Chapter 21  Travel Industry

    Travel industry is one of the industries that was opened up earlier to foreign investment. Though China’s commitments regarding tourism and related services involve both hotels and travel agencies, major impact on China’s travel industry, following its entry into the WTO, fall on travel agencies.

I. Implementation of commitments by the travel industry in Shanghai in 2004

2004 was a crucial year for the travel industry in China. According to China’s commitments, foreign tourism operators shall be allowed to have majority ownership of travel agencies by the end of 2004. Therefore, there has been a substantial increase in foreign investment. Shanghai Jingjiang BTI Travel Agency became the first travel agency with foreign majority ownership and Star Cruises (Shanghai) Company Limited became the first wholly foreign-owned travel agency in Shanghai. By the end of 2004, China’s hotel and restaurant business has been fully liberalized. In Shanghai, there are 20 international hotel giants such as Inter-Continental, Shangri-La, JW Marriot, Four Seasons, Grand Hyatt, etc.

The number of inbound tourists hit a record high with the annual figure projected to reach about 4.8 million person-times and foreign exchange earnings around USD3 billion. At the same time, the number of outbound tourists is also on the rise. In 2003, the number of Chinese citizens joining organized tours arranged by the Shanghai International Travel Agency to foreign countries reached 287,700 person-times. By the end of 2003, 63 countries and regions can receive organized Chinese tourists as tourist destinations. Recently, the China National Tourism Administration (CNTA) has signed tourism memorandums with two Caribbean countries, three Latin American countries and the United States. These memorandums will enable the Chinese to travel to the above countries in the near future.

Besides, there has also been encouraging development in ocean cruise business. On April 14 and July 13, 2004, Star Cruises got the approval from the China National Tourism Administration and the Ministry of Commerce respectively to establish a wholly-owned travel agency in Shanghai, Star Cruises (Shanghai) Company Limited, which became the only wholly foreign-owned international travel agency in Shanghai. The company may conduct both domestic and overseas travel business and offer to Chinese domestic travelers “Shanghai-Hong Kong Cruise” ticketing services. During the May Day Holiday in 2004, Star Cruises (Shanghai) launched its first international cruise service between Shanghai and Hong Kong.

The Shanghai Tourism Regulation, effective as of March 1, 2004, removed geographic restrictions previously imposed on tourism operators, which has further promote the development of the tourist market in China. According to the regulation, travel agencies, upon approval, may arrange business activities for government agencies, enterprises, social organizations. This has helped to broad the business scope of travel agencies.

II. The development of the travel industry within three years after China’s entry into the WTO

1. No time has been lost in combing through and amending tourism laws and regulations.

During the period before and after China’s entry into the WTO, China National Tourism Administration, following the instructions of the State Council, started combing through relevant laws and regulations. On December 31, 2001, CNTA issued Decree No.17, revealing the result of the combing through of the first batch of regulations and regulatory documents, among which 23 were retained, 19 were abolished, and 27 were to be revised. At the same time, the Administration stepped up efforts to revise Regulations on the Administration of Travel Agencies. The revised Regulations, made public through Decree No. 334 issued by the State Council on December 11, 2001, include one chapter on the administration of foreign-invested travel agencies. This serves as an important legal guidance for foreign investors to set up travel agencies in China after the country’s entry into the WTO. Efforts have also been made to revise Provisional Measures Governing the Administration of Chinese Citizens Traveling Abroad at Their Own Expenses. The revised measures, renamed as Measures Governing the Administration of Chinese Citizens Traveling Abroad, went into effect on July 1, 2002. At the same time, detailed supplementary rules were being worked out, represented by Measures Governing the Administration of Tour Guides and Detailed Implementation Rules Governing Travel Agencies, publicized by CNTA at the end of December 2001 and Measures Governing the Administration of Leaders of Outbound Tour Groups publicized by the Administration on October 2002. All the efforts help bring China’s tourism laws and regulations into consistency with WTO rules.

2. Vigorous efforts have been made to meet China’s commitments regarding tourism.

As China’s commitments on tourism mainly involve travel agencies and hotels, relevant authorities in Shanghai tried very hard to meet those commitments. With regard to travel agencies, the Shanghai Municipal Government issued through Municipality Decree No. 60-2002 the Notice on the Suggestions Made by the Municipal Tourism Commission to Promote further Opening and Reform of Travel Agencies in Shanghai. The Notice calls for the nurturing of an open, equitable and fair investment and develop environment so as to attract strong and competitive internal enterprise groups to operate tourism business in Shanghai by granting them the same treatment as local enterprises. The Notice also encourages the establishment of Sino-foreign joint venture travel agencies by granting market access to famous European, US, and Japanese travel agencies and promotes the trial setting up of wholly foreign-owned travel agencies. These suggestions embody the enthusiasm and determination of Shanghai tourism authorities in meeting the commitments to the WTO. With regard to hotels, CNTA has followed the commitments to remove restrictions on consumption abroad. Instead of using ‘star rating for hotels receiving foreign guests’, a more general term ‘star rating for hotels’ is adopted. When calculating the number of tourist hotels, the term ‘hotels receiving foreign guests’ gives way to ‘hotels with stars’. This has ensured the consistency of the China’s tourism with world tourism in terms of the rating for hotels and the gathering of relevant figures.

