Moore’s Law, Chinese Tourism and the Balance of Trade

In 1965 Gordon Moore predicted that computer technology would double its capacity for memory while halving its cost every two years. This is known Moore’s Law (not to be confused with Murphy’s Law) and the speed with which technology doubles its capacity while halving its cost has increased to the point that improved technology becomes available too rapidly for the market to absorb it. Something similar could be said of the economic growth of China and its consequences on a global scale: China changes so rapidly that prevailing paradigms for China analysis become obsolete very quickly and China experts have to constantly re-examine their premises and models of analysis.

The World Tourism Organisation has predicted that by the year 2020 China will import one hundred million tourists a year and will also export one hundred million tourists a year. This year China has already overtaken Spain as the world’s third most popular tourist destination (after the USA and France). More than a million Chinese tourists visited Paris last year. Only 100,000 visited Spain. These Chinese tourists are wealthy and they spend a great deal of money on the purchase of luxury goods and cultural visits. According to the statistics on VAT refunds in Barcelona, Chinese tourists were tenth in the rankings of purchasers a few years ago; now they are fourth. This indicates an increase in tourists or an increase in purchases, but in either case it represents an important new trend (that still lags far behind similar tourist destinations in Europe such as France or Italy).

Spain’s balance of trade with China is negative. Exports to China only cover 14% of the cost of Chinese imports. This situation is not likely to change as long as China continues to assemble or manufacture so many of the products in high demand by consumers at such lower prices. The same delocalisation of manufacture to China which has deprived the country of much of its industrial capacity has also increased everyone’s standard of living and quality of life by providing quality consumer products at lower prices. (It has also reduced the amount of contamination in post-industrial countries like Spain that have exported their contamination to China.)

If Spain cannot increase the percentage of its exports to China in relation to imports from China, the only way to improve the balance of trade is through attracting Chinese investment and/or Chinese tourism. There are some signs of an increase in Chinese investment here. The Chinese shipping firm Hutchison-Whampoa has bought 100% of Terminal Catalunya S.A. (TerCat) and will now develop and expand the shipping terminals in the Port of Barcelona (they also control the Port of Rotterdam). By unloading containers in Barcelona and shipping them by rail to the centre of Europe, Chinese shippers could save 5 full days of sailing time. This will also require serious improvement of the railroad system from here to Germany: a major boost for the “Mediterranean Corridor”. The Industrial and Commercial Bank of China (ICBC), the largest bank in the world, has opened a branch in Madrid, and China has announced that it will support the Euro by investing in the sovereign bonds of embattled European economies, including Spain’s (the European Union is China’s largest foreign market and the failure of the Euro would seriously affect China’s trade with Europe).

In order to attract more Chinese tourists who would spend large amounts of money during their stay here the tourist industry has two choices: wait until the Chinese come knocking on the door or prepare tourist offerings that will attract them. Until recently the government was concerned with illegal Chinese immigration and this is the paradigm that still dominates government think, but changes in the Chinese economy have occurred so rapidly that the new phenomenon is wealthy Chinese tourists, not immigrants. Even so, the government has lagged behind in reacting to the new circumstances. The major impediments to Chinese tourism here are visas and the lack of direct flights. The government is moving toward the introduction of more agile visa granting procedures. The only airline operating direct flights (to Madrid) is China Air. But these are not the only changes needed to increase the number of wealthy Chinese tourists: a new vision of what is attractive is needed. The Chinese are not looking for “sun and surf” or bull-fighting or Flamenco, the traditional Spanish tourist offer. They want luxury hotels that serve Chinese breakfasts and they want luxury shopping trips and visits to cultural monuments and gourmet restaurants. They also want tour guides who not only speak Chinese but also understand Chinese culture (which would require much more support for advanced Chinese Studies).

  If the local tourist industry does not adopt a proactive attitude to attracting “quality” Chinese tourism it will eventually be the Chinese tourist industry that will do so, beginning with the travel agencies already established here by Chinese residents. It is a commonplace in Asia today to say that in the 21 st century China will be the hardware of the world and India will be the software. When Europeans ask what their own future will be, the answer is not to worry: Europe will be the spa for Asian tourism. That is one way to correct the balance of trade, if we act quickly enough.

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