On June 12 and 13, a delegation of Taiwan politicians visited Mainland China for the first substantive, high-level talks across the straits in almost a decade. Apart from discussing their strained relationship, the main topic was tourism. China appears ready to begin allowing mainland tour groups to travel to Taiwan, starting with 1,000 tourists a day — and later increasing to 3,000 a day – and possibly many more in the future. According to press reports, on the second day of the talks, the two sides also agreed to launch up to 36 direct charter flights every weekend between the two sides of the Taiwan Strait, a landmark event that amounts to a historic re-connection of direct flights, which were discontinued 59 years ago.


The imminent arrival of the first wave of tourists from China has enormous positive implications for Taiwan’s tourism industry and for its economy. Analysts expect that 3,000 Chinese visitors a day would generate US$ 2 billion in revenues, boost the island’s overall hotel occupancy rate by 22% and its hotel room rates by 15%, and add 0.5% to GDP growth.


In the future, with the number of tourists likely to increase far beyond 3,000 a day, the sky is the limit. For historical and cultural reasons, Taiwan is expected to be very popular with mainland tourists, and analysts believe that such tourism will eventually become a key pillar of Taiwan’s economy, just as it has in Hong Kong.


A Tourism Revival


Taiwan’s tourism industry has long been moribund. Taiwan receives less than a million Japanese tourists every year, and a trickle of visitors from Hong Kong and Singapore; the country gets almost no vacation traffic. In 2007, only 3.7 million people visited Taiwan, a growth rate of just 5.6% compared with 2006, and of those 3.7 million visitors, only half were tourists, and the rest were business travelers or people visiting relatives. In sharp contrast, Hong Kong received a whopping 28 million visitors in 2007, up 11.6% from 2006, including 15.4 million visitors from mainland China. Thailand, another tourism powerhouse, received more than 15 million visitors in 2007. 


Because of low visitor numbers, Taiwan’s hotels have struggled with poor occupancy rates for many years, usually in the range of 60% to 70%, and the hotels also suffer from some of the lowest room rates in Asia. In 2007, for example, the overall occupancy rate of hotels in Taiwan was 67%, with an average room rate of just NT$3,200 (US$105). In Hong Kong, by contrast, the average room rate in 2007 was US$156.


“Taiwan now has the cheapest hotel rates among all the cities in Asia,” says Stanley Yen, president of Landis Hotels and Resorts, which manages eight hotels and resorts in Taiwan, and two hotels in China. “It is difficult for hotel operators here, because it doesn’t give you enough return to justify the investment.”


If the deal with China goes through, however, Taiwan’s listless tourism industry could get a high-voltage jolt. The March 22 election of president Ma Ying-jeou has opened a new, warmer era in cross-straits relations. Ma’s Guomindang (KMT) party is regarded as far more business friendly, and more China friendly, than the Democratic Progressive Party of former president Chen Shui-bian, which is regarded as populist, insular and anti-China. “The KMT’s victory represents a long term structural change,” says a report on mainland tourism issued in April by Macquarie Capital Securities in Taipei.


Although Ma has drawn careful distinctions between mainland China and Taiwan, he was clearly the candidate favored by China. Now that he has won the election, Taiwan is awaiting a reward from the mainland, and that reward is likely to come in the form of increased tourism. “They want to give Taiwan something to show their goodwill, because this new government seems more reliable to them than the government of Chen Shui-bian,” says Eddie Lee, owner of Taipei-based Tiptop Tour and Travel, a travel agency that is Asia’s leading wholesaler of hotel rooms. “In this kind of atmosphere, in Chinese we say fen wei — they will give something — but whether it is a big gift, or just a little one, nobody knows.”


Current Situation


As matters now stand, mainland Chinese tourists are not allowed to travel freely to Taiwan. The current policy states that only qualified Chinese tourists can visit Taiwan; those visitors include tourists who visit another country before they visit Taiwan, certain hand-picked business and cultural travelers, and Chinese citizens who live outside China. In 2007, as a result of these restrictions, only 86,000 mainland Chinese visited Taiwan.


