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Chapter 4 - Tourism and Cross-Strait Economic Relations
The condition of Mainland Chinese tourism to Taiwan can be compared, and is perhaps even related to, China-Taiwan economic relations as a whole. As mentioned
previously, this makes Taiwan’s tourism industry and the role China plays in contributing to it a notable bellwether in judging the state of the critical economic relationship. This chapter will examine why tourism and the larger economic relationship are so tied together, as well as what the consequences of these deteriorating relationships may be.
As goes tourism, so goes trade (at least with China)
Before establishing the parallels between tourism and economic relations, it should be noted that tourism is a significant economic sector in and of itself, with potential losses possibly reaching into the “hundreds of millions” in NTD (Huang interview, 2017). Should this part of the economy recede, the human costs will not be unnoticed, as can be seen in the 2016 protests of the DPP government by tourism industry employees (Cheng & Wu, 2016).
And as outlined in the third chapter, many different industries are involved in this sector.
Hotels, travel agencies, tour companies, and tour bus services will feel the effects should a reduction in Mainland visitors heavily impact the sector. Furthermore, restaurants, souvenir shops, department stores, and street vendors will take a remarkably large cut, perhaps even more than other types of businesses considering the high percentage of total spending of Mainland tourists going to shopping while in Taiwan (Tourism Bureau, 2016). Also, industries not directly related to tourism, like banking and finance, will be impacted by businesses being unable to meet the terms of loans for large purchases like tour buses (Huang interview, 2017). Finally, local economies will be impacted - Mainland Chinese tourists spend more time outside of Taipei relative to other visitors, thus spreading economic benefits
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around Taiwan compared to visitors from other countries. This means local tourism sectors outside of Taipei will be disproportionately affected (Lee interview, 2017).
Also worth considering is the nature of the discussion regarding Mainland Chinese tourism in Taiwan. Every article, report, and interview has been directed at whether or not Taiwan’s tourism sector can weather a large-scale reduction in the number of visitors arriving from across the Strait. What people are not considering is whether continued growth in the tourism sector is possible. In the previous chapter I established that while it will not be easy, it is certainly within the realm of possibility for Taiwan to adjust and survive a large
reduction in the number of Chinese visitors. However, ensuring that this sector grows for the foreseeable future will be profoundly difficult. As shown, Chinese tourists spend a great amount, stay longer, visit more destinations, and were the largest share of visitors in Taiwan for years. Without the benefit of relatively easy Chinese money supporting continued
industry growth, thriving, as opposed to simply surviving, seems unlikely, especially since many observers see a decline in the industry as inevitable (Huang interview, 2017). And a lack of growth in a service-sector area like tourism is anathema to stated Taiwanese goals of expanding its service-sector economy (Rosen & Wang, 2011).
Tourism and trade between China and Taiwan illustrate some important parallels, parallels that indicate the state of tourism is a strong representation of Cross-Strait economic health as a whole. First is growth. There was 16 percent average annual growth between China and Taiwan from 2001 to 2011 (Rosen & Wang, 2011). Between 2008 and 2016, however, growth slowed to 4.3 percent on average, which is smaller but still significant (Table 2: Bureau of Trade Statistics). Tourism followed a strikingly similar growth path. In the early years of Mainland tourism to Taiwan, between 2008 and 2009, growth was nearly 200 percent (Tourism Bureau, 2016). From 2008 to 2016 however, it slowed down to near 45 percent annual average growth (only 23 percent if 2008-2009 growth is excluded). And
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tourism is just the type of industry that Taiwan’s service-sector-oriented economy goals are looking towards.
Table 2: Total Trade and Surplus, China-Taiwan 2008-2016 (source: Republic of China - Bureau of Trade Statistics -
http://cus93.trade.gov.tw/FSCE030F/FSCE030F)
TOTAL TRADE(re-imports &
re-exports included) EXPORT+re-exports IMPORT+re-imports
SURPLUS/DEFICIT(re-imports 2008 98,273,497,890 8.673 66,883,031,816 7.156 31,390,466,074 12.052 35,492,565,742 3.169 2009 78,670,764,058 -19.947 54,248,101,236 -18.891 24,422,662,822 -22.197 29,825,438,414 -15.967 2010 112,879,654,027 43.484 76,934,575,511 41.82 35,945,078,516 47.179 40,989,496,995 37.431 2011 127,555,177,571 13.001 83,959,399,961 9.131 43,595,777,610 21.284 40,363,622,351 -1.527 2012 121,621,186,471 -4.652 80,713,756,748 -3.866 40,907,429,723 -6.167 39,806,327,025 -1.381 2013 124,376,057,324 2.265 81,787,644,881 1.33 42,588,412,443 4.109 39,199,232,438 -1.525 2014 130,158,219,397 4.649 82,119,323,365 0.406 48,038,896,032 12.798 34,080,427,333 -13.058 2015 115,392,430,915 -11.344 71,209,418,882 -13.285 44,183,012,033 -8.027 27,026,406,849 -20.698 2016 117,867,946,312 2.145 73,878,343,290 3.748 43,989,603,022 -0.438 29,888,740,268 10.591 Average
Growth 4.252667 3.061 6.732556 -0.329444
Just for the sake of argument, notice that Chinese tourism grew on average nearly 50 percent each year since 2008, and total trade between Taiwan and China grew over 4 percent.
