Alicia García Herrero (Natixis) | As the world awaits the return of Chinese tourists, a long-standing question may reemerge. China has gradually opened its capital account over the past decade, but there are still considerable restrictions. As a result, tourism has become one of the channels for capital flights based on the difference between the balance of payment data in China and globally. But there is a major problem with the availability of such data, especially in some countries with high people movement with China. In this note, we aim to fill the gap by integrating different sources and making the closest estimates of capital flows.
We first collect all available tourism receipts and expenditures from the official balance of payments data. Next, we identify the key markets missing from the datasets and estimate potential capital flows based on the share of Chinese tourists. Still, it comes with the limitations that spending may not be linearly correlated to such ratio. For example, long-haul travelers generally spend more, leading to overestimation or underestimation. To address the problem, we calculate a factor per market derived from the available balance of payment data and our preliminary estimates, formulating the final adjusted capital flows.
Our results show China’s net capital outflows through tourism but for other purposes persist, which is a measurement of disguised capital flights. The scale has narrowed from $99 billion in 2016 to $73 billion in 2019, and the data gap stays in 2020 with the limited cross-border trips.
The trend reflects the ongoing demand from Chinese residents to diversify their assets. However, with tighter scrutiny of cross-border capital flows, it is more complicated for residents to move money offshore. Still, the limited investment options in the onshore market will continue to push Chinese investors to hunt overseas assets. The mentality to diversify is not, though, unique to China given the rising global uncertainties, and it appears in other countries for different reasons.
All in all, tourism appears to be one of the means for residents to move money across borders beyond the demand for travel, but its usefulness has been decreasing. Still, tourism is only one of many options, ranging from over-invoicing of imports to under-invoicing of exports in goods and services, as well as buying trophy assets overseas which do not have clearcut valuations.