plan for social and economic development and got a position in the industry series. The development of tourism has been made a key industrial policy since then, which placed its economic impact foremost, as opposed to the political emphasis of the past.
With the impressive effect of the fast tourism development, during the 1990s, tourism has been attached more importance and witnessed a faster growth. In 1992, the central government enacted “decision on speeding up the development of the tertiary industry” and listed tourism as a key industry in the tertiary industry. Six years later, at a national economic conference called by the Central Committee of CPC in December of 1998, it was clearly stated that tourism should be considered as a new growth point of the national economy, along with the IT industry and real estate industry. Since then, most provinces and regions in the country have made tourism one of the pillar industries in their local economic development planning. In this period, the national and local government stressed the importance of tourism as an important service industry that was seen to require less investment, yet have quicker results, better efficiency, larger employment potential, and a greater potential to improve people’s livelihood than many other tertiary service sectors.
In April 2001, the State Council released the “announcement of speeding up the development of tourism industry” and pointed out to further the functioning of tourism as a new growth point of national economy.
General speaking, tourism industry has draw attention from the central and local governments. The industry has been benefited from many incentive policies made by the government.
Tourism industry policy
Far back in mid-1980s, a long-term general policy for tourism development was worked out by the central government, and it is still the guideline for the industry, that is “vigorously promoting inbound tourism, actively developing domestic tourism, and increasing outbound tourism in an appropriate way and at a controlled and steady pace”. This industrial policy was based on the reality of Chinese economic development and tourism market at that time. Firstly, China is a developing country, and needs more foreign exchange for its modernizations. Therefore, inbound tourism should be given the priority. Secondly, with the increase of citizens’ income, the increasing domestic tourism demands should be met. Thirdly, the conditions for outbound tourism were not ready then on both sides of demand and supply.
Thanks to the implementation of reform and opening up policy, great changes have taken place in China, so as in China’s tourism development. In terms of inbound tourism, China has been ranked No.1 international tourism destination in Asia and No.4 in the world. Domestic tourism is booming everywhere in the country, playing an important role in economic development in most of provinces and cities. Due to the efforts of the Chinese government and destination authorities, Chinese outbound travels for leisure and holiday have been increased rapidly since the turn of the new century, faster than expected.
Generally speaking, Chinese tourism industry policy need make some adjustment, and priority should be given to the inbound tourism development in the long run. However, in face of the changed situation, this policy should be readjusted, national tourism, i.e. domestic tourism and outbound tourism, should be well considered to meet the growing needs of the Chinese residents.
Important policy changes
During the past two decades or so, changes of the tourism industry policy have taken place, some of these changes can be explained on both sides of consumption and supply.
Encouraging tourism consumption
Holiday policy
A five-day work week was introduced in 1995, since then the Chinese citizens, especially the workers and employees in cities have one more day off for rest and leisure.
In September 1999, the central government declared another holiday policy change, making the annual public holiday extended to 10 days from 6. What is more important is to purposely make three week-long holidays per year by combining the public holidays and their adjacent weekends. The intension of the government to create these three weeklong holidays, later known as “golden weeks”, is to encourage people to travel and holiday, more precisely to spend their money in order to stimulate production.
On one hand, the outcome of this new holiday policy has fulfilled the government expectations. It is not only to promote tourism and holiday, but more important, it helps the Chinese people change their attitude towards holiday and work, leisure travel and holiday has been considered a normal practice in daily life. On the other hand, it also has some negative impacts such as increased price, over-loaded transportation, decreased service quality and tourist experiences, and so on. Therefore, it should be changed gradually for a policy that leads to a high season in only three or four weeks within one year cannot lead to a healthy and sustainable development of tourism. Generally speaking, this policy has catalyzed tourism and other service industries to a great extent, though there is much room to improve.
Tourism consumption incentive policy
In addition to the new holiday arrangement, some other incentive policies and measures have been made to encourage the tourism consumption. For example, for the domestic travel, the local government and travel-related industries have made efforts in planning, investment, infrastructure improvement, promotion and market regulation to create a favorable environment for domestic tourists. Meanwhile, commercial banks grant loans for citizens to travel and holiday. For the outbound travel, some measures, from passport issuance to relaxation of foreign currency control, have been taken to facilitate Chinese outbound tourist flows.
