Economics first, Taiwan first, and Taiwan’s Economy first- The Open Tourism Market in Mainland China and the Development of the Medical Tourism Industry in Taiwan

Economics first, Taiwan first, and Taiwan’s Economy first- The

Open Tourism Market in Mainland China and the Development

of the Medical Tourism Industry in Taiwan

Foo Yin University, Taiwan, R.O.C. Foo Yin University Hospital, Taiwan, R.O.C.

Abstract

Medical tourism is a combination of travel and medical care. Taipei plans to push medical tourism to the world and considers the Mainland as one of its major markets. However, since Beijing takes tourists export as an economy diplomacy means, the Taiwanese should not view this matter from the angle of free market mechanism or humanitarian relief.

The researcher believes that Mainland tourists will help drive the service volume of medical tourism and bring about economic benefits to Taiwan when medical system integration, epidemic prevention work, and patients’ interest are well maintained. The researcher also believes that, in the future, Taipei should take a more flexible political stance to obtain more material benefits in return. Taiwan should thus aim to reinforce its economic strength, open its door to the internal market, and enhance the Mainland’s cost of interaction with Taiwan, rather than merely focusing on political submission due to the country’s economic reliance on the Mainland.

Keywords: Cross-straits relations, Medical tourism, Economic diplomacy, Interdependence theory

JEL classification: M21

Nursing of Department, Fooyin University, Foo Yin University Hospital,

14F, No. 189, Sec. 3, Chien-Guo Road, Fong-Shan, Kao-Hsiung 830, Taiwan, R.O.C. E-mail: ricolin1970@yahoo.com.tw

1. INTRODUCTION

Medical tourism is an emerging industry that combines travel and medical care, and has rapidly developed in East Asian countries like Singapore, Thailand, and India over recent years. In 2007, the Medical Service Globalization Flagship Project was adopted in Taiwan1, the aim of which is to promote medical tourism to the world. Medical tourism will develop and gain international competitiveness based on its comparative advantages, including lower price, higher quality, and shorter waiting time, among many other benefits. Mainland China has been continuously

boosting its economic strength since the introduction of the reform and open-door policy. The newly elected government in Taiwan, in turn, expects to establish a new détente with the Mainland. This has resulted in an open tourist market and a direct transportation policy2, that has been adopted for Mainland sightseers to drive the development of local tourism and relevant industries, including medical tourism.

Although Beijing has gradually opened outbound tourism after its ascension to the World Trade Organization, it is still subject to the

government’s control, rather than being completely regulated through free market mechanisms. Outbound tourism is used as a bargaining chip in economic diplomacy because the government determines the countries of destination and the degree of travel freedom. The current political tangle is the result of the pre-1949 civil war. In social science, “nation” is characterized with monopolistic force and specific domain or territory, as well as supreme executive and judicial powers therein. The present situations across the Taiwan Straits agree with this definition of “nation”.

1

The Executive Yuan of Taiwan passed the Medical Service Globalization Flagship Project on July 11, 2007 and it requested the Department of Health to be organized in Taiwan Task Force on Medical Travel and to implement the plan jointly with 20 medical centers and academic societies. Based on the medium and long terms, it can generate a production output of NTD$ 300 billion for the tourism industry and international medical care in Taiwan.

2

The Executive Yuan of Taiwan passed the Weekend Chartered Plane across the Strait and Tourists Visiting Taiwan Plan was implemented on July 18, 2008. The plan is to have six airports and daily tourists that will reach 3,000 persons. It is estimated that the tourists will reach one million people per year.

Based on cross-straits deconcentration, and from a diplomacy perspective, there is solid ground for conducting research on this project from a

“diplomacy” angle.

Presently, Taipei is developing medical tourism and is seeing the Mainland as a major market. While Beijing takes tourist export as a means to economic diplomacy, Taiwan should view this matter from the

perspective of free market mechanisms or humanitarian relief. These factors motivated the author to conduct this research.

2. PURPOSE

This paper tries to discuss the role of outbound tourism in the economic diplomacy of Beijing, the significance of Mainland visitors for Taiwan’s medical tourism industry, and the recommended attitude for the Taiwanese people.

