Does tourism support supply-side structural reform in China?
Introduction
Economic scholars have differing views on government interventions in the market, which can be summarised into three standpoints. First, market mechanisms play a more important role than interventions. According to scholars who hold this view, the market can operate efficiently with little or no government interference. This view can be found in the laissez-faire approach of economists such as Francois Quesnay and Adam Smith in the late 18th century, all the way to neoclassical economics in the mid-1970s and new classical economics in the 1980s (Kennedy, 2009; Lin, 2011; Pally, 2004). Second, government policies are crucial in stabilising economic growth. Keynesian economics in the 20th century is one clear expression of this viewpoint (Pally, 2004). However, the 2008 global financial crisis further exposed the weaknesses of the market mechanism and emphasised the importance of government intervention, resulting in further debate about the roles of the state and market (Dorn, 2012; Menon, 2012). Thus, the classical and Keynesian schools of thought have been integrated into a third viewpoint: new Keynesian economics, which models macroeconomic operations with micro foundations (Romer, 2012).
When economies undergo recession, appropriate government interventions can cope with inefficient resource allocation and inefficiencies in production while allowing the market to allocate scarce resources according to supply and demand (Legrand & Hagemann, 2017; Lin, 2011; Schumpeter, 1961). Although China has not been severely affected by the 2008 financial crisis, its economic growth rate was set back. The balance between government interventions and market mechanisms is also considered ‘the centre of any debate regarding China's future’ (Dorn, 2012).
Economic reform of China over the last three decades has mainly focussed on the demand side, which has led to dramatic increases in economic growth over the same period (Xinhua, 2015a). Facing new challenges after the 2008 financial crisis, such as severe industry overcapacity due to ‘blind expansion’ and misallocation of resources, China has turned the direction of the reform from the demand to the supply side since late 2015 (Xinhua, 2016). Supply-side structural reform (hereafter SSR) prioritises ‘cutting overcapacity’ to reduce excessive production capacity in selected industries such as coal, iron and steel (Xinhuanet, 2016). To eliminate overcapacity, the market should play a dominant role in determining supply and demand through the price mechanism and optimising labour allocation among industries. The government should play a supporting role in balancing the development of different industries through macroeconomic policies (Zhang, 2017).
From the market perspective, the development of tertiary industries such as tourism-related industries can absorb excessive employment from other industries (Liu, 2017) and crowd out their productions. This is known a ‘spillover effect’, which means that the changes in tourism demand not only directly affect tourism-related industries but also indirectly influence non-tourism industries including those reform-focussed industries through market price changes. The positive and negative spillover effects of tourism have been evaluated in the literature; however, they have not been studied at the individual industry level.
This paper investigates the role of tourism in China's SSR. More specifically, it seeks to evaluate the existence and magnitude of the industrial impacts of international tourism, with an emphasis on reform-focussed industries such as coal, iron and steel, and petroleum. These industries, which suffer from severe overcapacity and large deficits, have been chosen as the main targets for reducing excessive production (Xinhuanet, 2016). By exploring the following research questions, this study examines whether the growth of international tourism may favour supply-side structural reform.
- 1.
Could tourism support SSR through reallocating excess factor inputs, that is, labour and capital?
- 2.
Could tourism support SSR through reducing the outputs of reform-focussed industries?
- 3.
What are the similarities and differences between SSR impacts on different industries and across different provinces in China?
Numerous studies have evaluated the economic impacts of tourism at the aggregate (country or regional) level (e.g., Blake, 2005; Kadiyali & Kosová, 2013; Li & Song, 2013; Njoya & Seetaram, 2017; Pratt, 2015a). These studies have found that tourism growth leads to output and input growth in tourism-related industries (Kadiyali & Kosová, 2013), while the agriculture and manufacturing industries experience decreases. However, studies have seldom evaluated the effects of tourism on individual non-tourism industries or compared such impacts across different regions. This study fills in this gap by evaluating the effects of tourism at the industry level in the context of SSR.
