Yves Dolais
Faculty of Law, Economics and Business University of Angers
Abstract
Tourism phenomenon in China is young. It is now one of the goals of
the Chinese economic development policy. The growth of tourism flows is
exponential. Chinese authorities have opened recently this sector to foreign
investments and Chinese private investments. But foreign projects in high-class
hotels and travel agencies are still in restricted project category and
procedure for approval still remains complicated. The administration of
tourism activities, despite the liberalization of the forms of enterprises,
evolves towards a strengthening of control. Nevertheless, the discussions
for China's entry into the World Trade Organization could influence the
access to the Chinese market and the evolution to more liberal policy.
Introduction
Tourism in China is 20 years old.
Since the opening of China in 1978, efforts to integrate the world tourist
economy have been growing, and tourism is regarded as an important accompaniment
to growth progression. In 1983, China became a member of the World Tourism
Organization.
In order to meet the increasing demand, the Chinese Government has softened
its policy, opening this activity sector both to private capital and foreign
capital, but the tourist activity still remains in 1998 under the strict
control of the State. Foreign investment in tourism industry as well as
development of the different forms of the tourist activities are stricter
controlled.
An Exponential Growth of Tourist Flows
Tourism in China has been marked up to now by a pre-eminence of foreign
tourism, mostly that of Chinese overseas, but the development of a domestic
Chinese tourism is a new, recent phenomenon, which is expanding fast. Its
growth is today more important than that of foreign tourism.
A Very Asian Tourism
The number of foreign visitors rose from 1.81 million in 1978 to 43.684.456
in 1994.92% of these visitors come from Northeast Asia, with 29.479.293
(67,48%) from Hong-Kong, 7.517.643 (17,2%) from Macao and 1.390.215 (3,18%)
from Taiwan. The non-Chinese overseas visitors only account for a small
percentage of the tourist flow, among whom there are 1.141.225 Japanese
(2,61%), 1.479.622 Europeans (3,38%), and 586.254 North Americans (1,34%).
The development during the 90's (nineties) reveals an increase of Japanese
and non-resident Chinese tourism. In 1995, more than 3 million Asian tourists,
other than from Hong-Kong, Macau and Taiwan, visited China. The number
of Asian tourists is growing faster (increase of 5,8% in 1994) than the
number of European or American tourists. The latter is stagnating, and
even decreasing (drop of 8,2% of European tourism in 1994), dependent in
particular on the political ups and downs internationally, such as the
events of Tian-An-Men in 1989, or the many bi-lateral tensions, like Franco-Chinese
relations, marked by human rights issues, or sales of weapons to Taiwan.
Hong-Kong continues to play an important part in the booming Chinese
tourist business. As early as 1980, the Chinese from Hong-Kong accounted
for 6 visitors in 7 and 90% of the revenue from tourism. With the retrocession
of Hong-Kong on 1st July 1997, tourists from the Special Administrative
Region of Hong-Kong are now to be looked on as national tourists, and foreign
visitors to Hong-Kong are to be calculated in the Chinese statistics. China
has just adopted the standards of the World Tourism Organization as regards
tourist accounting, which should, eventually, clarify the figures of border
tourism. Indeed, because of the status of Hong-Kong and of Macao, it has
always been difficult to distinguish between national and international
clientele. China hopes to reach 55 millions foreign tourists in the year
2000. However, business tourism has accounted for 20% of foreign tourist
arrivals in the last few years.
The Expansion of Individual Tourism
Long hesitant with regard to mass tourism and individual tourism, China
has recently opened to the latter. Since 1984, foreign tourists have been
able to visit China without going through Chinese or foreign agencies.
Almost all Chinese towns are today accessible to foreign tourists. The
percentage of individual tourism should reach between 20 and 30% of tourist
flows in the year 2000. This movement concerns both American tourists and
tourists arriving from Hong-Kong or Taiwan, and more particularly young
people.
The Boom of Domestic Tourism
The boom in domestic tourism is linked to the emergence of a new, urban
middle-class, based on the growing consumption of tourist products. In
1993, the hotel occupancy rates settled at an average of 72%, showing a
progression of 11 points in comparison with the previous year, of which
local clienteles accounted for 70%. The weight of domestic tourism can
also be measured according to the 30 million tourist packages sold in 1993,
which places China among the highest world level in term of volume. The
first consequence is the creation and fast expansion of private travel
agencies. 1.400 were listed in 1992, that is to say an increase of 80%
compared to 1991.
