The size of the trade deficit with China is one of the hottest potatoes in American economic policy these days. It is about to get a little hotter, thanks to Beijing's highly provocative, if hitherto largely overlooked, controls on outbound tourism.
In theory the United States should be a major beneficiary -- perhaps the major beneficiary -- of a recent trend for Chinese tourists to travel abroad. In practice, however, the United States ranks low on the list of Chinese tourist destinations. On the most recent figures available, it received only one-quarter as many Chinese tourists as, for instance, Italy. Of the 49.4 million foreigners admitted to the United States in 2005 on all non-immigrant visas, nearly 300,000 came from China. By comparison 383,400 came from tiny Ireland and about 319,000 from Taiwan, countries that boast respectively 0.3 percent and 1.7 percent of mainland China's population.
Clearly there are cultural and economic reasons for the differential. But it is Chinese regulation that most stymies America's ability to generate invisible exports from Chinese tourism.
Before a nation is permitted to tap into China's booming outbound tourist business, it must receive so-called approved destination status (ADS). This is the Beijing tourism authorities' equivalent of the Good Housekeeping Seal of Approval -- or at least that is how they present it. Although more than 100 nations have now been granted ADS, the United States is not among them. As a practical matter, this means Chinese travel agents are not permitted to market the United States as a destination for group tours. Moreover, it is all but impossible for Chinese citizens to get a Chinese exit visa to the United States unless they can plausibly claim to be traveling on business, visiting relatives, or studying.
Until the late 1990s only nine destinations, notably Hong Kong and Macau, had been granted ADS. Then most of the rest of East Asia got the green light, including even Japan, with which China is supposed be in some sort of cold war. In the last three years virtually every significant remaining tourist destination in the world has been approved, more than 50 since April 2005 alone.
What has Beijing against the United States? The short answer is we don't know. In fact, the Chinese authorities have not only refused to talk; they have been highly successful in covering up the entire situation. Misled by Xinhua, the official Chinese news agency, most China watchers in the West assume that it is Washington, not Beijing, that wants to restrict Chinese travelers. Even The Economist magazine has propagated this misinformation. In an article on outward-bound Chinese tourism this June, its Hong Kong correspondent omitted all mention of the ADS system and blamed American restrictions for the fact that only “a handful” of Chinese citizens visit the United States.
The strangest thing about the ADS affair is that it seemed to have been resolved long ago. As far back as December 2004, Chinese and American officials signed a memorandum of understanding laying the groundwork for America's ADS entry. Nothing more was heard, however, and it gradually became apparent by default that the deal had lapsed. Neither Washington nor Beijing will comment about why.
Some observers have suggested that Beijing pulled the plug as a protest at the U.S. immigration service's post–9-11 policy of fingerprinting and photographing Chinese visitors. But this is transparently fatuous: The new American entry regulations apply equally to all aliens; there is no suggestion that the Chinese are being singled out. In any case the policy cannot have been a sticking point because it was already in force nearly a year before the tentative Sino-American ADS agreement was even announced.
Another suggestion is that Beijing objects to an American requirement that each Chinese visa applicant appear in person at an American consulate. But this can't be a deal breaker, either. Visiting a consulate may be inconvenient and thus may discourage some tourist traffic, but if Chinese citizens are prepared to make the trip, why should the Beijing authorities stand in the way? According to some China apologists, the Beijing authorities are protesting the fact that the United States has too few consulates in China -- just five to serve a nation of 1.3 billion people. But this surely puts the cart before the horse: There is not much point in opening more consulates if there is nothing for them to do.
The most likely explanation is Beijing's desire to control its citizens. An examination of deals made with other nations indicates that the whole point of the ADS system is to enable the Beijing regime to subject its citizens abroad to tight surveillance. Beijing insists that only a few trusted tour operators, both in China and in the host nations, be designated to handle Chinese tourists, and ADS administrators keep these operators on an extremely tight leash. Such an arrangement is, to say the least, difficult to square with U.S. antitrust law. After all from an American point of view, the business of looking after Chinese tourists on American soil should be open to competition in the usual way, not reserved for a few well-connected companies named in a bilateral agreement. It is equally clear that opening the Chinese tour business to free market competition would fatally compromise Beijing's control. After all, the essence of the ADS system is that Beijing offers a quid pro quo: The designated tour operators get to make good profits but in return risk losing their ADS license to print money if they fail in their obligation to keep Chinese visitors under essentially Orwellian control.
The major point of the ADS system's surveillance is to make sure that all tourists return to China. Indeed to make doubly sure, Beijing often requires travelers to put up huge cash deposits as a guarantee of their return. In the case of the tentative Sino-American tourism accord of 2004 the deposit was 100,000 yuan per traveler. At the current exchange rate, this is more than $12,000, and of course its purchasing power in Chinese terms is far greater. For young people particularly this is a major stumbling block and it is clear that in most cases the only way to find the money is to borrow from relatives. (In a classic demonstration of Confucianism in action, relatives are evidently being required to assess each traveler's likelihood of return.)
Why is Beijing so concerned that everyone return? Clearly, this isn't about helping other nations crack down on illegal immigration. Beijing wants to stop potential dissidents escaping and making trouble for it from abroad.
Beijing is also concerned that Chinese tourists be looked after only by Chinese-speaking guides under its control. Why? There is little mystery: Because Beijing controls what the Chinese people are told at home, by extension it wants to control what they are told abroad. This is hardly a small point. What the Chinese think they know about the outside world is often a Potemkin village. Take the issue of the Falun Gong. If the Chinese media are to be believed, this “evil cult” is banned not only in China but also around the world. What a surprise therefore it would be for Chinese tour groups to learn that the Falun Gong's image in the West is a lot better than that of the Chinese Communist Party.
One thing is clear: The stakes are high for the United States. On the one hand, Washington cannot agree to the standard ADS terms without being accused of kowtowing to Beijing. On the other hand, Chinese tourists are rapidly becoming a significant major factor in the world travel industry. If the World Tourism Organization is to be believed, more than 100 million Chinese citizens will be vacationing abroad annually by 2020. And with a $202 billion trade deficit with China last year, the U.S. can hardly afford to lose that business.
Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Houghton Mifﬂin, 1999).