Relaxation of outbound travel
Outbound tourism policy
As a developing country, China gave priority to inbound tourism for its foreign exchange earnings at the beginning of tourism development and made a restrictive policy for outbound tourism. Under the three-prong policy of tourism industry, outbound tourism should be developed in organized, planned and controlled way. The operation was limited to several travel agencies with license. It is stipulated that outbound travel must be taken in tourist groups. The general tourist flow is centrally planned annually. And the operators were limited to a quota linking with their inbound tourists received. Generally speaking, the outbound tourism policy constitutes a strict limitation in terms of the ADS destination, operator status, and operation procedure.
Evolution of Chinese outbound tourism
With the successful economic reform and stable growth, more openness to the outside world, and increasing disposable money and time of citizens, more and more Chinese have been visited overseas regions and countries. This trend started with tours to visit friends and relatives (VFR) in Hong Kong and Macao in the early 1980s. This was followed by an increase in cross-border day trips in the late 1980s to the frontier areas of Russia, Korea, and Mongolia in the north, and to Vietnam, Laos, and Myanmar in the South. In the 1990s, control over Chinese outbound tourism gradually and cautiously relaxed. The “temporary regulation on Chinese travel to three countries in Southeast Asia ”, enacted by CNTA in 1990, was the milestone of the development of Chinese privately financed outbound tourism. In 1997, the State Council announced the “temporary regulation on Chinese citizens’ overseas travel on their own expenditure” and regulated the development of outbound tourism further. In 2002, “Regulation on Chinese citizens’ overseas travel” announced six regulations for the outbound tourism, i.e. approval system of the destination, license to the operators, tourist lists regulation system, tourist groups, requirements for the operation and service, and system for special tourism administration. It aims at making the administration and operation of Chinese outbound tourism evolved in a regulated way.
General speaking, outbound tourism in China is regulated in three separated sections, i.e. the Hong Kong and Macau travel, border travel and overseas travel. And the overseas tourism market is characterized with ADS approval system for the destinations, license to the operators, relaxed control of foreign currency, and simplified outbound procedure.
Relaxation of outbound travel
(a) More travel agencies with license
To meet the needs of fast development of outbound tourism, more and more travel agencies are authorized with license for the operation of Chinese outbound travel. In 1980s’, only CTS and CITS were allowed for the business of Chinese citizens’ travel to Hong Kong and Macau. In the early and middle of 1990s, some 9 travel services were authorized to operate the travel business of Chinese people to designed Southeast Asia countries. In 1997, 67 travel services got the license to deal with the business of Chinese citizens’ overseas travel on their own expenditure. At the same time, 350 retailing services were allowed to sale the outbound products for wholesalers. In 2002, 528 travel services were approved for the license of outbound tourism business, and in 2005, this figure increased to 627. It is also allowed for these travel services to act as an agent for each other.
(b) More ADS (Approved Destination Status)
One characteristic of Chinese outbound tourism administration is the ADS system. This status is given to those countries and regions which are politically friendly to China, and endowed with attractive tourists resources. It is not the mere result of market choice.
With the further opening of China to the outside world both in political and economical, more and more countries and regions have got the ADS since 2000, with average annual growth of 5. Till the middle of 2005, more than 90 countries and regions have been the destinations for Chinese grouped tourists.
(c) Passport application
In China, the differentiating between passports and their usage was being categorized to business and private passports. In the past, it was rather difficult to apply a private passport, and there was a complicated administration and control procedure for the business passports as well. Now, Chinese citizen in some large cities, such as Beijing, Shanghai and Guangzhou, can apply for a passport for its own use easily. This relaxation of the rules has also been combined with the cancellation of a very complex procedure applying for approval to travel abroad of the local authorities.
(d) Foreign currency control
In recent years, the foreign currency control for Chinese outbound tourists has been relaxed remarkably. Now the tourists can buy the foreign currency through banks by themselves, instead of through the travel agencies. Meanwhile, the quantity of money that a tourist can bring with his/herself abroad has increased from USD $2000 to $3000, in addition, the RMB quota has increased from 6000 to 20000. With the introduction of dual currency credit cards by China Unionpay and other foreign currency credit cards, Chinese visitor abroad may spend much more foreign currency over the limitation.
Facilitating tourism operation
In terms of tourism investment and operation, China’s tourism industry has been opened up gradually, both to the overseas capital and to the private business and other owners at home.
