On February 1, St. Petersburg tour operators called a press conference to discuss a popular but largely misunderstood subject: the impact of Chinese tourism on the Russian economy. They claimed that the growing wave of Chinese tourists brings virtually no revenue to Russia and harms the local tourism industry. And government officials ignore the problem, happily reporting impressive statistics on Chinese tourism to their higher-ups.

Meanwhile, the Russian-Chinese Tourism Promotion Association sent a letter to President Vladimir Putin and Culture Minister Vladimir Medinsky, asking them to investigate. Soon, the World Without Borders travel association also acknowledged the problem, and the general public learned what tourism industry specialists have long known.

Since the collapse of the ruble in 2014, Russia has seen an influx of Chinese tourists. But these visitors have primarily benefited the Chinese business sector, which pockets most of the profits. Why is this happening? The answer lies in the inner workings of the Chinese tourist economy in Russia.

At first glance, the 2015–2017 tourist invasion was exceedingly timely. The Russian economy was reeling from its crisis, and Chinese tourism was supposed to help. Officials from the Federal Agency for Tourism (Rostourism) and the heads of tourism-oriented regions in the Far East cited the spike in Chinese visitors as confirmation of their own efficiency.

In reality, however, conscious government efforts did little to attract tourists. Rather, the main lure was a twofold decline in the cost of visiting Russia. While Japan and Europe remain out of reach for many in China, Russia became an affordable destination for the country’s middle class.

The pre- and post-crisis tourism statistics make this abundantly clear. In 2010, 158,000 Chinese citizens visited Russia. By 2017, that number had jumped to 1.5 million, according to Rostourism director Oleg Safronov. These figures are far from perfect, and are believed to include many non-tourism travelers from China. But there is little doubt that the number of Chinese tourists is indeed growing significantly.

As a rule, Chinese visitors take a seven- to nine-day tour that usually includes both Moscow and St. Petersburg. They visit the Hermitage in St. Petersburg and the Kremlin in Moscow, focusing on the palaces’ interior decorations rather than on the works of art and artifacts that they display. Russia’s major attractions fit the Chinese worldview quite well—after all, they also have a walled palatial complex in the middle of their nation’s capital. 

Generally speaking, it is China’s lower middle class that sets its sights on Russia. Sixty-three percent of Chinese tourists are women, and 45 percent are over fifty. Most tourists come with a group. There are very few individual travelers because that requires a visa, while group travelers can enter visa-free. Additionally, the Chinese are still afraid to visit Russia without a group leader and an interpreter, because they usually don’t speak foreign languages. And Chinese websites are rife with horror stories of Chinese tourists who were deceived or robbed by Russian police officers, skinheads, or tour guides.

As a result, Chinese tourists who want to visit Russia go through Chinese travel agencies that sell them visa-free tours and control their activities throughout the trip. Specifically, these agencies seek to control the tourists’ spending.

The average package tour costs 5,000–8,000 yuan ($800–1,300) and includes transportation, lodgings, buffet meals, and a Chinese guide. All this is paid for in China, and a Russian tour operator only sends invitations to the Chinese tour groups. This arrangement usually obviates the need for skilled Russian tour guides.

As a result, Chinese tourists don’t need to take much cash on their Russian trips. They generally set aside 2,000–3,000 yuan for souvenirs and extra expenses. The Chinese tourists themselves say it is important for them to spend 10,000 yuan ($1,500) per person on the trip. However, for a series of reasons, the Russian economy gets only a small portion of that money.

Chinese tour operators can afford to buy up Russian hotel rooms at bulk rates at the start of the season. They manage to spend only 1,000 rubles ($17) per tourist for 3-star accommodations in Vladivostok, while standard room prices there are five to six times higher. Chinese businessmen usually run the restaurants where Chinese tourists get their meals, and prices are generally more reasonable than in standard Russian restaurants. 

Most of the money that Chinese tourists leave in Russia goes to jewelry and souvenir stores. Profit margins average 200–300 percent here, but for some items—for example, fake amber—they can be 1,000 percent or more. Still, tourists rarely make such expensive purchases. They usually buy simple “amber” crafts and inexpensive golden jewelry. Often, a few copies of the same objects are bought as gifts for one’s wife, mistress, relatives, or co-workers.