An additional hurdle to cross-straits tourism is that at present, flights from China cannot fly directly to Taiwan, and flights from Taiwan cannot fly directly to China. All flights must pass through a third destination, usually Hong Kong, and sometimes Japan, Macau, or Korea. Direct charter flights between Taiwan and Mainland are only allowed during four major public holidays, and are limited in number.


Yet these two hurdles – the restrictions on tourism and the lack of direct flights – look ready to disappear, and the benefits to Taiwan’s tourism industry will be enormous. Macquarie expects Taiwan’s tourism revenue to grow 12% per year for the next three years, almost exclusively due to visitors from China, far outstripping the 5% growth in tourism revenue from 2004 to 2007. By 2010, if 3,000 mainland visitors a day were to travel to Taiwan, they would add US$ 2 billion in revenues, according to the Macquarie report.


Analysts expect that in the beginning, 1,000 mainlanders will visit each day, and they believe the number will rise to 3,000 visitors a day by 2009, or about 1.1 million per year, a figure that would almost double inbound vacation travel to Taiwan. As for direct charter flights, those are expected to begin on July 4, with 36 direct charter flights each weekend between the Taiwanese cities of Taipei and Kaohsiung, and the Chinese cities of Shanghai, Beijing, Xiamen, and Guangzhou. At first, the charter flights will be restricted to citizens of Mainland and Taiwan, but in 2009, regular scheduled flights may begin.


Similarly, mainland tourism is also set to start very soon, says Ellen Chiu, a tourism analyst at Macquarie Capital Securities in Taiwan, and co-author of the Macquarie report. “I am projecting that it will start in third quarter of 2008,” says Chiu. “The mechanism right now is, without any further negotiation, they could open up to 1,000 tourists a day without doing anything. The mechanism is there, and it just needs an agreement between both sides. But if there is further negotiation, which I believe Ma Ying-jeou will do, that will further increase the daily quota. My assumption is that we will receive 2,000 mainland visitors a day in 2009, and 3,000 a day in 2010.”


The average Chinese tour group in Taiwan is expected to have about 30 people, and each group is projected to stay seven to 10 days, with each tourist spending about US$250 a day. Almost every tour will visit Taipei, say analysts, with the National Palace Museum, Taipei 101 Tower, the Sun Yat-sen and Chiang Kai-shek memorial halls, and the Shihlin Night Market likely to be on most itineraries. From Taipei, many groups will proceed to Sun Moon Lake, in central Taiwan, and to the mountain retreat of Alishan in the south. Kaohsiung will also be on many tour packages, while a large number of tourists will likely visit the scenic East Coast, home to the famous Taroko Gorge National Park. “The major sightseeing spots will be the first to benefit, such as Sun Moon Lake, Alishan, major cities like Taichung and Kaohsiung, east coast areas like Taroko Gorge, and Taipei definitely,” says Yen, of Landis Hotels. 


Among all the businesses in Taiwan, the hotels will gain the most from the expected surge of tourism, says Chiu. “The current data is that 50% of the mainland spending will be on hotel bills, so I believe that hotels will benefit more than any other business, and before 2010 hotel rooms may even face a supply shortage,” she says.


When citizens of any country first begin to travel, they tend to do so in big groups, says Lee, and as group tourists, the visiting Mainlanders will likely stay in three- and four-star hotels, rather than in luxury hotels. But even the five-star hotels in Taiwan will reap some rewards, as some travelers will prefer five-star hotels, and others will dine in five-star hotel restaurants. In the future, as Chinese travelers become more mature and stop traveling in groups, they will begin to visit as individual travelers, further boosting the fortunes of Taiwan’s luxury hotels.


Boost for Taipei


“The whole city (Taipei) will benefit from Chinese travelers,” says Yen. “Even if a five-star hotel doesn’t get group travelers, there will definitely be some mainland travelers from big companies, or individual travelers, who are looking for high-quality hotels. But the majority will stay in group hotels, in three- and four-star hotels.”


Among the hotels that are listed on the Taiwan Stock Exchange, Formosa International Hotel is the biggest, and Ambassador Hotel is the second biggest, and those two chains have the most to gain from mainland tourism, says Chiu.