Open to private sector
Since the early 1980s, tourism business operation has gradually been separated from the government administration. However, most travel agencies, hotels, transport operators and other tourism business and facilities were state-owned enterprises in 1980s. With the deepening reform and booming tourism, government control has been gradually relaxed. In the middle of 1980s, the central government made a policy named to encourage the social capital to invest in tourism industry and diversify the ownerships. It meant that the investors included the central government, the local governments, the departments, the collective companies and private business. Until 1990s, tourism industry has drawn many different kinds of capital from business with different ownerships both abroad and at home. Especially some mega private companies have made great contributions to the development of tourism industry. And their investment spread in almost all sectors of China’s tourism industry, from hotel, theme park, catering, shopping to airlines. Since the early 1990s, some tourism companies have been listed in Shanghai and Shenzhen stock markets. The diversification of ownership demonstrates the fast development and investment change of tourism industry in China. For example, among all of travel agencies in China, the state-controlled amounts for only 23.61%, while the shareholding ownership 67.96%, private ownership 7.87% in 2004.
Open to foreign business
Hotel sector was rather open before China’s application for its WTO membership, though the tourism industry in general was not. Hotel was one of the first sectors to be opened up and had attracted the foreign capitals with highest percentage among all of the industries during the period of the seventh five years plan. For example, in the early 1980s, the hotel industry in China served as a pioneer and vanguard in carrying out the policies of reform and openness to the outside world. In 1992, the central government decided to establish 12 national resorts to attract foreign investment and encouraged to run joint venture travel agencies in those resorts. It was also allowed to operate joint venture tourist bus companies, and to employ small numbers of foreign guides. Since then, the tourism industry has been further opened in the fields of license, chain operation in hotels and restaurants, international reservation system in hotels, special permitted professional first aid, inner river ship, and so on. In late 1998, CNTA and the Ministry of Foreign Trade and Economic Cooperation jointly announced a set of temporary rules on the starting and operation of joint venture travel agencies in China.
The further opening of Chinese tourism industry to foreign companies focuses on travel agency business. According to the promise of China’s entry into WTO, it will be allowed to establish foreign joint venture travel agencies before Dec. 2004, and to establish foreign completely owned travel agencies without any limitation of location before Dec. 2007. In fact, at the end of 2003, the first foreign completely owned travel agency and the first foreign-controlled travel agency were established in China. This means that China has realized its promise for the entry of WTO 4 years in advance. In August 2004, GTA (Gullivers Travel Associates) became the first European tourism company to establish foreign completely owned travel agency in China. Since June 2003 when the “Temporary Regulations on the Establishment of foreign-controlled and foreign completely owned Travel Agencies” was enacted, there are 5 joint venture travel agencies and 5 foreign completely owned travel agencies in China now. At the same time, the registered capital for the foreign travel agencies has decreased from RMB 4 million to 2.5 million in 2005. And the location limitation of foreign-controlled or foreign completely owned travel agencies has been abolished, though the limitation of branches presence is still at place. For example, foreign travel companies are only allowed to establish one office in China for their whole operations so far.
In addition to travel services, other tourism-related sectors have also been further opened to foreign companies. For instance, in the time-sharing market, RCI (RESORTS CONDOMINIUMS INTERNATIONAL, the biggest vacation ownership exchange company in the world) has established several companies in China and expected to have members of 200 thousands in 2009. Of course, in some areas related to tourism industry are not enough open. For instance, foreign quality-computer reservation systems (CRS) like Amadeus are still being strictly limited to operate to their full extend in China.
Generally speaking, China’s tourism industry has been opened up gradually, though there are still some limitations to the foreign capital.
Relaxation of outbound tourism operations
The “Regulation on Chinese citizens’ overseas travel” announced in 2002 facilitated the outbound tourism operations to some extent. For example, the location limitation of tour group members has been abandoned. So the citizens can apply for the group tour out of their registered residence. It is also allowed the travel service to act as agent for each other. That means the service network is integrated and reaches the tourists anywhere.
Summary
Tourism has been one of the open sectors in China and has witnessed a more favorable development environment, both inside and outside the country. However, as a WTO member, China should further readjust its tourism policy and related administration methods to abide by the international principle and practices.
It is definitely necessary that China need readjust the tourism policy in accordance with the changed situation. This comprehensive policy must be taken with consideration of the World Trade Organization principles and long term development of Chinese economy and tourism industry. For the years to come, Chinese government, especially the governmental departments such as CNTA, and MOFCOM (Ministry of Commerce of the People’s Republic of China) should be ready to the overall openness related to tourism business, adjust the administration method and regulate the industry with laws and legislations.
Pro. Zhang Guangrui, Dr. Song Rui
Tourism Research Center, CASS