Such stores can gross up to 4–5 million rubles a day. Because they work with a particular tour operator, they face little competition. The tour guide monitors group members, minimizing the chances of outside purchases. Chinese travel agencies get 30 percent of the profit generated by their groups’ purchases. The Chinese tour guide gets another 30 percent. The rest of the money goes to the Chinese businessperson who owns the store after he pays rent, utilities, salaries, and other expenses.

This is the most lucrative piece of the pie, so Chinese tour operators care little about other types of purchases their customers make. For instance, the Chinese don’t run grocery stores and supermarkets where tourists also leave some money (1,000 rubles per customer receipt in Vladivostok). And Chinese tourists also spend some cash on vices: they go to strip clubs, massage parlors, and similar establishments. Chinese businessmen control little of that sector, but its revenues don’t fuel the Russian government budget, either.

Even Chinese tourists’ cash transactions hardly touch Russia. The tourists prefer not to carry large sums of money, so most pay for goods and services through a mobile app called WeChat (微信). The app facilitates money transfers between WeChat-linked accounts in a matter of seconds. All tourist stores have WeChat accounts, and the customers transfer money there, thus circumventing financial monitoring procedures in Russia. The transactions appear as money transfers between two Chinese banks. Starting this year, WeChat accounts can also be linked to foreign bank cards, which will make the payment scheme even more popular.

To avoid cash-out transactions in Russian banks, Chinese entrepreneurs install underground Chinese bank terminals and enlist the services of hawala (哈瓦拉)—an informal money transfer system—at Russia’s ethnic markets. The “People’s Bank” representative hands his customers a certain amount in rubles minus his small fee after receiving confirmation that the money was received by his Chinese bank.

As a result, even the relatively minor expenses that Chinese tourists incur in Russia don’t go through Russian banks, aren’t accounted for by financial agencies, and therefore aren’t taxed. Virtually the entire profit remains within this yuan circulation, contributing little to the Russian economy.

The Chinese use legal mechanisms and find loopholes in Russian laws. They also cooperate with corrupt government officials who are ready to work with local companies under these terms. But while the Chinese do operate in the shadows, they don’t break the law. Their travel companies work in a similar fashion around the world, and their Russian counterparts do the same in other countries—for instance, in Russian tourist hot spots like Egypt.

But in Russia, these shadow schemes coexist with official pronouncements and popular beliefs that the growth in Chinese tourism can revive the national economy. Officials are even taking actions based upon this premise.

For instance, several special economic zones in the Far East are supposed to focus on Chinese tourism. The hospitality industry in particular is incentivized to accommodate the Chinese tourists. Businesses receive “China Friendly” certificates, while nothing of the kind is being done for the Russian tourists visiting China. All these steps are aimed at increasing the flow of Chinese tourists to Russia in the hope that the revenues their visits generate will stimulate economic growth. But are these expectations reasonable?

The current analysis demonstrates that, for now, Chinese tour operators benefit the most from the tourist boom. The Russian media seem to share this view. But the Chinese tourists themselves are clearly on the losing side. They receive substandard services (just listen to the Chinese guides’ accounts of Russian history and culture) and they overpay for goods that their countrymen force them to buy. Russia isn’t harmed by the influx of Chinese tourists, but it generates very little revenue for the Russian economy. 

Some money does indeed remain in Russia: transportation companies, hotels, prostitutes, supermarkets, and some tour guides manage to make a living off of the Chinese tourists. There are also some “success stories,” when Chinese tourists spend more than 1,000 rubles for chocolates. For instance, Moscow’s high-end stores are starting to attract the tourists right at the airport, offering them quality brand-name products at lower prices than they would pay back home.

As for the downside, Chinese tourism negatively impacts the environment (particularly around Siberia’s Lake Baikal) and depletes hotel and transportation reserves during the peak tourist season. Vladivostok builders haven’t been able to complete the construction of two 5-star hotels since 2012. Big businesses, including Chinese ones, don’t rush to acquire the hotels from the regional authorities to cash in on the tourist influx. The businessmen doubt that their investments in the hotels will pay off, given that the ordinary Chinese tourist spends no more than 8,000–10,000 rubles ($140–175) a day on lodgings.

So what can be done to make the influx of Chinese tourists more lucrative for Russia? Visa-free travel seems to be the single viable option. Only then will the Chinese tourists be free to visit Russia without the assistance of travel agencies and get a chance to spend their money as they see fit.

All other efforts will be purely local and decorative. In any case, the Russian authorities and the public should stop treating Chinese tourism as the new engine of economic growth and start working on making it more profitable in Russia itself.

By:
  • Ivan Zuenko