Tourist trap: China's
surpluses may be bigger than thought
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[June 28, 2017]
By Jeremy Gaunt
LONDON (Reuters) - Tales of Chinese tourist
largesse providing a big boost to destination economies are legend. They
may also be incorrect, with China's current account surpluses
understated as a result.
Anna Wong, a senior economist with the U.S. Federal Reserve, reckons the
money spent overseas by Chinese tourists -- some $215 billion last year,
according to one industry estimate -- is not all it is cracked up to be.
In a draft paper for the Fed's governors, Wong says a large amount of
the money designated as having come from Chinese tourists globally
should actually count as investment in assets.
"Financial outflows concealed as travel imports are large and
significant, growing to around 1 percent of China’s GDP in 2015 and
2016, and account for a quarter of recorded net private financial
outflows," she wrote.
![](http://archives.lincolndailynews.com/2017/Jun/28/images/ads/current/ldn_sda_062409.png)
This would mean that China's current account surpluses over the past few
years are actually larger than reported, and possibly as big as before
the financial crisis.
China's capital controls make it difficult for wealthier Chinese to
invest abroad. But the implication of Wong's findings is that there are
a plethora of ways for the country's "tourists" to buy property and
other assets overseas.
Factors suggesting this is happening come down to the amount of money
being reported as tourist-related versus the actual macroeconomic
conditions surrounding it.
One example is that China's travel expenditure as a share of GDP was
reported to be higher than Britain's in 2014, even though the latter's
per capita GDP is seven times China's.
Similarly, in the same year, spending by Chinese tourists abroad was
reported to have increased four times faster than the actual number of
tourists.
The way that money designated as tourist inflows ends up as asset buying
is mainly anecdotal. Wong cites "purchases of insurance saving and
annuity products, real estate properties, and cashback through a
cover-up jewelery transaction", as examples.
NOT WHOLE STORY
None of this is to say that Chinese tourism is not a huge boon to some
countries, or that the phenomenon of a new wave of tourists is not real.
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![](../images/062817pics/busine25.jpg)
A tourist from China
takes pictures of Japanese traditional masks at a souvenir shop in
Asakusa district in Tokyo July 17, 2014. REUTERS/Yuya Shino/File
Photo
![](http://archives.lincolndailynews.com/2017/Jun/28/images/ads/current/st_claras_lda_082114.png)
But it does have some impact on both tourist economies and China's finances.
For the former, it means tourist expenditure may not be adding to jobs, revenues
and manufacturing in the way that has been assumed.
Instead, a lot of the money designated as Chinese tourist inflow may simply be
pumping up asset prices -- in real estate, for example -- that do not
necessarily benefit the economies, or the locals, of the destination countries.
For China, it suggests that official current account surplus data may have been
distorted, that far more money is escaping capital controls than believed, and
that China's services deficit has been inflated.
Alex Wolf, senior emerging markets economist at British fund firm Standard Life
Investments, says the main implication of Wong's report is that the current
account surplus is larger than implied by official statistics -- a hot potato
politically.
"Transactions that appear as travel imports actually should have been on the
capital or financial account," he said. "If then the services deficit is smaller
than implied, the overall net surplus would then be larger.
"China’s current account surplus is likely as large (as a percentage of GDP) as
it was before the global financial crisis."
![](http://archives.lincolndailynews.com/2017/Jun/28/images/ads/current/graue_sda_2016.png)
Wolf noted that the U.S. Treasury has recently cited progress in China reducing
its external balance.
If Wong's analysis is correct, the Treasury's assessment may not be.
(Editing by Hugh Lawson)
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