Why China’s solo tourist ban is not a big deal for Taiwan

Written by Min-Hua Chiang.

Image credit: Shilin Night Market by Miguel Vicente Martínez Juan/Flickr, license CC BY-NC 2.0

Since Tsai Ing-wen of Democratic Progressive Party (DPP) was elected as Taiwan’s president in 2016, China intensified efforts to squeeze Taiwan’s diplomatic space. Businesses and entertainers have been forced to adhere to the “One-China Policy”, and from 1st August 2019 Chinese nationals from 47 cities in China were prohibited to visit Taiwan on an individual basis. China’s new tourism restraint is another attempt to intimidate Taiwan.

Taiwanese officials estimated a reduction of NT$18,000 million (US$574 million) in tourism revenue and a fall of 0.1% GDP following China’s new tourism policy. Looking at the statistics in detail, the impact on Taiwan’s economy is limited.

First, the number of Chinese tourists to Taiwan began decreasing as early as 2016 and the impact on the tourism sector has been offset by an increasing number of tourists from other countries. As shown in Figure 1, the number of Chinese visitors to Taiwan has dropped from 4.2 million in 2015 to 3.5 million in 2016 and 2.7 million in 2018. Visitors from Japan and South Korea increased from 2.3 million in 2015 to nearly 3 million in 2018. During the same period, visitors from Southeast Asia skyrocketed from 1.4 million to 2.4 million and visitors from the rest of the world also increased. As a result, the total foreign visitors to Taiwan has continued to increase despite decreasing tourists from China.

Figure 1. Number of foreign visitor arrivals in Taiwan 2009-2018

Fig 1
Source: CEIC Data

Second, as the tourism sector accounts for only a small portion of Taiwan’s economy, the impact from the falling number of Chinese visitors is less noteworthy. In 2018, Taiwan’s total tourism revenue amounted to US$26,192 million. This is about 5% of Taiwan’s GDP and far less significant than the manufacturing sector’s 31%.

Some have argued that tourism’s economic contribution is beyond simple revenue and can trigger development in other sectors. However, this argument is questionable as every sector’s production can induce other sectors’ development. It is difficult to measure whether tourism generates a greater “multiplier effect” than other sectors. Furthermore, growing tourism might include imports of goods and services – a negative contribution to economic growth.

According to the World Travel & Tourism Council’s estimates, the total travel and tourism contribution (including indirect and induced contributions) as percentage of GDP in Taiwan was 4.3% in 2017, far less than Macao’s 61.3%, Thailand’s 21.2%, Hong Kong’s 16.7%, China’s 11%, or Japan’s 6.8%. Taiwan is less dependent on tourism so its economy is therefore more resilient against a sudden decline of foreign tourists.

Being a manufacturing economy, Taiwan has long relied on exports of manufactured goods for economic growth. Booming manufacturing exports have been a main driver for domestic market-oriented sectors’ development. In 2018, Taiwan’s trade balance in goods was US$67 billion whereas the service trade balance (travel service is a service trade item) was in deficit of US$5,976 million according to Taiwan’s Central Bank.

Decreasing Chinese tourists may offer Taiwan an opportunity to grow its tourism industry with better quality. Table 1 shows foreign visitor daily average expenditure per capita in 2018. Although the average Chinese visitor’s expenditure was similar to the Japanese, most Chinese expenditure was in shopping items whereas their expenditure on hotel, entertainment, transportation and meals were below average. These data indicate that Chinese tourists tended towards relatively cheap consumption patterns compared to visitors from Japan, the United States and Europe. In other words, the tourism business that China offered was based on quantity not quality. Given the limited land size and human resources, Taiwan should advance its economy by moving towards high quality tourism. Taiwan will have to carve out a niche for itself in the global tourism market.

 Table 1. Foreign visitors’ daily average expenditure per capita in Taiwan in 2018

Table 1
Source: CEIC Data

Finally, China’s ban on individual travel is an early warning sign that Taiwanese tourism businesses cannot rely solely on China. The opening of Chinese tourists to Taiwan in 2008 was a result of harmonious cross-Strait relations and business based such political relations is not sustainable. The latest survey shows Tsai Ing-wen is likely to be re-elected as Taiwan’s next president in 2020. Hence, cross-Straits political deadlock is very likely to persist, if not worsen, after the election. A further constraint on Chinese outbound tourists to Taiwan is possible and continued decreasing of Chinese tourists numbers is expected.

Taiwan’s economy has been gradually decoupling from China following China’s economic structural changes. The growing US-China trade tension has accelerated Taiwanese firms’ relocation from China to other countries. Taiwan’s exports to China also dropped since most were destined for Taiwanese manufacturing firms in China. Tourism from China is one of the few channels by which these two economies can remain tightly connected and China’s solo tourist ban will hinder cross-Strait economic integration. Eventually, more distant economic relations will make China’s ultimate goal of peaceful unification with Taiwan less achievable.

Min-Hua Chiang is research fellow at the East Asian Institute, National University of Singapore. This article is part of the special issue on cross-Strait relations.

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