In July this year I finished my Master’s degree at National Chengchi University in the International Master’s of Asia-Pacific Studies program (IMAS). The final thrust of my studies was a thesis, my topic being Chinese tourism in Taiwan and its relationship to China-Taiwan relations as a whole. I researched the subject for more than six months and interviewed a range of experts, including general managers of hotels, tourism sector association heads, academics, and expatriate business people.

Chinese tourism in Taiwan is a touchy subject and the conversation is clouded by poorly sourced information and prejudiced thinking. This thesis mostly covers 2015 to the present, but it also includes some historical analysis and a few predictions and policy recommendations. While its scope is modest, the findings are a useful entry into the discussion about Chinese tourism in Taiwan.

The number of Chinese tourists is decreasing

The number of Chinese tourists visiting Taiwan is falling quickly. Between 2008 and 2015, the number of Chinese visitors increased 50 percent per year on average, with almost 4.2 million visitors arriving in 2015. Chinese accounted for almost half of all tourists in Taiwan that year. In 2016, however, there was a decrease of over half a million, and 2017 will see even fewer Chinese travel to Taiwan, probably as low as 1.7 million.

This means both positive and negative outcomes for Taiwan.

It is true that Taiwanese people were increasingly put off by Chinese tourists crowding out local tourist spots and media reports of obnoxious behavior. There is also something threatening about such a massive influx of travelers claiming Taiwan is part of China when all the data shows Taiwanese have developed an independent sense of identity.

However, there are also serious economic consequences that should not be ignored.

We can’t be sure… but it’s definitely Beijing who’s behind the reduction

It is unclear exactly who in China is behind the massive decrease in Chinese visitors, if anyone is at all. There is no official confirmation that Beijing is behind the change, but it stands to reason that it’s a top-down decision. Beijing has voiced strong condemnation of Taiwan’s government, which is led by the Democratic Progressive Party (DPP). It also continues to insist President Tsai Ing-wen (蔡英文) accept the so-called “1992 Consensus” on the same terms as her predecessor. The fact that the tourist spigot has been shut off as the DPP came to power indicates the decrease in visitors is politically motivated.

There are those who assert that a decrease is at least partly organic. The logic goes: Taiwan has been open to Chinese for years so some of the luster has worn off. Also, Chinese people are highly sensitive to the implied desires of the CCP and are thus willing to “self-censor” to a degree. This can be seen in Chinese responses to the installation of THAAD missile systems in South Korea and subsequent boycotts of South Korean companies.

Still, the sheer size and speed of the decrease, coupled with its timing, make it clear that it is a top-down policy maneuver, punitive in nature. Beijing has not openly claimed responsibility for the decrease, but it seems clear the decision to cut back on tourist numbers came from China.

Whose fault is it?

At times, both the “pan-blue” and “pan-green” camps have blamed each other for the decrease (when they are not trying to minimize the effects of a reduction in Chinese tourist numbers), but it is not that simple.

At a glance, people may be tempted to blame the DPP and President Tsai’s policies and lack of adherence to the 1992 Consensus, but it would also be foolish to expect Tsai to abandon the DPP’s platform for the sake of tourism income, especially since that platform is central to why the “pan-green” coalition has been ascendant in recent elections.

On the other hand, the Kuomintang (KMT) neglected to diversify the tourism sector — allowing 47 percent of visitors to come from only one country, especially one as fickle and threatening as the PRC, put the tourism industry in a precarious position. Still, the only political issue in Taiwan as important to voters as China-Taiwan relations is economic growth and prosperity, and the KMT and tourism sector businesses were not wrong in seeing real economic benefits in courting Chinese tourists.

Is the decrease in Mainland tourists a problem for Taiwan?

Regardless of why fewer Chinese are visiting, the question still remains as to whether it is a problem for Taiwan’s economy. The short answer is yes. At least in the short term, it is a problem. Taiwan stands to lose a significant amount of revenue from the decrease in Chinese tourists, and while business leaders and government officials are already moving to replace Chinese tourists with visitors from other countries, this will be a difficult process.

Chinese tourists brought a lot of money to Taiwan. According to an interview I conducted with a Taiwan tourism industry representative, in 2015 Chinese visitors pumped roughly NT$400 billion into Taiwan’s tourism sector. In 2017 that number will likely fall to NT$200 billion — a 50 percent decrease. This will have negative implications for the tourism sector and the economy as a whole, and Taiwanese workers will lose jobs.

Chinese tourists also spend more per day than any other kind of visitor except Japanese (they are essentially tied in terms of per day spending). And, according to Ringo Lee, Director of the Taiwan Travel Agency Association, they also stay longer, with Chinese visitors staying 7.5 days on average compared to Japanese and South Koreans, who stay five days on average. Further, Chinese visitors travel more broadly around Taiwan, supporting otherwise ignored tourist attractions and retailers while tourists from other countries tend to cluster around Taipei. So even if Taiwan is able to attract the same number of visitors, revenue will fall, at least in the short term.

Taiwan also has not done a great job replacing Chinese tourists. If the government is serious about making up for the loss in Chinese travelers, it needs to move more deliberately. For example, South Korea has committed to removing visa requirements for five Southeast Asian nations while Taiwan has only committed to visa-free travel for one, largely due to immigration agency inefficiency. Taiwan’s “Heart of Asia” tourism campaign has also been widely panned as ineffective and aimed mostly at China.

So while 2016 was the best year ever in terms of numbers of tourists traveling to Taiwan, in terms of revenue there was a notable decrease. Last year was only the beginning of the hollowing out of Taiwan’s most significant source of tourists, and the trend is certain to continue in 2017.

