Policy Barriers Distort Behaviour of Business Visitors from Mainland China


Jane C.Y. Lee & Raymond Y.T. Yeung

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Background Issues
Mainland China has become the largest single source of visitor arrivals for Hong Kong since 1994. In 1998, approximately 2.6 million visitors came from Mainland China, accounting for 27% of the total visitor arrivals for the year. Contrasted with an overall reduction in the absolute number of overseas visitors in 1997, Mainland visitors have recorded a 17.6% year-on-year growth and spent HK$ 14 billion, an amount equivalent to 7% of the total retail sales value3.

It is likely that the Mainland visitor market will have very strong potential for further expansion. Rapid economic development and growth in Mainland China will undoubtedly lead to changes in the characteristics of the visitor market in Hong Kong. As an important part of the visitor market, Mainland business visitors will also have strong potential to increase in number, but policy barriers have inhibited many visitors from coming to Hong Kong to do business. 

Since October 1998, the Services Support Fund of the Industry Department of the Hong Kong SAR Government has provided a sponsorship to the Hong Kong Policy Research Institute Ltd. to conduct a strategic study of the Mainland business visitor market4. The project is aimed to provide systematic information on the characteristics and expectations of both the potential and experienced business visitors from both the State-owned enterprises (hereafter SOE) and the non-State-owned enterprises (hereafter Non-SOE) in Mainland China. The project is also aimed to arouse awareness of the service industries, the SAR government and Mainland policy makers regarding the emerging market of the business visitors from Mainland China and its implications for Hong Kong. 

Outbound Policies of Mainland China

The outbound visitor market of Mainland China is policy-driven. "Chinese citizens" in the Mainland who visit overseas are mainly for two types of purposes, that is, "for official purposes"(そ) or "for private purposes"(╬). There are mainly two types of "official purposes? i.e., "for trade purposes"(竒禩) and "for non-trade purposes"(獶竒禩). There are a few types of private visiting purposes. The most common ones are for touring (笴), relatives visiting (贝克), and business (坝叭).
To enter Hong Kong, all Mainland visitors have to apply for different types of Hong Kong-Macau Entry Permits (┕ㄓ翠緿硄︽靡) in accordance with the specific purposes of their visit. Other permit or passport holders visiting Hong Kong are normally transit passengers. Mainlanders who have special approval to go to Taiwan will apply for an Entry Permit to Taiwan (嘲跋チ秈芖跋硄︽靡) and they are normally allowed to transit via Hong Kong with their Taiwan Entry Permit. Passport holders are normally permitted to transit Hong Kong and are granted up to 7 days of stay in Hong Kong.

Mainland citizens have to apply for different types of endorsements for their trips according to different purposes of visiting Hong Kong. At present, endorsements for Mainland citizens to visit Hong Kong for "official?or private?purposes include: (a) single, double or multiple entries for private business" purposes, (c) two-way permit for purpose of visiting relatives, (b) group permit for touring, i.e. Hong Kong Package Tour, (d) transit, which allows visitors to stay in Hong Kong for up to 7 days, (e) single, double or multiple entries for "official trade" purposes and, (f) "official non-trade?purposes. (See figure 1)

Visitors who intend to visit Hong Kong for business purposes should have one of the following endorsements: personnel of SOEs should hold a Hong Kong-Macau Entry Permit with an endorsement for "official trade?purposes; personnel of non-SOEs should hold a Hong Kong-Macau Entry Permit with an endorsement for "private business" purposes. Very often people consider these channels as very restrictive and thus choose to apply for those endorsements which enable them to come to Hong Kong more quickly. 

Policy barriers have virtually suppressed a significant percentage of potential visitors who intend to visit Hong Kong and distorted the market behaviour.

