Standard Life Investments

Weekly Economic Briefing

Emerging Markets

Big spender or big investor?


Chinese outbound tourism has grown rapidly in recent years as incomes increased, consumption patterns changed, and visa requirements became less onerous. Chinese tourists have been an important source of growth for many countries and are often cited as evidence of China’s rebalancing, both towards greater consumption but also reducing external imbalances. Official data show the stark increase in overseas tourism (see Chart 10) – according to official data, tourism spending overseas increased from approximately US$100 billion in 2012 to approximately US$ 250 billion in 2015, and average spending per traveler increased from US$1300 in 2013 to US$2300 in 2015. This sudden surge in Chinese spending is seemingly backed up by countless anecdotes. Reported examples include Chinese tourists splurging on big-ticket jewelry in Hong Kong; tourists stocking up on cosmetics and health food products in Korea and Japan; or the fact that shopkeepers from London to New York have added Mandarin speaking staff to accommodate the influx of Chinese shoppers. However, anecdotes also abound of tourists spending on financial assets overseas, namely real estate. This begs the question – how much of this spending is on traditional goods and services abroad and how much is on financial assets? Put in other words – is the rise in Chinese tourism spending simply disguised capital outflows, while actual spending on goods and services is much less than official statistics imply?

Disguised outflows Fewer tourists spending more?

Until recently this was a topic where anecdotes tended to dominate the conversation, namely reports of Chinese tourists using debit cards to purchase property abroad or phoney jewellery transactions to convert large sums into foreign currency. However, recent research from the Federal Reserve Bank of San Francisco sheds light on how financial outflows might have been concealed or mismeasured as tourism spending. Their key conclusion is that capital outflows concealed as travel spending are “large and significant,” accounting for a quarter of net private financial outflows. Also, because the services deficit was likely distorted, the current account surplus was therefore likely larger than stated over the last couple of years. Among the reasons cited in the paper is the simple fact that travel transactions, especially since the end of 2013, responded to economic forces in ways that are opposite to the norm – they increased when growth faltered as well as when the currency depreciated. Indeed, travel spending spiked in 2014 at the same time growth weakened significantly and the currency depreciated. Other data points show highly anomalous patterns: in 2014, China’s travel expenditure as a share of GDP was higher than the United Kingdom’s even though the UK’s GDP per capita was seven times that of China’s. The Fed paper noted the other EM country with abnormally high travel spending as a share of GDP was Russia. Additionally, the growth of travel spending has greatly exceeded the number of outbound tourists, especially in 2014 when travel expenditure grew four times as fast as the number of outbound travelers (see Chart 11). Furthermore, this rise in spending per traveler coincided with a period when luxury brands saw weaker global sales and expensive destinations such as the Maldives saw declining Chinese tourist numbers. Although there are clear indications that travel was used to move capital abroad, it does not refute the fact that genuine tourism spending has still increased significantly and Chinese tourists will continue to be a driving force in global tourism spending.

Alex Wolf, Senior EM Economist