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Why Gaining the ADS is Just the Beginning

Author(s): Kenny Zhang

Published: January 19, 2010  

Op-Ed

Prime Minister Stephen Harper’s first trip to China has been surprisingly fruitful. Among many other agreements, he secured the Approved Destination Status (ADS), a bilateral tourism arrangement which facilitates travel by Chinese tour groups to approved countries. Canada had been negotiating for the ADS designation with Beijing over the past nine years.

Canadian business, especially the tourism industry, applauded a move that has substantial growth potential for the tourism industry and the overall economy. However, the economics also tell us why gaining the approved status is not the end, but the beginning of the long journey of building important people-to-people relations between the two countries.

The marginal benefits are diminishing

It is widely expected that the ADS will boost the number of visitors to Canada from China by up to 50% by 2015. This will translate into up to 50,000 more Chinese arrivals per year in Canada and add $100 million a year in increased revenue for the Canadian tourism industry. However, the real question here is what are the marginal benefits, i.e., the additional benefits received from the ADS granted to Canada?

Firstly, it might be unrealistic to expect ADS to bring a sudden increase in Chinese tourist numbers to Canada because Canada is among the last countries in the world gaining the ADS. When Beijing initiated the ADS scheme in 1983, it was a transitional arrangement for a closed economy gradually opening its society. The ADS scheme allowed more freedom for Chinese nationals to travel outside their borders.

Hong Kong and Macao were the first two destinations approved. The list was then extended to Singapore, Malaysia and Thailand, which were hot destinations for Chinese tourists in the early 1990s. Australia was the first Western country to obtain ADS in 1999. To date, China has granted 135 countries and regions ADS for Chinese tourists, including the US and many EU and African countries.

When Australia signed onto the ADS list, it was among only half a dozen destinations for millions of Chinese tourist to choose from. Today, Canada faces odds of 1 in 135 to attract Chinese visitors, and the additional benefits of the ADS to Canada are obviously diminished.

Secondly, Chinese tourism to Canada will not be building from scratch. Even without the ADS, China is currently the ninth major source country of overnight travelers to Canada, up from 14th just eight years ago. Between 2000 and 2008, trips to Canada from the PRC rose from a total of 74,000 to 159,000. In 2008, the 159,000 visitors from China represented 1% of all international arrivals in Canada from the top 15 source countries, up from the 0.4% in 2000.

During the period, the number of visitors from China to Canada grew at an average rate of 11% year-on-year, the second-fastest growth among top source countries. Given the

current high rate of growth, how much additional growth will ADS add to the increase of visitors to Canada remains to be seen.

Figure 1

Figure 2

Source: Statistics Canada, Travelers to Canada by country of origin, top 15 countries of origin

Finally, the experience of other counties once they have been granted ADS shows that it leads to a steady growth rather than an overnight explosion in Chinese tourism. Australia, which was granted ADS in 1999, has seen a 17% average annual increase in arrivals from China since ADS was implemented, while Canada has achieved an average 11% annual increase without ADS.

The gravity is at work

Chinese visitors are not evenly distributed among the 135 ADS destinations. The Gravity Model helps explain why Chinese tourists are more likely to visit Canada than some other destinations.

The surge in travel by Chinese is firstly explained by some constant factors. China’s integration into the global economic system has generated a stronger interest among Chinese to learn about and visit foreign countries for both business and leisure. The government has gradually relaxed its restrictions on cross-border movement, and international travel by individuals has become more common. Growing prosperity has seen a dramatic increase in disposable incomes and the emergence of a large middle class. This has greatly expanded the number of Chinese who can afford international travel.

The gravity effects become significant in influencing the China-Canada tourist flow. China has been one of the world’s fastest growing economies even during the global economic crisis. It is Canada’s largest trading partner after the United States. Chinese companies see Canada as one of the most open countries for Chinese investment. With more economic and business interaction, it is natural that trips to Canada are on the rise.

The strength of gravity between the two countries is also reflected in China being the largest source of immigrants to Canada since 1998. There are estimated 1.3 million Canadians of Chinese origin in this country. The strong people-to-people ties are generating a considerable portion of the visits to Canada.

If the technology revolutions in modern transportation and communication have overcome the barriers of physical distance, some unique Canadian factors even shorten the psychological distance between people of the two countries. Next year marks the

40th anniversary of diplomatic relations and the recent Prime Ministerial visit to China has moved the bilateral relationship into a new phase. Canada is the home of Dr. Norman Bethune, who was voted by millions of Chinese in October 2009 as the top foreign friend of China. It would be a surprise if Dr. Bethune’s birthplace, Gravenhurst, Ontario, was not listed as one of the attractions in Canada for Chinese tourists.

Market competition is a double edge sword

Another benefit of the ADS is that it allows authorized Chinese travel agencies to market and promote tours to Canada. This puts Canada at equal footing in China’s market competing with other nations, including Australia, the US, and other ADS destinations. However, the market competition is a double edge sword. While the ADS allows fair competition, the Canadian tourism industry also faces a new challenge to maintain its international competitiveness which relies on joint efforts of the government and industry. From effective visa processing, an extended bilateral air accord, smooth air and ground transportation, to happy memories of time spent in Canada, all require collective hard work by Canada.

China-specific service is the key. It is highly unlikely that the same kind of services provided for US tourists would be appreciated by Chinese customers, because of the significant differences in language, culture, taste and expectation. If the market is disappointed, it is useless to just have the ADS. Canadian tourism operators perhaps have to open the China-specific marketing textbook before opening their account books.

The externality is not always positive

The externality or spillover of the ADS, an effect on some Canadians who are not directly involved in tourism businesses, is significant too. The ADS will help the tourist industry to distinguish between Chinese travel for business, family visits and true tourism. This will also allow China desks of Canadian governments and businesses to be truly engaged with their counterparts from China.

However, the externality is not always positive. When there are increasing groups of Chinese tourists who speak limited English or French appearing on Canadian streets, will average Canadians who are so used to quite neighborhoods still keep smiling? Can Canadian businesses call Chinese customers by their first and last names correctly? Furthermore, how would the media and public react if a few Chinese tourists went missing during their visit in Canada?

A statement issued by the Prime Minister’s Office pointed out correctly that “Approved Destination Status marks a significant moment in the history of our relations with China, indicating not only our mutual commitment to strengthening our diplomatic and commercial partnerships, but also our people-to-people ties.” It is also important to keep in mind that gaining the ADS is just the beginning. There is a long way to go to strengthening the ties between the people of Canada and China.

An edited version of this article appeared in China Business, January 2010, Volume 13.

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