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Matthews Asia Weekly

The ubiquitous sight of construction cranes in Hefei, China

My (Government-subsidized) China Vacation

Week of August 17, 2012

As part of my month-long stay in mainland China and Hong Kong, my wife, three daughters and I embarked on a five-day tour of Shanghai, Hangzhou, Nanjing, Suzhou and Wuxi. This part of our trip, which was partially subsidized by the Chinese government, included three meals a day and stays at luxury hotels. The price tag? An amazingly low US$49 per person.

There are several reasons why the government may offer subsidized travel for foreigners such as ourselves. For example, the government may want simply to boost the statistical data set of foreign visitors so that China can claim to be a top foreign travel destination. According to a 2011 report compiled by the U.S. Department of Commerce, China was the number one Asian destination for American travelers, with about 1.1 million U.S. residents visiting the country in 2011. India was a close second with 945,000 U.S. visitors, which may have led China to feel some pressure to maintain its top position.

The government might also be subsidizing travel to achieve its goal of increasing domestic consumption. Our trip included several area tours that featured local specialty goods such as tea or jade. We visited a tea plantation in Hangzhou, a silk factory in Suzhou and a high-end jade outlet in Nanjing. These specialty shops also helped pay for the tour in exchange for the opportunity to boost their sales.

Possibly a more pragmatic and forward-looking reason for the subsidies may be to attract "huaqiao," or overseas Chinese such as my wife, who left China in 1998. The tours offer huaqiao an opportunity to see first-hand the development that has occurred over the years, especially for those who have not been back to China for decades. If more overseas Chinese consider repatriating to China—even temporarily—they could encourage long-term domestic consumption.

During the trip, I noticed that one of China’s most ubiquitous sights was construction cranes. In all the cities we visited, including Hefei, Chengdu and Shenzhen, countless construction cranes dotted the landscape. While in Beijing, several locals told me that most of the construction now occurs on the city’s outskirts, as its center is already fairly developed. Of course, this does not mean that China is heading back toward double-digit GDP growth. However, I was excited to see development occurring, and witness growth taking place first-hand.

Christian O. Halvorsen
Vice President, Client Services
Matthews International Capital Management, LLC

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies.