The debate continues over the financial welfare of Hong Kong since it became a Special Administrative Region of the Peoples Republic of China in July, 1997. The purpose of this research is to begin to determine the structure of the East Asian international tourism market. This research note considers whether the international tourism industry of Hong Kong, China, and Taiwan represents competitive or complementary markets. The determination of Pearsons correlation coefficients for all international tourists and Japanese, United States, and United Kingdom tourists to China, Hong Kong, and Taiwan suggests the interrelationship of the markets. The correlation coefficients are based on the increase and percentage change in the origins of the international tourists to the three destinations.

Research on the cross-elasticities of international tourism provides a background for national policies. Although destinations are generally considered substitutes (correlations are negative) when they are in the same geographic region and have similar characteristics, the assumption of complementarity (correlations are positive) may also be unrealistic. According to Anastagopoulos, neighboring countries generally have the highest relative correlation coefficients and elasticities among distant countries are very low or negative. Studies indicate destinations show wide ranges of substitutability and complementarity, differing with particular origins and destinations.Furthermore, Yannopoulos (1987) concludes that econometric evidence does not indicate that a complementary relationship between two countries is necessarily symmetrical. In other words, an increase in tourists to Spain may increase the number of arrivals to Portugal, but an increase in tourists to Portugal may not increase the number to Spain. Whites (1985) study found countries or destinations that were substitutes for each other and additional countries that were complements for travelers originating in several countries. Clark (1978) and Rosensweig (1988) found both complementary and competitive elasticities among Caribbean destinations. Leiper (1989) provides some other limited data available in East Asia. He determined the main destination ratios for several countries for tourists from Japan, New Zealand, and Australia.

International arrivals to Hong Kong, China, and Taiwan for the 12-year period from 1983 to 1994 are used as a proxy of total tourism demand. To examine the various complementary and competitive relationships, the study focuses more narrowly on tourists from three originating markets of the United States, the United Kingdom, and Japan. Arrivals from these three countries represented a significant portion of the overall travel to the region. They are geographically and culturally diverse and present a fairly representative picture of tourism demand in the region. During the 1983 to 1994 period, these three countries accounted for 47% of arrivals for Hong Kong, 42% for China, and 65% for Taiwan.

The total number of arrivals to the region grew from 4.7 million in 1983 to 12.8 million in 1994, a compound annual growth rate of 9.6%. Meanwhile, Chinas tourism demand grew at a phenomenal 17.6% annual rate, going up nearly 600% over this period despite the setback in 1989. In 1983 China had only about 873,000 visitors compared to 5.2 million in 1994. The number of arrivals to China surged by about 50% in both 1991 and 1992, possibly representing trips postponed due to the uncertainty surrounding the Tiananmen Square events. Arrivals to Hong Kong grew from 2.6 million to 5.7 million, a healthy 7.4% rate. While travel to China and Hong Kong grew strongly, the demand for Taiwan grew at a modest 4.3% per year, from 1.2 million visitors in 1983 to 1.9 million in 1994. It should be noted, however, that there is likely to be a considerable amount of double counting in the tourist numbers. One who visited all three countries would be included in each of the tallies.

The Pearsons correlation coefficients in the number of arrivals in the countries occurred simultaneously. Hong Kong and China show the strongest correlation (0.90), followed by Hong Kong and Taiwan (0.86), with China and Taiwan recording the lowest of the three (0.60). The presentation of Pearson correlation coefficients are in matrix form with the elements in the main diagonal equal to one. The closer the correlation coefficient is to one the greater the interrelationship between market and destination countries.

The percent of total tourists each of the three countries attracted during the 12 years. Hong Kongs 55.7% share of the tri-country region in 1983 dropped to 44.7% in 1994. Likewise, Taiwans 25.5% share fell to 14.7% of the regions volume. The changes in percentages are also evident in the correlation coefficients. The tourism shares for Hong Kong and Taiwan are both negatively correlated with China (?0.98). This is consistent with competitive relationships between China and both Hong Kong and Taiwan. However, Hong Kong and Taiwan retained a high positive correlation (0.93). In short, increases in relative shares in arrivals indicate that the number of tourists increase concurrently in the three countries. However, underlying the general all positive growth coefficients, negative coefficients indicating a degree of competitiveness do exist among the destinations. Negative coefficients indicate that they are competitors and that tourists respond to changes in the relative prices or other factors among the three countries.

The number and percentage of tourists each of the three host countries captured from the three primary visiting countries. The number of arrivals from the three countries grew at a compound annual rate of 8.0%. However, Hong Kongs share of tourism in 1994 was virtually the same as it was in 1983. Although Taiwans arrival volume increased, its relative share declined from 32.6% to 20.6% of the tri-country region. Chinas relative share increased from 20.3% in 1983 to 32.3% in 1994. This was at the expense of Taiwan. Chinas relative share is negatively correlated with both those of Hong Kong at ?0.58 and Taiwan at ?0.87. The shares captured by Hong Kong and Taiwan are essentially not correlated.

The future economic and political policy of China will affect the regions premier tourism industry. All three countries, both culturally and physically close, yield relatively strong complementary Pearsons correlation coefficients, as expected. Underlying their overall tourism growth is a different pattern depicted by the change in relative shares of total tourists. Correlation coefficients indicate that Hong Kong and China are competitive destinations and Hong Kong and Taiwan portray a different picture. While China is a competitive destination in relationship to Taiwanese tourists, national tourism policy and marketing plans cannot ignore market structure relationships. Marketing plans, advertising, promotion of hotels and resorts, and the links among hotel chains all can use complementary relationships to their mutual benefit. When countries are substitutes, the information becomes equally valuable in determining the potential ramifications of price increases or political disruptions in competing destinations. Information gained from correlation coefficients can assist in determining the type of market interrelationships present in the Far East. In the future, more sophisticated data and models will give national policymakers greater understanding of their markets.