A railway tour from Laos, a trip to the far corner of Russia to see the Northern Lights, or a polar cruise in the Arctic. These are some of the more adventurous options being marketed in China as the country reopens. The urge to travel seems great: Ctrip, a travel agency, has reported a fourfold increase in inquiries within a month; Students are also increasingly looking for study abroad opportunities. In Macau, a gambling hub, two of the fanciest hotels are fully booked this month. If pre-pandemic patterns resume, China’s travel spending could grow by $160 billion this year, according to Natixis, a bank.
After three years of Covid-19 restrictions, this wanderlust is understandable. But besides the obvious motives – sun, sea, beach and study – there is another unspoken one: getting money out of the country. Capital controls limit the foreign exchange Chinese citizens can buy. Cross-border passenger traffic creates cover for monetary transactions. For example, in 2017, Chinese authorities reported how a person from Tianjin obtained 39 bank cards “in the name of studying abroad” and withdrew more than C$2.4 million (US$1.8 million).
A paper published in 2017 by Anna Wong, then at the US Federal Reserve, tried to calculate how much money left China this way. She examined a variety of sources in 20 popular travel destinations, including their balance of payments, visitor numbers and surveys of how much a typical Chinese visitor spends. This allowed her to compare the outbound expenditures reported in China’s balance of payments with its mirror image: the inbound expenditures reported by destination countries. In principle, the inbound and outbound measures should have matched. However, as of 2014, a large gap was emerging between the two. It reached $100 billion in 2015, or 1% of China’s bip. Ms Wong found a similarly wide gap between China’s reported travel spending and the level projected by an economic model based on factors like the bip of destination countries, their distance from the mainland, and China’s own economic size.
Since then, politicians have tightened the country’s capital controls and scrutinized transactions. They also revised previous data and removed some illegal financial transactions from the travel spend figures. But a suspicious gap remains. China’s own travel spending figures still exceed those coming from destination countries and global sources. In a report published on Feb. 14, Natixis estimated that the gap would be nearly $68 billion in 2020 bip), despite the sharp decline in travel.
As China reopens, the chances of circumventing capital controls will increase. The country’s currency is stable and growth is expected to be strong this year, but Chinese households have accumulated a large stash of deposits during the pandemic. The real estate market, historically a prime destination for the country’s wealth, remains depressed. Therefore, many will seek to diversify their wealth. Most people travel to broaden their horizons. The Chinese are also happy to expand their portfolio. ■
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