This paper makes three contributions. First, it enriches the debate on how to integrate government intervention and the market mechanism effectively, which is a key challenge to economic development in China. This paper investigates the role of tourism in SSR. Second, it is also the first to evaluate the economic impacts of tourism on individual industries for all provinces in China. It is of particular importance to evaluate tourism impacts at the disaggregate (industry) level, as this step will permit the development of specific policies related to China's SSR at the provincial level. Third, a multi-methods approach is used to comprehensively evaluate the impacts of tourism at the industry level. A backward linkages analysis is used to investigate the extent to which tourism-related industries are linked with the other industries. An innovative approach that combines the econometric method and CGE model is then applied to analyse the impacts of international tourism on different industries at the national level. The advantage of this approach is that the forecasts of the econometric model, that is, the predicted international tourism receipts in China, are used as the input of the CGE model. This improves the reliability of the model outputs (Li & Song, 2013). Finally, provincial CGE models are built for 30 provinces in China to evaluate and compare the impacts of tourism on different industries across different provinces.
Section snippets
Government interventions and the economic reform
Scholars from different schools of economic thought have extensively debated the pros and cons of government intervention and the market mechanism. From the late 18th century to early 20th century, the laissez-faire approach dominated the literature. This approach assumes that the price mechanism regulates market supply and demand; hence, a free market without government intervention would be most efficient in terms of resource allocation and production. The market is seen as an ‘invisible
Linkage analysis
Linkage analysis is a complement to IO analysis in assessing the impact of tourism-related industries on destination economies (Cai, Leung, & Mak, 2006; Pratt, 2011), so as to measure the interdependency of tourism-related and other industries. Backward linkages reveal the importance of an industry as a source of demand in the whole economy, whereas forward linkages disclose the role the industry plays as a supplier to other industries. Most tourism-related industries are at the final
The backward linkages analysis
There are 37 tertiary industries in the national economy of China based on the classification of the China IO table. The top 10 tertiary industries with the strongest backward linkages are presented in Table 2, among which six are tourism-related industries. The linkage indices of five out of the six tourism-related industries are larger than unit, indicating strong linkages with other industries in the economy. Wholesale and retail trade is positioned as the industry with the strongest
Conclusions and recommendations
In facing the challenges of a new era, the Chinese government has decided to reform the economy from the supply side to boost the country's sustained economic growth. There has been an intense debate on the virtues of government intervention versus the market mechanism over the last 300 years. Since the 2008 financial crisis, the integration of government intervention and the market mechanism has been emphasised. This study contributes to this debate by providing reliable and rigorous
Author contribution statement
The initial research idea was raised up by the first author. After discussing the idea with the third author, the framework of the study was generated. The first and second authors reviewed the literature and conducted the modelling and data analyses. All the authors have been involved to discuss the primary results and write up the manuscript. The third author made a major revision on the manuscript.
ShiNa Li, PhD, is Professor in the School of Tourism Management at Sun Yat-sen University. She has a background in tourism economics and her research interests are mainly in the areas of tourism and events impact evaluation and CGE modelling. She has published in journals such as Tourism Management, Annals of Tourism Research, and Journal of Travel Research.
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ShiNa Li, PhD, is Professor in the School of Tourism Management at Sun Yat-sen University. She has a background in tourism economics and her research interests are mainly in the areas of tourism and events impact evaluation and CGE modelling. She has published in journals such as Tourism Management, Annals of Tourism Research, and Journal of Travel Research.
Anyu Liu, PhD, is a Lecturer in hospitality management in the School of Hospitality and Tourism Management at University of Surrey. His research interests are in the areas of applied economics in tourism and hospitality and tourism and hospitality demand modelling and forecasting. He has published in journals such as Tourism Management, Journal of Travel Research and International Journal of Tourism Research.
Haiyan Song, PhD, is Mr and Mrs Chan Chak Fu Professor in International Tourism in the School of Hotel and Tourism management at The Hong Kong Polytechnic University. He has a background in tourism economics and his research interests are mainly in the areas of tourism demand forecasting and impact assessment. He has published widely in such journals as Tourism Management, Annals of Tourism Research and Journal of Travel Research.