CROSS-STRAIT LIBERALIZATION WILL BOOST TAIWAN

C O N F I D E N T I A L AIT TAIPEI 000873 STATE FOR EAP/TC STATE PASS USTR FOR STRATFORD AND KATZ, TREASURY FOR OASIA/MPISA, NSC FOR TONG, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN E.O. 12958: DECL: 06/18/2018 TAGS: ECON EFIN ETRD PREL TW SUBJECT: CROSS-STRAIT LIBERALIZATION WILL BOOST TAIWAN TOURISM - BUT WHAT ABOUT THE REST OF THE ECONOMY? REF: A. TAIPEI 834 AND PREVIOUS B. TAIPEI 731 Classified By: Deputy Director Robert S. Wang for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY. In the wake of the July 11-14 SEF-ARATS agreements (ref a) to implement cross-Strait weekend charter flights and ease restrictions on PRC tourist travel to Taiwan, the Taiwan travel and tourism sector is anticipating a shot in the arm from an expected surge in Chinese visitors. Tourism is a relatively small part of the Taiwan economy, however, and the liberalization measures' greatest impact may be through improved consumer confidence and increased spending. END SUMMARY. -------------- Reforms will boost Taiwan's tourism sector... -------------- ¶2. (SBU) According to statistics from the World Travel and Tourism Committee, the travel and tourism sector accounted for 4.5% of Taiwan's GDP in 2007, versus 18.3% in Hong Kong, 10.7% in Singapore, 10.1% in Japan, and 6.7% in South Korea. Of Taiwan's 3.72 million foreign visitor arrivals in 2007, only 81,835 were PRC citizens resident in China or a third country. Taiwan now has no quota on PRC visitor arrivals. Arrivals are limited in practice, however, by lack of official PRC support for Chinese passport holders traveling to Taiwan, as well as Taiwan policies requiring PRC visitors to travel via a third destination, typically Hong Kong or Thailand, before arriving in Taiwan. During the presidential campaign, Ma Ying-jeou at first said he would allow up to 1,000 PRC tourists a day to travel to Taiwan directly from the Mainland. His proposal was later raised to 3,000 tourists per day, for an annual total of 1.095 million PRC tourists, and this figure was agreed upon during the June 11-14 SEF-ARATS talks in Beijing (ref a). The 1.095 million total includes PRC passport holders traveling to Taiwan directly from the Mainland, or indirectly via third countries. Although there is no guarantee that PRC and Taiwan support for cross-Strait travel and the advent of direct cross-Strait charter flights will automatically result in a dramatic increase in PRC visitor arrivals, our contacts in the Taiwan tourism sector are expecting a significant increase in Mainland tourism. 
¶3. (SBU) Taipei Tourism Hotel Associate Secretary General Ho Zhong-jin told us that the advent of cross-Strait charter flights and increased numbers of Mainland tourists will boost the Taiwan hospitality sector. Taiwan, he explained, now has roughly 20,000 hotel rooms available in the tourist sector. Ho predicted that the increase in PRC tourists may not necessarily have a dramatic impact on hotel occupancy rates, but may boost average room rates. According to Ho, the expected influx of PRC tourists will help ease an oversupply problem in the tour bus sector. In Ho's analysis, Taiwan's retail sector, particularly book stores, night markets, and department stores, stand to gain the most from increased PRC tourism, along with taxi companies, the high speed rail system, and telecom services. Ho added his concern, however, that a surge in Mainland visitors may make Taiwan relatively less attractive to tourists from Japan, which is now among Taiwan's biggest markets for visitors. ¶4. (SBU) Separately, a Taipei hotel executive noted that Taiwan's Howard and Leo Foo hotel chains, as well as at least one foreign chain, are planning to develop "no frills" tourist hotels catering to Mainland tourists in major tourist destinations such as Sun Moon Lake, Taroko Gorge, and Alishan. However, an executive at a Taiwan tourism business in Hualien, near Taroko Gorge, said her company is cautious about the potential positive impact of more Mainland tourists, since in her experience PRC visitors have become increasingly more selective in recent years and spend less money in Taiwan, preferring instead to shop in Hong Kong and other relatively cheaper regional destinations. According to data from the Taiwan Travel Agent Association (TTAA), Mainland visitors now spend an average of NT $10,000 (about U.S. $330) on discretionary shopping during a typical 7-10 day visit to Taiwan. Although it is not clear on what basis they are making such a projection, TTAA believes that direct flights will raise this average spending figure by attracting more affluent PRC tourists. -------------- ...but what about the rest of the economy? -------------- ¶5. (SBU) Many of our contacts in the business and academic communities expect the first cross-Strait economic liberalization measures to bolster consumer confidence and spending. Typical is Nelson Chang, Vice Chairman of the Chia Hsin Cement Corporation, who told us that the charter flights and tourism reforms will benefit the Taiwan economy as a whole by boosting consumer confidence and stimulating spending. This positive effect, he predicted, would outweigh the negative impact of rising gasoline and electricity prices (ref b). His analysis is similar to that of former Mainland Affairs Council (MAC) Vice Chairman Tung Chen-yuan, now an academic, who believes that an increase in PRC tourists will help stoke Taiwan's domestic demand, and will be of particular benefit to middle- and low-income Taiwan workers in tourism-related sectors. ¶6. (C) Enhancing cross-Strait economic ties may also allow Taiwan to regain some of the regional business activity it has lost in the past. For example, a Taiwan-based UPS executive explained that, years ago, cross-Strait flight restrictions prompted his firm to move its regional hub from Kaohsiung to Subic Bay in the Philippines. A shortage of qualified staff and other problems at Subic, however, is driving UPS to develop its operations in Shenzhen on the Mainland. The UPS executive added, however, that implementation of regular cross-Strait cargo flights open to foreign carriers could result in UPS moving its regional hub back to Taiwan. ¶7. (SBU) The charter flight and tourism reforms are only a first step, however, and are not necessarily the TOP priority for many Taiwan businesses. Taiwan Cement CEO Leslie Koo, for example, said that although he spends about ten days per month in the PRC overseeing his company's extensive operations there, easing the 40-percent-of-net-worth cap on Taiwan firms' investment in China remains his TOP priority for cross-Strait reform. The investment limit, along with other financial liberalizations and cargo transports, is likely to be part of the next stage of cross-Strait economic liberalization once the charter flights and tourism reforms are implemented in July. ¶8. (C) COMMENT. While certainly of great interest to the travel and tourism sector, the cross-Strait charter flight and tourism reforms' ultimate value may be primarily symbolic: as a means of increasing domestic confidence in the Taiwan economy, and as a foundation for more comprehensive cross-Strait economic liberalization in the future. END COMMENT. YOUNG