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7.1 INTRODUCTION In 2005, China was ranked, worldwide, fourth in terms of the number of international tourist arrivals (120 million) 1 and sixth when comparing international tourism receipts (US$29 billion) according to the statistics published by the World Tourism Organization. 2 Meanwhile, China experienced the highest economic growth (8 per cent) in the world in 2005. During the period 1978 to 2005, the annual average growth rates of international tourist arrivals and receipts were 19 per cent and 20 per cent, respectively. Tourism plays an important role in the Chinese economy. The direct contribution of tourism accounted for 1.3 per cent of GDP in 2005, while the impact of tourism on the whole economy is much greater. In 2004, tourism generated US$184 billion worth of economic benefits (11 per cent of GDP) and employment for up to 13.6 million people (2 per cent of total employment). 3 Recently, the World Tourism Organization predicted that China will become the most favoured international tourism destination in the future. It is expected that in 2020, the number of international tourist arrivals would increase to 145 million annually and the corresponding tourism receipts would be US$75 billion representing approximately 8 per cent of China’s estimated GDP.4 China’s tourism industry has demonstrated robust growth and is seen as one of the cornerstones of the Chinese economy having provided a major source of job creation during the period 1978 to 2005. Has the hypothesis of tourism-led growth been held in China? Providing evidence...