Beginning in 2017, presume tourism falls 50 percent - the actual projection of decline from 2016 to 2017 (Lee interview, 2017). It then stands to reason that perhaps trade might begin to fall, on average, 4 percent per year. This is a distinct possibility, especially if one considers the fact that Beijing’s whole goal in courting trade with Taiwan was to gain economic leverage. And a 4 percent average annual decrease is a tremendous amount that would have very serious economic repercussions for Taiwan. Should that level of loss occur, that means that over an eight year period - to mirror the 2008-2016 era of growth - China-Taiwan trade could conceivably fall by over 27 percent total. Again, the extreme nature of this scenario is unlikely - the trade regime with Taiwan is important to China beyond political leverage.
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However, it is an interesting idea, and one perhaps not far from the truth should Beijing begin flexing their economic leverage to try and bring Taipei to heel.
Another important parallel between tourism and trade is their nature as hot button issues. There have been protests on the part of the tourism industry, and media reports are ubiquitous. However, the inflammatory nature of China-Taiwan trade makes the tourism discussion look downright benign. The motivating factor behind the Sunflower Movement of 2014 and the occupation of the Legislative Yuan was popular - and ultimately successful - protest against the Cross-Strait Service Trade Agreement (CSSTA), an agreement that would
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have expanded 2010’s ECFA liberalizations. Also, trade is a highly visible, highly relatable, and hotly debated topic, viewed along the same lines as Chinese tourism. To be “pro-trade”
with China is to be in support of greater trade liberalization and greater rapprochement, and those who support these views are likely to also hold the view that Taiwan should be more willing accept Mainland tourists. The converse is also true - those who are wary of closer economic ties and higher rates of trade with the Mainland are also more likely to have negative opinions of Mainland Chinese visitors and their hold on Taiwan’s tourism market.
Finally, and most importantly, China’s whole purpose in both greater economic rapprochement and tourism to Taiwan was to “buy” the ROC. In the literature review we saw how economic incentives were used to entice closer ties with Taiwan, but now that those ties are being tested and even reversed, it stands to reason Beijing may want to use some of that economic leverage it has spent so much time cultivating. And what is the decrease in tourism if not an opening foray into leveraging some of that economic clout?
Considering these parallels, it becomes clear that both tourism and trade with China are both going to be leveraged as some kind of punishment to Taiwan on the part of Beijing, and as such it behooves Taiwanese businesses and the government to act immediately to protect its interests in both areas from departing Chinese money.
The most important step Taiwan needs to take, both in tourism and its larger
economy, is to diversify. The New Southbound Policy is a step in the right direction, but - as will be discussed in the concluding chapter of this thesis - Taiwan needs to leverage its relationships with the rest of the world. Furthermore, the New Southbound Policy is largely a
“replacement policy” for courting Mainland Chinese tourists, and it attempts to do so with markets that are less familiar, reliable, and stable (Huang interview, 2017). Taiwan should actively attempt to sign Free Trade Agreements with its closest diplomatic partners, and those that have little to fear from Beijing. These include Japan and South Korea, but also nations
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further afield like European Union nations and the United States and Canada. Between the established East Asian and Western economies and the soon-to-be-developed ones of
Southeast Asia, Taiwan may be able to stave off heavy economic damage caused by Chinese capital flight. The same is equally true in the tourism sector.
