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Why More Chinese Tourists Mean More Capital Flight

a railroad tour Travel to the far corners of Russia to see the Northern Lights or take a polar cruise to the North Pole. These are some of the more adventurous options being sold in China as it reopens. Her Ctrip, a travel agency, reports that inquiries have quadrupled hers in a month. Students are also looking for more opportunities to study abroad. In gambling capital Macau, his two most luxurious hotels have sold out this month. China’s travel spending could rise by $160 billion this year if pre-pandemic patterns reinforce, according to bank Natixis.

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After three years of restrictions due to covid-19, this wanderlust is understandable. But in addition to the obvious motives of sun, sea, sand and study, there is another unstated motive: the outflow of funds abroad. there is. Capital controls limit the foreign currency that Chinese citizens can buy. The movement of people across borders covers the movement of money. For example, in 2017 Chinese authorities reported that a Tianjin individual had obtained 39 of his bank cards and withdrew more than CAD 2.4 million ($1.8 million) “under the guise of studying abroad.”

A paper published in 2017 by Anna Wong, then a member of the Federal Reserve Board of the United States, attempted to calculate the amount of money that flowed out of China through this route. She looked at a variety of sources, including balance of payments, visitor counts, and surveys of typical Chinese visitor spending for 20 popular destinations. This allowed her to compare outbound spending reported in China’s balance of payments with inbound spending reported by its mirror image, the destination country. As a general rule, inbound and outbound measures should match. However, since 2014, a large gap has emerged between the two. In 2015, it reached $100 billion, equivalent to 1% of her in China. gdpWong found a similarly large gap between China’s reported travel spending and levels predicted by economic models. gdp The number of destination countries, the distance from the mainland, and the size of China’s own economy.

Since then, policymakers have tightened the country’s capital controls and scrutinized deals more closely. We have also corrected historical data and removed some illegal financial transactions from travel spending figures. But questionable gaps persist. China’s own travel spending figures remain higher than those available from destination countries and global sources. In a report released on Feb. 14, Natixis estimated his 2020 gap to be nearly $68 billion (about 0.5% of China’s). gdp), despite a sharp decline in travel.

As China reopens, the chances of circumventing capital controls increase. The country’s currency remains stable and growth looks strong this year, but Chinese households have amassed large deposits in the pandemic. remains moribund. Therefore, many will be keen to diversify their assets. Many people travel to expand their horizons. The Chinese also like to expand their portfolios.

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https://www.economist.com/finance-and-economics/2023/02/16/why-more-chinese-tourism-means-more-capital-flight Why More Chinese Tourists Mean More Capital Flight

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