3. METHODOLOGY

This paper uses a qualitative research method, following historical realism and nominalism in ontology and adopting subjectivism in epistemology. Logic and induction are employed to study relevant literature in methodology to share subjective meanings and to achieve value judgment.

4. LITERATURE DISCUSSION

Discussion of the literature is focused on the development of

medical tourism, the economic diplomacy policy of the Mainland, and the course of opening outbound tourism.

4.1. The Development of Medical Tourism

The following section contains the definition and the potential of medical tourism.

4.1.1. Definition

According to Goodrich (1993), it is a health care service that attracts visitors from other countries or regions for the purposes of medical treatment and sightseeing. Mueller and Kaufmann (2001) refer to it as the phenomenon of people moving from their habitation and enjoying health services to promote and improve their physical conditions. As defined by Yang (2004), medical tourism is an emerging industry in which people seek affordable medical care abroad due to the cost or quality of their habitation services while sightseeing at the same time.

Health tourism may be divided into two types: the identity of the demander and the purpose of the journey. One is medical tourism for patient visitors who expect to receive treatment and undergo recovery throughout their journey; the other is wellness tourism for healthy visitors who expect preventive and nursing activities from their journeys.

However, Laing and Weiler (2007) classify wellness tourism into medical tourism. Among the few studies on medical tourism in Taiwan, Chi (2008) describes “medical tourism” as the internationalization of medical services, further defining it as “a tour combined with health care services like

physical examinations.” Wu (2008) also describes “medical tourism” as the internationalization of medical services. It means that “medical

tourism” still lacks a clear theoretical definition, but its category evidently exists in practice. In this paper, medical tourism is incorporated into the definition of Laing and Weiler. Now, we understand that medical tourism is based on the comparative advantages brought about by a combination of travel and medical attendance.

4.1.2. Potential

According to Bookman’s estimation in “Medical tourism in

developing countries” (2007), the global medical tourist market involved more than 19 million individuals and produced an output value of USD $20 billion in 2005; it is expected to reach 40 million individuals and earn USD $40 billion 2010. Greg (2008) points out that global demand for medical tourism has grown at a rate of 18% each year. Horowitz,

fifty thousand people attend outbound medical tours each year, tours that are revealed to be increasingly popular in the United States. According to Diane (2008), because of rising medical charges, many Americans opt to seek medical services from internationally certified hospitals in Asian countries like Singapore and Thailand where expenses are relatively lower.

Subsequently, companies principally engaged in medical tourism emerge, as the market requires. According to Leigh (2007), there have been 15 specialized medical tourist enterprises, excluding traditional travel service companies, engaged in this trade in Canada in 2006, which accelerated the popularization of international medical attendance. As for Taiwan, Wang (2007) stated that, with due consideration for the

advantages of government promotion, low prices, and high quality, one hundred thousand inbound medical tourists and an output value of USD $ two hundred million within the next three years are expected. Medical tourism contains great growth potential and economic benefits in areas where quality and price play important roles.

4.2. Economic Diplomacy of Beijing and its Policy of Opening the Outbound Tourist Market

The following section explains the formation of Beijing’s economic diplomacy and its reasons for opening outbound tourism.

4.2.1. The Formation of Economic Diplomacy

During the Cold War, political factors played a major role in the foreign diplomacy of the Mainland, such as territorial sovereignty disputes and military expansion. Having experienced rapid economic development since 1978, Beijing changed its foreign diplomacy to a nonpolitical

direction, economic diplomacy. According to the prediction of Nye (2002), China will match United Stats in economic strength by 2025. The

economy has played a significant role in Beijing’s foreign diplomacy. Kim (1994) points out that China is heading towards neo-mercantilism, and its economic strength contributes not only to nationalism, but also to foreign

diplomacy. Block (1997) calls China’s foreign relations, which combines national and commercial benefits, as commercial diplomacy. In the view of Su (2002), Beijing strives to create favorable international relations and a stable neighboring environment through diplomatic efforts, where economics plays a major role.