However, this will not be easy, nor will it happen immediately. The New Southbound Policy might help, but Beijing has tried to limit Taiwan’s engagement with Southeast Asia in the past and only stopped after ECFA was signed (Rosen & Wang, 2011). Taiwan might see Beijing return to this former strategy of quietly embargoing Taiwan, so Southeast Asian trade and visitors may not be the panacea Taiwan is hoping for. And relying on the West is tricky as well. US President Donald Trump has shown he cares very little for international norms and concerns when he refused to sign the Trans-Pacific Partnership, and the West made for an unreliable economic partner during the 2007-08 recession. Furthermore, Taiwan, as a member of the World Trade Organization already has robust trade with Western nations - unless FTAs can be signed, there might not be a whole lot more room for leveraging growth.
Still, Taiwan has got to do something. A combination of these strategies will likely be Taipei’s best option, but that means not relying on only one partner and one plan of attack - all tactics will need to be attempted. Finally, Taiwan should not abandon attempting to engage with Beijing. Even if the central government in the capital is reluctant to work with Taiwan, the southern provinces and the Special Administrative Regions like Hong Kong and Macao will be more amenable to engaging Taipei. Simply put, Taiwan will have to be profoundly savvy and be willing to weather possible economic downturn, but moving forward without strong support from Beijing is not impossible, both in trade and tourism.
Further effects
There are certain to be consequences for Taiwan due to the already under way
decrease in Chinese tourists and the chance for a decrease in trade. These consequences range
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from economic to political to social, and their implications are likely to have a lasting effect on Taiwanese society. While these consequences are possible, they are not guaranteed to happen, thus certainty is difficult. However, judging from the recent past and the effects of economic change, some assumptions can be made.
First, Taiwan will face some obvious economic changes. The nature of the tourism industry will change drastically - even if it is able to avoid economic contraction, its nature will be fundamentally altered, and this will have a range of economic effects, which have been covered extensively elsewhere in this thesis. Furthermore, if tourism is the first step towards economic sanctioning on the part of Beijing, that means trade and interaction with China may begin to decline. As mentioned in the previous section, this would likely have negative economic outcomes for Taiwan, and although not necessarily fatal, it will become more difficult to grow the economy.
However, economic doom and gloom are not foregone conclusions. Economic sanctioning by Beijing would also hurt China (Tanner, 2007), so if Beijing does select this route, they will likely implement sanctions slowly and quietly. No more evidence of this is needed than the fact that Beijing has not admitted it is behind the decrease in Mainland visitors to Taiwan when all of the evidence points to at least some government intervention (Chen interview, 2017). In other words, if they wanted Taipei to know for sure China was sanctioning them, Beijing would simply announce they were behind the decrease in tourist numbers. They will not do this, however, at least for the foreseeable future because they understand that clear and direct sanctioning would probably push Taiwan’s voters towards frustration with China (Tanner, 2007). Thus, Beijing will decrease trade gradually and quietly act to limit Taiwan’s capability to conduct trade with other nations, possibly by coercing Southeast Asian nations to avoid trade with Taiwan or through protesting Taiwan’s
participation at international forums (BBC, 2017). Still, even quiet actions meant to coerce
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Taiwan economically is likely going to be felt, so Taiwanese people and government should, at the very least, be aware that without diversification in trade, continued economic
contraction is likely.
Politically, the effects of decreasing trade and tourism are very unclear. On one hand, Taiwanese are feeling more “Taiwanese” than ever before (Chen, Yen, Wang, & Hioe 2017) and are less likely to be coerced by real or perceived Chinese aggression. The Sunflower Movement, which enjoyed wide public support, was ultimately a question of whether or not Taiwan should drift closer to Beijing, politically and economically. Furthermore, there is the distinct chance that Taiwan’s economy begins to do surprisingly well under Tsai’s
stewardship - if Taipei can navigate economic and trade relationships with other nations, support for Tsai and her DPP may actually increase, making it even harder for Beijing to achieve its ends in Taiwan. However, economic troubles have been bad for previous presidents, KMT and DPP alike (Bush 2016, The Economist 2008). Taiwan’s economy is sluggish and has been for some time (Chen and Ko, 2017), so if job markets and earnings do not see growth, the KMT may be in for a resurgence if they can convince voters that a softer tone on China might mean better economic outcomes. Furthermore, there is also the
possibility that if things get too hot - say China begins to threaten and actively prepare for military action against the island - voters might turn to the KMT to avoid conflict. Political outcomes depend very much on economic ones, so if the current government can manage some economic growth and avoid provoking Beijing - no easy task - the DPP could hold political supremacy for a long while.