Characteristics of the Mainland Business Visitors 

Based on the data collected from our study, we find that business visitors have great interest in visiting Hong Kong.5 The existing endorsement application procedure is however unfriendly to the business visitors. Because of the policy barriers, the majority of business visitors do not follow the "proper" means of using the Entry Permit to come to Hong Kong. Some choose to use various means of visa endorsement to come to Hong Kong. Others choose to be transit passengers and use passports as the travel documents rather than Entry Permit. Our data show that out of the 56% passport holders, only 23% stated that their main destinations were not Hong Kong. Policy barriers impose relatively more restrictions on non-SOE visitors. They have greater tendency to join package tours to visit Hong Kong. Among them 29% claimed to join Hong Kong Package Tours and 21% claimed to join overseas group tours. (See Tables 1 & 2)

Table 1 - Types of Travelling Document Used by Respondents

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	All	SOE	Non-SOE
No. of Sample	750	373	377
Hong Kong-Macau Entry Permit ㄓ┕翠緿硄︽靡	42%	43%	41%
Passport 臔酚	56%	55%	57%
Diplomatic Passport ユ臔酚	0%	0%	0%
Service Passport そ叭臔酚	9%	12%	5%
Ordinary Passport for Official Purpose 炊硄そ臔酚	27%	31%	24%
Ordinary Passport for Private Purpose 炊硄╬臔酚	20%	12%	29%
Donˇt know ぃ笵	2%	2%	2%

 Table 2 - Types of Endorsement on Hong Kong-Macau Entry Permit

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Visitors from SOEs are still representing the majority of the total business visitor arrivals to Hong Kong. According to the Study, the SOE business visitors used endorsements "for official trade purpose" and for official non-trade purpose? with 42% and 36% being Entry Permit holders respectively, and 47% and 32% being passport holders respectively. They were less likely to join package tours as a means to come to Hong Kong than non-SOE business visitors. Still, 12% Passport holders and 14% Entry Permit holders came to Hong Kong by joining package tours. 

The non-SOE business sector nevertheless constituted a higher yield segment in the market. On average, the non-SOE business visitors spent more in business capacity (HK$16,746 per person) than business visitors from SOEs (HK$11,244). On personal spending, non-SOE visitors also spent more (HK$6,307) than the SOE visitors (HK$5,018). The non-SOE business visitors had higher budget ceiling for hotel services and a higher proportion of them stayed in hotels than the SOE visitors. 

For both the non-SOE visitors and SOE visitors, access to information about Hong Kong was mainly through mass media (such as TV, radio, and newspapers) (75%).The work unit (57%) and business partners (49%) were also important means of obtaining information on Hong Kong. It is significant to note that travel agency is ranked as the least important source of information on Hong Kong. 
Almost half of the business visitors spent 26%-50% of their time on private purposes. Should we use the average length of stay of 6.5 days as a base, they should have an average of 1.5-3.5 days to be spent for private purposes in each visit. Yet the majority of our business visitors could only name one tourist attraction, that is the Ocean Park.

Market Potential for Hong Kong

According to the Ministry of Public Security, 42,000 applications were approved in 1998 for private business purpose. On the other hand, our surveys show that 17% of the respondents using the Hong Kong-Macau Entry Permit to enter Hong Kong were for private business purposes. We can therefore estimate that the total number of business visitor arrivals using various kinds of endorsement and travel document should be about 511,250, constituting some 20% of the total Mainland visitor arrivals (2.6 million) in Hong Kong for the year 1998. 

We further assume that the stronger the economic linkage is, the greater the number of business visitor arrivals is. Trade value is a good proxy of economic linkage. Each billion dollar of trade value should be associated with a reasonable proportion of business visitor arrivals. For example, each billion of trade with North Asia and South/South East Asia has brought, on average, 1,158 and 1,788 business visitors to Hong Kong respectively for the period between 1996 and 1998. For the trade relations with the Mainland, each billion of trade has only brought 493 business visitors for the same period. Although Hong Kong-Mainland trade in 1998 amounted to HK$1,044 billion, the proportion of business visitor arrivals from the Mainland per billion of trade has been substantially lower than that from other regions. If we use the two mentioned Asian regions as a benchmark for business visitor arrivals and trade relationship, we can then use it as a base of estimation. 