As explained by Wang (2007), economic diplomacy is characterized by periodic and compromising features that bring positive benefits to the Mainland. In the Mainland, economic and trade organizations play an important role in diplomatic decision make. Hsu (2000) points out that the Ministry of Foreign Trade and Economic Cooperation serves not only as the executor of economy and trade policies, but also as the decision maker for foreign diplomacy. The Mainland also achieves material effect through economic diplomacy. Su (2005) points out that the Mainland has practiced economic diplomacy and has signed protocols to maintain relations with other countries. Through economic diplomacy, the Mainland could access economic globalization, accede to international organizations, and create diplomatic results.

Evidently, Beijing has turned its diplomatic thinking from a

nationalist idealism to a realism seeking power equalization, harmony, and co-prosperity. Economic diplomacy has become an important mode in its foreign relations, although economics merely serves as a means to a diplomatic end.

4.2.2. Cause and Effect of Opening Outbound Tourism

Globalization started sweeping across the whole world in 1990s. When Beijing determined the national policy of “carrying out reforms at home and opening to the outside world” in 1978, the Mainland evolved into a global market with no way to resist the trends of globalization. Held, McGrew, Goldblatt and Perraton (1999) mention that globalization begins with personal mobility. According to Waterz and Kenneth (2000),

globalization is achieved mainly through three social arrangements: (1) Economics: refers to a social arrangement made to realize production, exchange, distribution, and consumption of products and services; (2)

Politics: refers to a social arrangement made for centralization and

exertion of power; and (3) Culture: refers to a social arrangement made for production, exchange, and expression of symbols. Driven by factors such as technical progress, capital movement, and personnel transfer,

globalization has promoted the integration of international trade,

production, and financial markets, influencing all social levels and making them interdependent.

Globalization also meets opposition, where “indigenization” serves as an important argument. Economic globalization and financial

movement sharpen international and domestic inequality; thus, the anti-globalization movement goes against trends such as neo-liberalism. Chen and Chen (2004) regard globalization as focusing on integrity, where pluralistic subjects coexist with one another. Globalization is characterized by progressive and irresistible traits that can coexist with indigenization. Therefore, local traditions are not affected by globalization.

As for the Mainland, continuous reforms and liberalization not only mean an open market and the introduction of foreign capital, but freedom for its’ citizens to travel. In short, it is hard to meet citizens’ demands for global mobility and keep up with international society. Therefore,

globalization forces the Mainland to open its outbound tourist market.

5. RESEARCH SUBJECT

Mixed economy and interdependence theories are employed to analyze why outbound tourism could be used in the economic diplomacy of Beijing. The outbound tourist market of the Mainland is subject to both free market mechanisms and the government, which agrees with the mixed economy theory that the free market exerts its functions partly while the government brings important affairs through planning. According to the interdependence theory, globalization leads to complicated international relations characterized by mutual restraints and benefits, while power finds space under the interdependency framework of the international system.

5.1. The Meaning of a Mixed Economy for the Outbound Tourist Market of the Mainland

Beijing could bring sightseer export under economic diplomacy, because the government could bring the outbound tourist market under its control. Complete competition is an ideal state in economics, which could produce Pareto optimal results. However, that assumption was challenged during the Great Depression in the 1930s when market failure arguments emerged.3 Accordingly, Keynesianism, in which government intervention stimulates consumption or investment in a socialist-planned economy, received recognition. When complete competition is absent, it is difficult to optimize market regulation. In that case, policy could cover the

shortage. In other words, if a market is equipped with sound functions, economic policies will become superfluous. According to Sterner (1996), Keynesianism was considered a magic weapon against market failure in the 1950s and the 1960s; market failure was then regarded an important subject of economics in the 1970s. Since the 1990s, both market and government were deemed important when planned economies collapsed in Eastern Europe and the former Soviet Union. At the same time, ”four little dragons” rose in Asia, and China achieved success in economic

development. Boadway and Wildasin (1984) see both market and

government as mechanisms of resource allocation, and excessive reliance on any side will cause the risk of market failure.

Those words are also the essence of a mixed economy. As observed by Diane, Murray and Linden (2004), the government plays a major role in determining rules, policies, and principles; it also intervenes in services like health care and transportation under a mixed economy. The Mainland adopts a mixed economy in its outbound tourist market, directly

intervening in the countries of destination and the degree of opening. It helps solve various problems occurring in the outbound tourist market

3

The shortage of the market or the inability to operate the market is named as Market Failure. In the operation of resources, the market has only processed a part of the exchange while the unprocessed part can be regarded as the untouched part of the market system, such as externality, public goods, and asymmetric information.

through administration and by bringing economic diplomacy under control in foreign relations.

