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2020-05-27 12:31:52 Voices

The ongoing COVID-19 pandemic has devastated industries around the world, and Chinese-owned tourism businesses in Russia are no exception. By mid-May, months after Russia’s late-January decision to close its land border with China and suspend the issuance of visas to Chinese citizens, Russian media was reporting the bankruptcy and closure of entire streets of Chinese companies in Moscow and Saint Petersburg. It hit everything from restaurants and hostels to shops, hairdressers, car dealerships, and even law firms.

An over-reliance on Chinese tourists made it impossible for these businesses to pivot to domestic tourism after Russia became one of the first countries in the world to close its border with China — or when it kept the travel ban in place after its own case-count skyrocketed. But as tempting as it is to chalk up their collapse to an unforeseeable black swan event, there were signs of trouble even before the novel coronavirus emerged, with many of these companies operating in legal gray areas and profiting from unsustainable business practices.

The number of tourists traveling from China to Russia has tripled over the past five years, hitting 1.5 million in 2019. That’s almost one-third of all inbound tourists to Russia.

Much of this rise can be traced to Russia’s political and economic lean toward China after being hit with Western sanctions in 2014, as well as the subsequent collapse of the ruble. Despite Russia’s growing popularity as a destination, however, the largely Chinese-run travel agencies serving these tourists don’t exactly offer a premium experience.

According to Roman Lyzhin, executive director of the Russian-Chinese Tourism Promoting Association, between 50% and 80% of tourists from China come to Russia on packages in which most of the expenses are prepaid. Following the pattern of China’s domestic tourism industry, these packages are often marketed at cut-rate prices to attract clients. For example, an eight-day trip to Russia might cost a Chinese tourist $500, including flights, meals, accommodation, and visits to major sites like the Kremlin or the State Hermitage Museum. Travelers from Europe usually pay significantly more for a similar itinerary.

To offset their losses, Chinese tourism firms lead their clients along special routes that pass through certain — mostly Chinese-owned — shops where the prices for souvenirs are several times higher than normal. Tourists have been sold museum and theater tickets for 10 or 20 times their face value. In more absurd cases, Chinese guides charged their fellow citizens to visit free parks in the Russian capital. As a result, the median Chinese tourist spends an additional $500 to $600 during their trip, according to Russian media — more than the entire cost of their initial package. And about 10% end up spending much more than that.

Another common means of recouping costs is to cut expenditures. Many Chinese tour operators order the cheapest services and food in order to save as much as possible. According to Polina Rysakova, director of the laboratory for the study of Chinese tourism and associate professor at Saint Petersburg State University, the lunches provided to Chinese tourist groups in St. Petersburg cost about $3. That’s about half the usual price, and the food served is often unhealthy.

Chinese tourists increasingly perceive Russia as a cheap and low-quality destination.

Unsurprisingly, Chinese tourists increasingly perceive Russia as a cheap and low-quality destination, and negative reviews of their experiences are piling up online. This makes it impossible to build a long-term tourism industry or grow a base of repeat visitors, especially since there are many countries with better infrastructure and services for the same price.

Another threat to the long-term viability of Chinese-owned tourism businesses in Russia is their tendency to route payments through China’s popular mobile payment service WeChat as a way of dodging local taxes. Representatives of the Russian tourism industry have estimated the government lost tax revenue from 100 billion yuan ($14 billion) in purchases by Chinese tourists between 2014 and 2019.

Even before the pandemic, Russian law enforcement agencies had begun to sweep places popular with Chinese tourists to force them to standardize their payment terminals. If the cash passing through Chinese-owned businesses were to be subject to taxes, the industry’s profitability would nosedive, and the attractiveness of the cut-rate tourist model will fall along with it.

Chinese guides, too, were at risk in this crackdown. The commissions for purchases made by Chinese tourists at stores participating in these schemes were so high that some guides could buy an apartment and start their own shops, restaurants, or other businesses catering to tourists. Of course, this opportunity came at a price: Agencies charged new guides as much as $15,000 upfront for access to their clients.

The obvious problem with this arrangement is that in the future, the Russian authorities may simply ban Chinese guides. Indeed, a draft law to this effect, limiting guide and translator jobs to Russian citizens, is already under consideration.

In other words, even prior to the COVID-19 wipeout, many Chinese businesses in Russia were reliant on an unstable, policy-dependent, and fundamentally rotten business model. Any abrupt change in the business environment — whether tighter border controls, a suspension of group tours, or increased tax regulation — could have brought it crashing down.

Chinese companies aren’t the only tourist industry actors engaged in questionable behavior. Their Russian counterparts exert a similar influence over Russian tours to Turkey or Egypt, for example. But the pandemic offers an opportunity for a reset. It’s worth noting that, despite their relative importance to Russia’s tourism industry, Chinese travelers to that country only accounted for about 1% of China’s tourism market in 2019.

Chinese tourists have options. Without a more sustainable business model, Russia’s Chinese tourism industry may not.

Vladimir Legenko made an equal contribution to this article. He is a master’s student in private international law at Taras Shevchenko National University of Kyiv. He also serves as the director for foreign economic affairs for a Ukrainian company.

Editors: Cai Yineng and Kilian ODonnell; portrait artist: Wang Zhenhao.

(Header image: A tourist poses for a photo in Moscow’s Red Square, Jan. 22, 2020. Yuri Kochetkov/IC)