However, these figures must be put into perspective in so far as it
is mostly a question of business tourism. Leisure tourism, apart from that
of the elite, is still hampered by various factors scarcity of paid leave,
insufficient light infrastructure, access to air transport still too expensive
for the greater part of the population. Nevertheless, it is growing fast
in these last years of the century.
A Limited Foreign Tourism
Foreign tourism remains limited for those Chinese who do not have a
foreign link (family, official invitation), due to considerable administrative
difficulties and because the standard of living is still low. Thus, 60%
of foreign trips take place within the context of business trips. 4,1 million
foreign exits were recorded in 1993.
A Restricted Foreign Investment Policy
The Ministry of Foreign Trade and Economic Co-operation (MOFTEC) has
issued in November 1996 a new policy on the approval of foreign investment
in twelve specific industry sectors. Among them, one finds Hotels and Travel
Agencies. The MOFTEC Opinion attempts to unify policy and practice on the
approval of foreign investment in specific industries and sectors, as well
as approval of specific types of foreign investment vehicles, such as investment
companies.
Hotels
Hotels represent an area where local approval authorities have often
taken the view that the project may be approved locally, despite the Provisions
of the State Planning Commission, issued in 1995, which list hotels as
a restricted (category B) form of investment. Effective from 1st January
1998, a new guideline catalogue of industry sectors and products which
are designated as either « encouraged or « restricted
for foreign investment purposes replaced the catalogue which has been in
effect over the previous two years, complementing the foreign Investment
Guidelines, which were enacted in 1995. The new
guidelines catalogue was characterized as an effort to broaden opportunities
and achieve greater market access for foreign investors, and to promote
discussions for China's entry into the World Trade Organization.
High-class tourist hotels are still in restricted project category (B).
THE MOFTEC Opinion instructs officials that central government approval
is necessary for the project proposals and feasibility studies of joint-venture
hotels. These documents shall be jointly presented by the local planning
commission, local foreign investment authorities, and local travel administration
to the State Planning Commission, MOFTEC and the National Tourism Association,
for approval by the state Planning Commission. Wholly foreign - owned hotels
and establishment of high - class (four- and five-star) hotels are restricted.
In general, the operation term for Sino-foreign equity and co-operative
hotel enterprises should not exceed 30 years and extensions should not
be approved except in special circumstances, and by the MOFTEC.
Travel Agencies
Until 1995, foreign investments were prohibited. Now, travel agencies
are listed under restricted project category (B) and at present only Sino-foreign
equity travel agencies within national tourist and holiday resort areas
are permitted and branches cannot be established in other areas.
The Chinese partner must be an existing Grade-one travel agency in the
municipality or region that the resort area is in whereas the foreign partner
must be an international travel agency dealing mainly in holiday travel
or a travel agency sending at least 5,000 customers a year to China. The
Chinese partner's investment in the equity joint-venture must be at least
51 per cent and the joint-venture's registered capital should be not less
than US $1 million. The enterprise must place a deposit of US $ 10,000
or the RMB (Renminbi) equivalent in a designated bank.
The Form of Investment
Traditional investment vehicles in China include equity joint-venture
(EJV), cooperative or contractual joint-venture (CJV) and wholly foreign-owned
enterprises (WFOE).
The establishing legislation and implementation regulations for EJVs
were promulgated in 1979 and 1983 respectively, for WFOEs in 1986 and 1990,
and for CJVs the relevant dates are 1988 and 1995. In 1995, these forms
of investment were joined by regulations concerning the establishment and
operation by foreign companies of an investment company or holding company.
When the Company Law was promulgated in 1993, it offered a new possibility
for foreign direct investment in China, i.e. the setting up of a joint-venture
solely under framework of the Company Law rather than under traditional
methods. One obvious disadvantage of Company Law Joint-Ventures is their
ineligibility for preferential treatment and many incentives which are
granted to foreign investment enterprises with traditional foreign investment
legislation.
However, in general, most of the projects in tourism sector take the
form of Co-operative joint-venture. The CJV has special characteristics.
It has always been the option of the joint-venture parties of a CJV to
determine whether or not they wished to create an independent entity with
legal person status. In practice, if the parties determine that a separate
legal entity best suits their business needs, then they will express this
in the governing co-operation contract. In that case, CJVs will be limited
liability companies and will otherwise be subject to the Company Law. The
CJV rules give the joint-venture parties a wide flexibility in choosing
the form of their capital contributions to a CJV. One advantage of CJVs
over EJVs is that they afford a foreign party the opportunity to recover
its investment in priority during the term of the CJV provided the joint-venture
contract states that the Chinese party shall have ownership of all the
<~ fixed assets » of the CJV on its expiration.
A Continuing Headache for Foreign Investors
In general, foreign investment approval authorities can be divided into
four levels
| (a) the State Council, |
| (b) the Ministry of Foreign Trade and Economic Co-operation (MOFTEC), |
| (c) provincial governments (including centrally governed municipalities
(Beijing, Shanghai, Tianjin and Chongqing) and Special Economic Zones) |
| (d) governments below provincial level |
To find out which level of government authority should approve a particular
project, one must consider the following factors (a) the size of total
investment ; (b) overall balancing by the central government; (c) industrial
policy ; (d) special foreign investment vehicles.
Since most foreign investment projects are set up in provinces or cities
with local Chinese partners, one has to know whether the project requires
central approval, or whether the local authority has approved the project
within its authorized power of approval. It is so important because if
a local government has approved a joint-venture in excess of its authorized
power of approval, the response of MOFTEC will most likely be that it is
not a valid contract.
China's complex foreign investment approval system shows no sign of
disappearing in the near future, whatever happens to the China's long awaited
entry into the World Trade Organization.
A Strengthening of the Administration
of Tourism
Despite the liberalization of the forms of activity, as individually-owned
businesses, private companies, limited liability companies, State owned
enterprises or collective enterprises, the tourism policy and regulation
evolves towards a strengthening of the administration of tourist activities.
Travel Agencies
A new regulation has been promulgated on 15 October 1996. The - Administration
of travel agencies regulations - apply to travel agencies and resident
offices of foreign travel agencies established within the territory of
the PRC. The Regulations apply to the administration of offices which have
legal person status.
The Regulations provide for the requirements and documentation needed
for the establishment of travel agencies; the amount of registered capital
and security deposit; annual inspection by the administration department
for tourism.
The Implementing Rules, promulgated on 28 November 1996, provide further
details regarding the business scope of international and domestic travel
agencies; qualifications of personnel employed by international and domestic
travel agencies business sites and facilities; application and approval
procedures; administration of branches of travel agencies; rules regulating
business practice; protection of the rights and the interests of tourists;
and imposition of penalties on parties acting against the Rules.
Local governments also adopt Provisions that apply to the administration
of offices without legal person status. In Beijing, new provisions, effective
from 1 February 1997, introduce a strengthening of the Administration of
Offices in Beijing of travel agencies from other provinces and cities.
Provisions say that such travel agent offices are subject to examination
and approval process, issue of business permit, payment of a quality guarantee
sum for establishment of such offices and annual inspection by the Municipal
Tourism Association.
Business in Tourist Areas
The State Administration of Industry and Commerce has issued, on 22
January 1997, new Procedures about development of individually-owned businesses.
The Procedures apply to scenic tourist areas. The Procedures define
scenic tourist areas as famous scenic areas as well as parks, cemeteries,
temples, museums, etc... that can be visited or used for sightseeing purposes.
The Procedures state that individuals running business in scenic tourist
areas must hold a license issued by the organization administering industry
and commerce. They list prohibited activities, such as unauthorized change
of business venue or expansion of premises; transfer, lease, sale or alteration
of operating licenses; sale of foodstuffs that do not meet hygiene standards
or are harmful to human health ; sale of wild animals protected by the
State or their products; sale of counterfeit goods. It also lists the penalties
for violating the Law.
Conclusion
Even the growth of tourist flows is interrupted by the financial and
economic crisis in Asia, the major fundamental reforms, announced by the
Prime Minister, Zhu Rongji, will certainly liberalize the Chinese tourism
policy and regulations.
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