Thomas White Global Investing
Taiwan Stamp
December 16, 2011
A Postcard from the Asia Pacific
Taiwan: Thaw in relations with China unfreezing tourism prospects

Taipei 101

The most popular tourist site in Taiwan’s capital, the Taipei 101, a 101-floor skyscraper, stands guard over the city. With the ban on individual Chinese tourists lifted, revenues at Taipei 101’s shopping mall are expected to jump because independent visitors, as opposed to those in organized groups, will get more time to browse.

Few doubt today that China has left its footprint on every corner of the world. But not too long ago, the Chinese could only tiptoe around in their own back yard.

In fact, until as recently as July 2008, Taiwan, an island barely 75 miles off the southeast coast of mainland China, was the forbidden land. With a thaw in relations between the two countries that year, Taiwan began allowing visitors from mainland China for the first time in six decades, albeit only in tightly controlled, strictly monitored groups.

And now in June, those travel restrictions have been eased further, with Taiwan lifting its ban on independent Chinese tourists. As part of a pilot program, the island, which lies in the South Pacific separated from mainland China by the Taiwan Strait, has also started welcoming solo Chinese tourists, or those that do not come as members of tour groups. However, Taiwan’s National Tourism Administration has declared that not more than 500 such tourists will be allowed every day, and only from three mainland Chinese cities — Beijing, Shanghai, and Xiamen. Further, they can stay in the country for only 15 days.

This latest move by Taiwan signifies not just the untying of another knot in the tangled relationship between the neighbors, but also a strong boost to the Taiwanese tourism industry. Not surprisingly, on June 28, when about 300 solo Chinese tourists disembarked at the Taipei Songshan Airport — the first set of travelers to do so in more than half a century —there was much cheer. The Chinese visitors were happy that unlike members of an organized tour party, they would not be taken around stiffly to pre-designated areas, huddled together in supervised groups, or looked at with suspicion. On the other hand, the Taiwanese, excited that the number of well-spending Chinese visitors to their country could increase from 1.63 million in 2010 to a projected 2.1 million in 2011 and 4 million by 2012, greeted the disembarking passengers with dancing, gifts, and food.

Their enthusiasm is not misplaced. According to Xinhuanet, Taiwan generated $3.2 billion in revenue from visiting Chinese tour groups between July 2008 and March 2011. The Xinhuanet report also said that the number of Chinese tourists that visited Taiwan in groups increased from 60,000 in 2008 to 2.34 million by the end of May 2011. In fact, last year, China overtook Japan as the island’s biggest source of tourists, and spending by Chinese tour groups accounted for 0.72% of Taiwan’s GDP. Naturally, the tourism boom has prompted large investments in diverse Taiwanese businesses, from hotels to car rentals, and has pushed up retail sales, especially because discretionary goods are cheaper in the country compared to mainland China.

Significantly, the island is now set to gain from Chinese tourists in a much bigger way because individual visitors, as opposed to those travelling in groups, are often relatively younger and tend to vacation for a longer time, explore the country more extensively, and spend liberally. According to one official estimate, individual Chinese tourists are expected to generate around $673 million in additional tourism income for Taiwan every year. So, it is no wonder that soon after Taiwan lifted its ban on solo Chinese tourists, the stock prices of some of the companies that are expected to benefit from the development, such as two of Taiwan’s largest airlines as well as its biggest listed hotel, saw a spurt.

But like all neighborly relations, there is some sour to go with the sweet. The newfound warmth between the neighbors is only oven fresh. Tensions have simmered between the two since the Chinese civil war in 1949 when the Kuomintang and the Communist Party fought for the control of China. The Communists took over China and the Kuomintang retreated to what is now Taiwan. Since then, it has been six decades of instability and military conflicts between Taiwan and mainland China.

China still sees Taiwan as its territory and has often threatened to use the more than 1,000 missiles it has kept pointed at Taiwan if the island declares independence. However, since 2008, both sides have been making a concerted effort to renew contact, reduce aggression, and resolve long-standing conflicts. In late 2009, the rival governments agreed to open shipping and postal routes that had been blocked for six decades while also allowing direct flights daily between the capital cities. With this, the latest improvement in tourism ties between mainland China and Taiwan is another sign that one day the two states may finally hold hands across the strait.

Incidentally, China is such a powerful force in globalization today that writers and commentators across the world seem to have adopted an unofficial but incendiary phrase — “The Chinese are coming” — to suggest resentment or envy against the country’s ascent. The phrase is so popular that when googled, it produces 65.4 million results. But be that as it may, the thousands of hoteliers, tour guides, and rental taxi drivers in Taiwan do not seem to mind that the Chinese, indeed, are coming.

Image Credit: Beautiful Taiwan’s photo stream under Creative Commons License

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