The social consequences of less Chinese tourism in Taiwan will, at least for many Taiwanese, be a welcome change. As discussed in previous chapters, Taiwanese locals have experienced frustration due to Mainland Chinese visitors (Rowen, 2016). While this might be overblown or not always for the best reasons, there can be no doubt that this social pressure
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exists, and that a reduction in visitor numbers will relieve that tension. Some problems may arise should Taiwan’s tourism sector feel too much of a squeeze, especially from workers in that industry in the form of protests, but considering the relatively small size of the sector, public unrest will likely not boil over.
On the other hand, if Taiwan hopes to make up for the reduction in Chinese visitors, it needs to attract Southeast Asian tourists. To do so, Taiwan needs to overhaul its immigration policies (Lee interview, 2017). However Taiwan has been slow to make these changes, and even industry experts are concerned about what increasing immigration from Southeast Asia may mean for Taiwanese society (Chen interview, 2017). Furthermore, there is also a degree of “otherism” in how many Taiwanese view Southeast Asians, at least as much as with
Mainland Chinese, so even if Taiwan is able to make up for ground lost with Chinese visitors, some of the same problems may reappear.
The social consequences of possibly decreasing trade with Beijing are more unclear and heavily tied to the economic outcomes. Should the economy in Taiwan take a turn for the worse, there will obviously be at least some degree of unrest. However, the direction of popular frustration depends on what people determine to be the cause. Should public sentiment swing towards an overriding need for fast economic growth, or should people become actually afraid of conflict with China, popular support for rapprochement and closer social ties with China will increase. If, however, China pushes economic sanctions too far or too fast, there is the chance that support for declared independence will increase (Tanner, 2007). Still, this is all contingent on severe economic downturn. If, as seems likely, that Taiwan can manage to avoid major economic downturn, the social consequences of current affairs seem to imply a growing Taiwanese identity and less of a desire to depend on Beijing economically. As such, Taiwan is probably in for an extended freeze with China, with
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Taiwanese people generally in support of it. However, slow economic growth is likely, with some economic issues and conflict with Beijing a possibility.
Future possibilities
Given the information presented throughout this thesis, a few predictions are forthcoming. First, and most predictably, is that at least in the next four years, numbers of Mainland Chinese tourists will dwindle. The reduction numbers may level off after a year or two, but the trajectory will be negative growth. As long as the Tsai government refuses to acknowledge the 1992 Consensus as the framework for China-Taiwan relations, Beijing will refuse negotiation and tourism at the very least will wither.
As reported by industry experts and seen in tourism numbers, the tourism industry will be negatively affected by the reduction in Chinese visitors, at least in the short-term.
Again, this does not mean that Taiwan’s tourism sector is doomed to obscurity and negative growth for all time - the New Southbound Policy shows promise and, if the government and businesses are wise, they will take steps like greater diversification and innovation in order to attract new tourists and keep Taiwan’s tourism industry afloat.
As outlined in Chapter 4, like the tourism industry, China-Taiwan trade may decrease in the next few years. A decrease in trade with China would not spell doom for Taiwan, at least not for the foreseeable future, but there certainly would be negative economic outcomes.
However, Beijing is also likely unwilling to hobble one of its best and most productive trading partners, political tension or no. At least in the early stages of decreasing trade, China will probably not acknowledge they are behind the trend, much like with the decrease in tourism. However, should Taipei not change course and accept the 1992 Consensus on Beijing’s terms, China may begin to more heavily and openly punish Taiwan. They could do so through limiting Taiwan’s access to international fora, directly if covertly intervening in
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Taiwan’s trade deals with other countries (as they have done in the past with Taiwan-Southeast Asian nations), and possibly outright sanctions.
If Beijing starts sanctioning Taiwan, this would be a strong indication of China becoming more willing to punish, and less willing to entice Taiwan. Beijing has been reticent to directly punish Taiwan through economic action; doing so is not good for China’s
economy, and the CCP is aware that overt punishment runs the risk of alienating Taiwanese people, making Taiwan drift even further out of Beijing’s sphere of influence. Still, if they get to the point where they feel nothing else will work, China may become more open to aggressive economic sanctioning (Kastner, 2009). This development would be significant for a few reasons. As mentioned, China has never engaged in overt, direct sanctioning of Taiwan
economy, and the CCP is aware that overt punishment runs the risk of alienating Taiwanese people, making Taiwan drift even further out of Beijing’s sphere of influence. Still, if they get to the point where they feel nothing else will work, China may become more open to aggressive economic sanctioning (Kastner, 2009). This development would be significant for a few reasons. As mentioned, China has never engaged in overt, direct sanctioning of Taiwan