The explosive growth of spending overseas by Chinese tourists dwarfs the increase in the number of Chinese travelling abroad. The most likely reason? Disguised capital outflows.
So says former US Treasury official Brad Setser, who drilled into the spending data provided by some of the most popular destinations for Chinese travellers. The nation’s tourism deficit – a measure of foreign visitor expenditure in China minus what its citizens spend overseas – soared to US$206 billion in the 12 months through June 30, up from US$77 billion in 2013, the last year of the yuan’s one-way appreciation trajectory.
While outbound tourism has grown decently – to about 120 million visitors last year from 98 million in 2013 – that acceleration pales in comparison with the spending figures.
Chinese tourists seem to be packing more than just sunscreen and cameras on vacation. The data discrepancy suggests they’re also shifting cash by buying homes while studying abroad, signing up for life insurance products in Hong Kong, or opening deposit accounts to squirrel money offshore, Setser said. That’s bad news for the global economy.
“Right now, the world as a whole needs Chinese demand for its goods and services far more than it needs Chinese demand for bank deposits and bonds,” said Setser, now a senior fellow at the Council on Foreign Relations in New York. “It helps us understand how the slowdown in China over the past few years is impacting world growth.”
The United States and Japan are among nations that break out spending by visitors from China. The US data, which include spending on education by students from China, shows a steady increase, but on a trajectory nowhere near as steep as Chinese data show. Japanese and European Union numbers reveal similar discrepancies, Setser said.
Hong Kong, historically the most frequently visited destination by Chinese tourists, doesn’t break out spending by Chinese tourists, but its data have usually moved in line with China’s tourism imports. That relationship has broken down in recent years, Setser said.
The most likely explanation for such gaps is that China’s data is capturing the movement of capital overseas, whereas the US, Japanese and Hong Kong numbers aren’t. Other factors also likely contribute to the discrepancy. China revised the way it compiles its balance of payments data to make better use of things like credit card spending, and that first impacted the numbers in 2014, Setser said. Luxury goods bought overseas and not declared in China to avoid taxes could also account for a portion of the gap, he said.
Because China doesn’t have a completely open financial account, some outflows would naturally be disguised as something else, he said.
China has been grappling with outflow pressures since mid-2014, when it became clear the yuan’s multi-year appreciation bet was over.
Outflows peaked late in 2015, with companies fudging trade receipts to shovel money out, or buying overseas assets. That spurred intervention to support the currency and efforts to enforce restrictions on how much money Chinese people can move abroad.
Explaining the gap in tourism spending, Setser said it looks like the Chinese data “is capturing something different from what it was intended to capture”.