Doesn’t all the money from Chinese tourists wind up in Hong Kong or China?

A common refrain in the discourse surrounding cross-Strait tourism is that most money spent by Chinese visitors ends up back in China or Hong Kong. While there are investors and businesses from China and involved, this does not mean every dollar spent by Chinese tourists is siphoned-off by Chinese companies.

Taiwan had a developed tourism industry before Chinese travelers were ever allowed to visit and before Chinese investors were able to do business in Taiwan. The Taiwanese-owned businesses have not folded and were not simply pushed aside. Many local businesses, both small and large, have benefited greatly from Chinese tourism.

In the cases where tourism sector businesses feature Chinese investors and owners, they still employ many Taiwanese and pay local taxes. The decrease in visitors will mean less work for tourism sector workers and less tax income for localities, even if all of the companies were Chinese owned, which they are not. So, while there is certainly investment from Hong Kong and China in Taiwan’s tourism sector, these businesses do not dominate, and they stand to lose out as well.

An example - tour bus companies

One especially salient example of the economic pain caused by the reduction in Chinese tourism is happening to tour bus companies. Most are small- to medium-sized businesses and many of the drivers are also owners. As numbers of Chinese tourists skyrocketed, purchasing large buses seemed like a wise investment. In 2015 there were 17,000 available tour buses in Taiwan, and more were needed.

However, when the numbers of Chinese tourists started falling, so did demand for tour buses. This year Taiwan only needs 13,000 buses to serve visitors, meaning there are 4,000 buses that are now not only unproductive, but also eating into the bottom line of bus companies. With the drop in earnings, these companies cannot pay back the loans they took to finance bus purchases, so now many businesses are going into default and trying to renegotiate with their lenders, as well as crying for government support. The situation has deteriorated to the point that industry employees and owners have begun staging large scale protests.

The decrease in Chinese visitors is hurting the owners and employees of the bus companies, and subsequently the banks that financed them. This will resonate across the economy, and while the tourism sector is relatively small compared to, say, high-tech manufacturing, this scenario will be played out, to greater or lesser degree, at travel agencies, hotels, restaurants, gift shops, airlines, and a range of secondary and periphery businesses. Taiwanese people will feel it.

Is Taiwan tourism done for?

Keep in mind that the above prognoses for Taiwan’s tourism sector are short-term. It will be an adjustment and the industry will feel the effects of it for a few years, but in the mid- to long-term, Taiwan’s tourism sector will survive.

However, while the tourism industry will remain intact and ultimately profitable, it likely won’t see the same level of sustained growth that the 2008-2015 years saw. In other words, the tourism industry will remain afloat, but it may not thrive, especially without changes.

What will Taiwan need to do?

The most urgent strategy businesses and the government need to employ is to diversify the source of visitors coming to Taiwan. As a matter of fact, this is true for much of Taiwan’s economy as a whole — over-reliance on China, especially an increasingly nationalistic and assertive China, puts Taiwan in a vulnerable position.

The New Southbound Policy is a good first step, but as mentioned, the government needs to do more to court Southeast Asian visitors. This includes dropping visa barriers, training and employing more tour guides proficient in languages other than Mandarin, and equipping businesses, transportation hubs, and tourism hotspots with facilities that can better court Southeast Asian and Muslim visitors.

The New Southbound Policy should only be one prong of a multifaceted effort to attract tourists from all over the planet. Taiwan should attempt to increase the number of tourists from Hong Kong, South Korea, and Japan, as well as further afield. In order to attract a wider range of visitors, businesses and the government need to update and streamline services, increase English language expertise, and diversify the types of activities and amenities available.

Taiwan should also appoint a global brand ambassador, even if this representative isn’t Taiwanese. The government and businesses also need to think dynamically and consider packaging trips, including visits to other countries — say combined Kaohsiung-Philippines tours that include shopping and visiting temples in Taiwan and beaches and resort stays in the Philippines.

There are many ways Taiwan’s government and tourism businesses can increase tourist numbers and revenue, but to do so they will have to be creative and original in their strategies.

What does all this mean for the China-Taiwan relationship?

While the core of my thesis was the changing state of Chinese tourism in Taiwan, the framework was China-Taiwan relations as a whole, including trade and politics. I posit that a reduction in tourists allowed to visit Taiwan may be an exploratory move on the part of the PRC. It is no secret that Beijing’s economic courtship of Taipei has been undertaken in order to gain leverage in Taiwan. With Taiwan’s tourism sector so dependent on Chinese money, Beijing seems to be testing some of that leverage. Depending on how Taiwanese people, government officials, and businesses respond, China may consider exercising some of that economic leverage in other areas — either to pit various groups of Taiwanese people against each other or in an attempt to discredit China-wary politicians.

If China is flexing its economic leverage in Taiwan — in other words, using economic coercion — this could represent a sea change in PRC handling of the relationship. With a few notable exceptions, China’s Taiwan strategy, at least economically, has been almost entirely enticement as opposed to punishment; China has always used carrots and hardly any sticks. If cross-Strait trade begins to go the way of cross-Strait tourism, it’s likely that the China-Taiwan relationship is headed for even more difficult times.

There is every reason in the world that tourism in Taiwan will be just fine — Taiwan a beautiful place with a profound amount to offer every kind of visitor. However, there is a tremendous amount of work to be done. Both shrugging off the decrease in Chinese visitors and crying wolf over a doomed tourism sector are distractions from a more important conversation: how Taiwan can leverage its wide range of resources to entice more visitors. Hopefully this information works to edify readers in regards to the circumstances and what can be done.

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Editor: Edward White