5.2. The Role of Interdependence in Economic Diplomacy

Interdependence means an interaction between states or international systems that seek power from economics, trade, and cooperation rather than conventional military strength. In the views of Keohane and Nye (1989), interdependence means mutual dependence, which could bring constraints and costs to each other; or, it, is merely interconnectedness. In other words, the establishment of interdependence places both parties under constraints. However, the constraints of interdependence often affect the states’ independence in policy. According to Keohane and Nye, there is very limited symmetric interdependence or asymmetric

interdependence between states, and most modes are a combination of the two, which therefore produces different powers. Asymmetric

interdependence is common, but it does not mean that a greater power can dominate others. Small states may seek favorable positions and

negotiation chips through bargaining means such as linkage strategies and agenda setting. Moreover, the states with higher dependence may possess greater resolutions and aspirations to fight against difficulties.

Interdependence will evolve into complex modes characterized by three traits. (1) Multiple channels: besides the official channel, others are built to expand the interface and add complications to interdependence. When one party intends to make any decision, it will either be restrained or be strengthened. (2) Absence of hierarchy among issues: priority levels are determined by the importance of the issues themselves. Agenda-set rights are exerted to acquire opportunities for preferential bargaining and obtain other items of national interest. (3) Minor role of military force: due to higher prices and greater uncertainty of resorting to force, it becomes less and less possible to intervene in international affairs with military force, especially for developed countries. However, it does not mean abandonment of force, but rather the offer of a solution in the case of major events.

In complex interdependence, power resources are converted into result-controlling power through negotiation. It helps a state restrain the policies of others and seek benefits for its own national interest. As elaborated by Waitz and Kenneth, interdependence emerges when order is maintained, so it is a result instead of the cause. With the advent of

peaceful advance and the strategy of economic diplomacy, the Mainland develops interdependence with other states to exert its influence in regional or international organizations and maintain authority among the Third World countries. China had nothing in 1949 and had many that might be lost in 1999. Gallagher (1994) claims that China will consider its trade and economic interest before exercising force. Rex (1999) olds the same view, which is, when Chinese leaders possess great expectation toward economic and trading interest, it will choose to solve international disputes through means other than force. Interconnected interests and interdependence characterize today’s world.

5.3. Combination of Opening Outbound Tourism with Economic Diplomacy

After accession to the WTO in December 2001, China opened its outbound tourism under the principles of “national treatment,

most-favored nation treatment, and legal transparence.” However, the countries of destination are still subject to the approval of the state council, that is, they will become the Approved Destination Status countries of Chinese citizens only when approval is acquired. The Approved

Destination Status countries can only issue visas and open inbound travel to Chinese citizens. It does not mean that Beijing will permit its citizens to visit such countries. To become outbound sightseeing destinations of Chinese tourists at their own expense, the countries or regions have to receive additional evaluation. Thus, Beijing takes outbound tourism as one of its diplomacy chips.

For example, the Mainland purchased aircraft carriers from Ukraine, but Turkey forbade them from passing across the Black Sea. One year later, they reached an agreement on the condition that the Mainland,

which meant two million tourists each year, lists Turkey in the Approved Destination Status countries. In 2004, the Canadian government met the Dalai Lama despite Beijing’s warning, causing the failure of the

Sino-Canada Travel Agreement that had been under negotiation for four years. As a result, Canada suffered from the loss of USD $2 billion from Mainland tourists each year. In 2007, there were already one hundred thirty-two the Approved Destination Status countries of the Mainland, including eighty-six outbound sightseeing destinations for Chinese tourists at their own expense. There were 34.52 million outbound persons in 2006, a figure expected to reach forty five million by 2008.

According to the statistics of the World Tourism Organization, the

Mainland produces an outbound travel consumption of USD $13.1 billion in 2002, ranking seventh in the world. The Mainland is expected to

become the fourth major outbound tourist source country by 2020, when it will export one hundred million sightseers each year, accounting for 6.2% of the world total and following Germany, North America, and Japan.

To combine outbound tourism with economic diplomacy, two conditions have to be satisfied, massive export of sightseers and effective control. In the former, the Mainland has become an emerging tourist export country, with high growth rates. In the latter, the Mainland belongs to authoritarianism. It means the government may intervene in the

countries of destination and export of tourists through mixed economy. Different from democratic countries, it receives relatively less pressure from public opinion, out-party, and social organizations in determining policies. The Mainland lays out its image to international censure. Praising national strength, Beijing has been striving to build up its arms. Out of anxiety, some states raise the China Threat Theory and adopt containment policies against it, resulting in Chinese leaders forced to emphasize their national policies of peace and development repeatedly when visiting other countries. It seems that outbound tourism has become the soft national power of the Mainland. The export of sightseers is used to strengthen its economic interdependence with other countries and to improve its role regionally or internationally. By reinforcing bilateral relations under the

interdependence frame, the Mainland is able to bring foreign diplomacy under its control.

5.4. Purposes of Beijing and Taipei

The Approved Destination Status system is a transitional policy created by the Mainland to realize control over outbound tourism. When more countries and regions become the Approved Destination Status destinations of the Mainland, this system will lose its meaning. Although Beijing does not list Taiwan, as one of it’s the Approved Destination Status destination, Mainlanders may apply to visit it with a “group tour.” When outbound tourism is opened to the Mainlanders and direct

transportation is adopted, Taiwan will begin to rely increasingly on the Mainland for economics and trade. Beijing also understands about the direct assistance to Taiwan’s economy. China’s ex-president Jiang Zeming mentioned the guidelines for Taiwan affairs in the National People’s Congress of 2002, including insisting on the “One China” principle, promoting cross-straits of economic and cultural exchanges, ”pinning hope on the Taiwanese people,” and many others. Since that Congress, Beijing has differentiated “the authorities of Taiwan” from “the people of Taiwan” for separate treatment and has followed the principal axis of winning the aspirations and favors of the common people. Therefore, Beijing upholds the principles of economic diplomacy and a united front “from the bottom up.”

As for Taiwan, the new government expects to stipulate local economics and promote cross-straits exchange by relaxing its terms for Mainlander tourists. First, the consumption of Mainland tourists will help Taiwan citizens make profits in foreign currency. Second, according to the Multiplier Effect Theory4, the expenditure of tourists will produce an economic cycle effect in a country or region, which will drive the growth

4

The tourist multiplication effect refers to the money spent by tourists at a specific tourist region. To the local areas, this is like an investment that will bring prosperity to this region and will increase its consumption ability, which in turn will create the tourism multiplication effect.

of peripheral industries and create employment opportunities. Third, communication will contribute to mutual understanding and tolerance across the Taiwan Straits, which will reduce the possibilities for conflict and misunderstanding. Fourth, Taiwanese diplomacy is the pride of global Chinese society. Mainland tourists will experience a lifestyle of

democracy, freedom, and constitutionality, which will drive their progress in democracy.

From Beijing’s perspective, opening the tourist market and accelerating national unification supplements each other. From the

viewpoint of Taipei, priority is given to survival and development through economic and trading exchanges. Considering the peaceful progress of the Mainland and Taiwan’s principle of “no unification, no independence, and no use of force,” cross-straits relations will embrace a friendly future.

5.5. The Relationship between Allowing Tourists from Mainland China to visit Taiwan and the Development of the Medical Industry and Tourism Industry in Taiwan

As stated by Hanquin and Lam (1999), the motive of tourism originates from the curiosity of tourists in exploring unknown areas, and the attraction of tourist destinations stems from the interest of tourists in the humanity, history, and scenery of tourist sites which arouses their desire to visit. Because of the historical reasons related to the Strait, the Chinese people have strong national feelings for Taiwan. After the Chinese Civil War, the Communist Party and the Kuomintang ruled Mainland China and Taiwan separately. This has further increased the attraction and mystery of Taiwan for Chinese people. Since the release of the policy allowing tourists from Mainland China to visit Taiwan and the direct sailing conditions across the Strait, it is estimated that Taiwan will become an important choice for tourists from Mainland China. The overseas excursion has two types: the group package tour and the foreign independent tour. The difference of the two types is that group package tour can make the group package tour standard by means of quality control and a repeat system.

However, the complete process of foreign independent tour will have to be decided by consumer preferences and its independence. Currently, tourists visiting Taiwan have only adopted the group package tour mode because the foreign independent tour mode is still not open. World Tourism Organization (2003) points out that there are four types of social classes in China that can afford overseas excursions, including (1) private company owners and senior and middle management staff, (2) white-collar employees of foreign companies, (3) teachers, lawyers, and senior professionals in other industries, and (4) personnel engaged in media, sports, and entertainment. These people have a higher social and economic status in China. From the statement of Lusk, Kerr and Ronis (1995), white-collar employees pay more attention to their health status than blue-collar employees. Furthermore, Hahn (1994) said that income and the utilization of medical and health resources are directly

proportional.

It is estimated that tourists visiting Taiwan will potentially promote the development of the tourism and medical industries in Taiwan.

However, this is currently limited by the group package tour mode, which only allows tourists from Mainland China to stay 7 to 10 days. Moreover, its assistance in the development of tourism and medical industries in Taiwan is quite limited, as the larger economic benefit depends on the opening of the foreign independent tour tourism mode.

6. CONCLUSIONS

This section is focused on the industrial expectation and political attitude of Taiwan.

6.1. Industrial Expectation

Considering factors such as national security and unlawful stay, Taipei has allocated a limited opening quota and has set miscellaneous procedures against the Mainlanders before 2008. According to the

statistics of the Strait Exchange Foundation, Mainlander visitors permitted inbound were less than two hundred thousand persons each year from

1996~2007, while tourists inbound reached 3.5 million persons from 2004~2007 in accordance with the statistics of Taiwan Tourism Bureau. The new government further opens the door to Mainland tourists and direct transportation. Mainland tourists are expected to exceed 1.42 million each year. According to Chang (2003), cross-straits

communication is a policy based on the trends of globalization and adopted as required by economic interdependence.

According to Lin, Chen, & Yang (2008), the service trade volume of international medical tourism is subject to three factors, fluctuation of the general economic environment, medical technique and quality, and geographic position and traffic. First, the Mainland has kept a gross domestic product growth rate of 8~10%, and is experiencing appreciation of the renmin. All those factors confirm the Mainlanders’ aspirations and capabilities to visit Taiwan. Second, Taiwan ranks second, merely

following Sweden, in the world health list made by the Economic Intelligence Unit in 2000. In that same year, the Mainland ranked 144th among 191 state members in the health comparison made by the World Health Organization. Compared with the Mainland, Taiwan possesses advantages in health care. Third, cross-straits direct transportation increases convenience and lowers the cost of mobility.

The researcher believes that Mainland tourists will help drive

Taiwan’s service-trade volume of medical tourism and economic benefits. At present, Taipei gives high priority to the development of international medical tourism and has even established the “Taiwan Task Force on Medical Travel” to integrate resources and promote the trade. With the development of medical tourism, changes will occur in the structure of patients, so Taiwan has to be prepared for the integration of medical systems, prevention of epidemic diseases, and maintenance of the patients’ interest. Medical tourism should be promoted under the principle that domestic and international patients could receive the same medical services.

6.2. Proper Attitude

We may suppose that Beijing “possesses a political end of driving unification through economic contacts” because it presently insists on a “One China” policy. In the future, Taipei has to find a balance between economic interest and political compromise. According to Harrison (1988), when two parities find different meanings in different issues, political compromise and economic interest will be reached through negotiation. While Beijing appeals to “fulfilling the historical mission with return of Taiwan,” Taipei should respond with the tenet ”economics first, Taiwan first, and Taiwan’s economy first.” The purpose is to obtain increased economic benefits and preferences from the Mainland. In addition, Taipei should avoid the thinking, that greater reliance on economic interest means exposing its economic lifeline to the Mainland, which will contribute to its political objective of “unification.” It is not advisable to resist cross-straits contacts. Taipei should take a more flexible political stance to get more material benefits in return. The country should aim to reinforce its economic strength, open doors to the internal market, and enhance the Mainland’s cost of interaction with Taiwan, rather than keep a watchful eye on political submission due to its economic reliance on the Mainland.

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