Apart from hotels, the next-biggest beneficiary is likely to be the Taiwan High-Speed Rail, a state-of-the-art elevated rail that travels at 300 kilometers an hour, and stops at eight cities on the island’s west coast. Many of the group tours will book seats on the High-Speed Rail, which stops at key attractions such as the Sun Moon Lake and Alishan (a scenic mountain range), and it terminates in the southern city of Kaohsiung, which is popular for its harbor views and its fine seafood. “The Taiwan High-Speed Rail will be the major beneficiary, in terms of transportation, because right now a lot of travel agents are putting it into their tour packages,” says Chiu.


Taipei 101 Tower – the world’s tallest building – and the famous National Palace Museum, which features the world’s biggest and best collection of Chinese art, will also attract large numbers of tourists. Taiwan’s airlines will likewise pick up some new customers, particularly those that fly domestic routes, says Chiu, such as Far Eastern Air Transport and TransAsia Airways, as well as EVA Air subsidiary UNI Air, and China Airlines subsidiary Mandarin Airlines. Travel agencies, especially those that focus on group travel, will also prosper. Beyond that, the benefits will be more widely dispersed, as a host of businesses, including retail stores, amusement parks, restaurants, and other tourist-related concerns, will also reap the gains from the expected tourism bonanza.


Taiwan’s retail industry will likewise benefit, but also indirectly, say analysts. “When my relatives came to visit me last year from China, they wanted to buy iPods and MP3 players,” says Lee. “They believe Taiwan is a high-tech island. We export lots of electronics and so on, and many parents will buy electronics for their children.”


When mainland tourists began arriving in Hong Kong in huge numbers earlier this decade, the retail sector – particularly shops selling jewelry and electronics – was given an enormous boost. In China, a high luxury tax – often more than 30% – is applied to most purchases of electronics and jewelry, and that tax causes many mainlanders to buy such goods outside the country.


Taiwan is not as much of a shopping paradise as Hong Kong, and it will receive fewer of the shopping-mad one- and two-day visitors who go to Hong Kong mostly to buy things, says Chiu. “The retail side will benefit as well, but it will be more indirect,” she says. “The retail sector will recover together with the pickup in consumption confidence, but I think the growth will be more moderate than the explosive growth in the tourism sector.”


Strong Upside


According to the World Tourism Organization, China generated 41 million outbound tourists in 2007, and that number continues to grow each year, which means that 3,000 visitors a day, or 1.1 million each year, represents only a tiny fraction of the potential numbers of Chinese tourists who might come to Taiwan. That 3,000-a day number could be raised in the future, and if it is, revenue and GDP growth would surge accordingly.


“That 3,000 figure is actually not a ceiling, it is just the beginning quota for the first year,” says Chiu. “Ma is talking about raising it to 5,000 for the second year, and pushing that to 7,000 for the third year.” If that happens, island-wide occupancy rate would leap to 91% in 2008, and room rates would jump 20%, and Taiwan’s hotel industry would face the happy problem of having too few hotel rooms.


Most analysts believe Taiwan has enough infrastructure – hotels, airport space, transportation links, and tourism sites – to easily accommodate at least the initial 3,000 visitors a day. Nonetheless, the Taiwan Tourism Bureau is already preparing for the expected inbound rush of mainland tourists. “We aim to set up a rating system so that tourism facilities such as hotels, restaurants, and public transport, meet our requirement standards,” says Christine Lai, head of the Tourism Bureau’s international division. “In popular tourist spots, such as Sun Moon Lake, Alishan and various national scenic areas, the basic infrastructure, transport and facilities of these areas will be closely examined and improved in order to provide a better tourist environment.”


The Tourism Bureau has also set up a hotline for mainland travelers, in case they have problems to report, and it is holding training courses for travel agents and hotels, to better prepare them for the influx of visitors.

Beyond that, all they can do is wait for the announcement, a prospect that fills the tourism sector with anticipation. “You will see more people smiling on the streets of these days,” says Lee. “There is more optimism about the future, because we have been suffering for so many years. Taiwan has nothing to lose, and much to gain.”