The estimation suggests that the potential (unrealized) number of business visitor arrivals from the Mainland actually ranges from 0.7 million to 1.35 million. The median potential is 1.03 million.6 This estimation does not take into account the possible increase in trade volume between the Mainland and Hong Kong after China's accession to the World Trade Organization. We could virtually expect, with optimism, that the market potential should be even greater than the figures provided in the existing estimation in the short- and medium-term.

This estimated potential can be translated into business opportunities for Hong Kong's service sector. The additional visitor arrivals would also spend money in Hong Kong, stay in hotels, and participate in conference or exhibition activities. They could generate an additional spending of about HK$ 20 million. (See Table 3)

Table 3 - Estimated Business Opportunities for Hong Kong's Service Sector

Recommendations

The information collected on the characteristics and expectations of the potential and experienced business visitors generates several implications to the relevant Hong Kong SAR and Mainland authorities, semi-government and statutory organizations, key opinion leaders, local service industries and related business sectors.

Current procedure required for Mainlanders visiting Hong Kong is much more complicated than for some other overseas countries (e.g. Singapore). Many business activities would need to take place in places other than Hong Kong (e.g. Shenzhen). Relevant government authorities should review the current immigration policy and visa endorsement procedure.

Business information about Hong Kong is crucial in the decision to travel. We find that Mainland business visitors mainly obtain information about Hong Kong through the mass media, work units, and business partners. A more proactive campaign is needed to promote Hong Kong and disseminate information to business enterprises directly. Semi-government agencies (e.g. the Trade Development Council, the Hong Kong Tourist Association) or chambers of commerce should consider increasing their presence in the Mainland in order to further strengthen the information provision channels. 

To satisfy the need for information gathering and knowledge exploration, Hong Kong should further expand infrastructure facilities for various types of event, exhibition and conferences. Hong Kong should devote resources for developing tourism products to suit the leisure pattern of the business visitors from the Mainland specifically. To satisfy their needs during their leisure time, Hong Kong should develop more sightseeing attractions. 

A significant proportion of SOE visitors identified the purposes of visit as "on-the-spot inspection"(σ诡) (33%) and "Knowledge interflow"(ユ瑈) (18%). To accommodate the demands of the business visitors who come for these purposes, we should encourage the semi-government and statutory bodies or major chambers of commerce to play a more proactive role. The industry should obtain the support of relevant government authorities in both the Mainland and the Hong Kong SAR in organizing industry-specific package tours on a continuous or ad hoc basis. Along with the progress of China's accession to World Trade Organization, the Mainland business visitors will also constitute a critical factor to attract multinational corporations as well as international business travellers to Hong Kong. It is vitally important for the business community in Hong Kong does its best to bring together the Mainland and international business executives.
Notes:

1 This article is summarized from a report, entitled "The Emerging Market of Business Visitors from the Mainland and its Implications for Hong Kong".
2 The authors would like to thank the project Steering Group members, in particular Mr. Stanley Yip, Dr WK Chan and Dr Sunny KS Kwong, for their advice and support.
3 Obtained from the Hong Kong Tourist Association and CEIC database.
4 The project was conducted mainly in two stages, namely (a) through focus group discussions and (b) through surveys of the business visitors in major coastal cities, namely Beijing, Shanghai and Xiamen and three cities in Guangdong province, that is Guangzhou, Dongguan and Shenzhen.
5 The overall impression about Hong Kong was very positive. 61% of our respondents were repeated visitors; 21% claimed to frequently visit Hong Kong, and on average they visited Hong Kong every six months.
6 The estimation in this study is subject to some methodological limitations. See Jane CY Lee and Raymond YT Yeung "The Emerging Market of Business Visitors from the Mainland and Its Implications for Hong Kong" (Hong Kong Policy Research Institute, November 1999). 

Dr. Jane C.Y. Lee is the Chief Executive and Dr. Raymond Y.T. Yeung the Senior Economist of the Hong Kong Policy Research Institute.