3. Tourism operators are competing to seize the opportunities brought by China’s WTO accession.

Tourism operators serve as the major force which bears the implications of the accession for the travel industry in China. Under the support of the travel authorities, they compete with each other to seize the opportunities brought by China’s WTO accession. This has created a brand new situation in the market.

III. Development trend of the travel industry during the post-transitional period

Starting from 2005, China enters the post-transitional period, which is characterized by increasing pressure on some of the major sensitive industries with protections coming to an end. According to China’s commitments, the scope as well as degree of opening of the market in the post-transitional period shall be greater and deeper than that of the pre-transitional period. Market liberalization is to be accelerated and geographical, quantity, and ownership restrictions are to be removed gradually. For the travel industry, all the pressure will mainly fall on travel agencies as there will be no geographical restrictions on foreign-invested travel agencies or restrictions on foreign-invested travel agencies and tourism operators to establish subsidiaries. Besides, national treatment will be given to foreign-invested travel agencies and tourism operators in terms of the requirement for registered capital. This is a mixed blessing. On the one hand, foreign-invested travel agencies may easily form a one-stop reception system for overseas tourists and therefore devour all profits involved; on the other hand, this may be a good opportunity to upgrade Chinese tourism. First of all, the number of inbound tourists is sure to increase. Secondly, potential partnership with foreign rivals may enable Chinese travel agencies to cash in on their overseas sales channels and networks, which will give Chinese tourist destinations and resources greater exposure. At the same time, feedbacks from those channels and networks will help Chinese travel agencies develop innovative and attractive products. Thirdly, the introduction of foreign investment will promote structural reform in the travel industry and help advance the management skills of Chinese enterprises, which in due course will enable these enterprises to offer better services to overseas tourists.

    For tourist hotels, there will only be adjustments in structure, sources of customers, and human resources as this field has enjoyed fairly broad liberalization. In terms of structure, there will be an increase in the number of wholly foreign-owned hotels, joint equity and cooperative hotels, posing threat to other types of hotels, in particular, state-owned hotels. In terms of sources of customers, international giants in the industry will enlarge their share of customers due to their brand image, extensive sales network, and expertise. In terms of human resources, there will be a convergence of human resources in foreign-invested hotels as they provide better material incentives. Combined the advantages in sources of customers, management and human resources, foreign-invested hotels will eventually get better economic results.

    The most prominent growth, however, lies with outbound tourism. In meeting the commitments of the WTO regarding tourism, what China has been doing not only promotes the inbound of people but also the outbound of people. Up to now, China has basically liberalized its domestic market for receiving inbound tourists. Restrictions are being gradually lifted on the outbound tourism. Judging from its present situation, China is adopting policies to ensure an organized, orderly and gradual progress in this respect. The municipal government of Shanghai is now encouraging large travel enterprises in Shanghai to go abroad so as to extend their services to the countries that tend to be destinations for Chinese tourists.

Box 21.1  Schedule for travel industry in Shanghai to meet China’s WTO commitments

Related Areas	Commitments	Implementations	Statement
Travel Agencies and Tourism Operators	Upon accession, joint venture travel agencies and tourism operators are allowed to provide services to Beijing, Shanghai, Guangzhou, Xi’an and tourist resorts designated by the Central Government		Despite no restrictions at the time of entry, there were no joint venture travel agencies in Shanghai.
	Within 3 years after accession, foreign majority ownership will be allowed	In 2004, the first joint venture travel agency was established in Shanghai with foreign majority ownership – Shanghai Jingjiang BTI Business Travel Company Limited.	Commitments have been met.
	Within 6 years after accession, companies are allowed with no geographic restrictions.	In 2004, the first wholly foreign-owned travel agency was established – Star Cruises (Shanghai) Company Limited	Commitments have been partly met ahead of schedule, with service territory limited to Beijing, Shanghai, Guangzhou, Xi’an and tourist resorts designated by the Central Government.
	Within 6 years after accession, restrictions will be lifted on foreign travel agencies and tourism operators regarding the establishment of subsidiaries. Foreign travel agencies and tourism operators shall be given national treatment in terms of registered capital requirement.		So far, commitments are being implemented.
Hotels (including apartment buildings) and Restaurants	Upon accession, foreign services providers may build, renovate or run hotels and restaurants through establish joint ventures with Chinese enterprises. They are allowed to have majority ownership./		Before accession, there were already hotels in Shanghai with foreign majority ownership.
	Within 4 years after accession, wholly foreign-owned subsidiaries are allowed.	There are wholly foreign-owned hotels	Commitments have been met ahead of schedule.