9 Feb 2018
Innovation in Taiwan's Tourism Sector Rises as Mainland Visitors Fall
With relations between Beijing and Taipei taking something of a turn for the worse following the 2016 elections, Taiwan's tourism sector has had to rapidly reinvent itself after the number of mainland visitors was curtailed.
Relations between the mainland and Taiwan have been a little frosty since the January 2016 elections that signalled the end of the detente between Beijing and Taipei. With a new administration installed, Taiwan was noticeably less inclined to appease the mainland and more outspoken about sovereignty, a thorny issue that has soured relations between the two for more than 60 years.
With the woolly consensus that has fudged the issue since 1992, when a vague accommodation between the two was reached, suddenly swept aside, a quarter century of gradually thawing ties was rolled back, with any hint of cordiality vanishing. One of the most immediately apparent signs of the deteriorating ties was a drop in the number of mainland tourists visiting Taiwan, with many tour operators apparently semi-officially encouraged to restrict the number of tours they ran.
With mainland visitors accounting for nearly 50% of all tourists holidaying in Taiwan, this drop in numbers hit the local service sector hard, with competition to secure the dwindling number of tourist dollars intensifying. As a consequence of this fall in arrivals – with some figures indicating that the volume of mainland tourists dropped by as much as 30% in the first instance – many hoteliers, restaurateurs and transport companies had to rethink their business strategies and switch their focus to tourists of different nationalities.
According to Taiwan's Immigration Agency and Tourism Bureau, 10,439,800 inbound tourists visited Taiwan in 2015, an increase of 5.34%, taking the total past the 10 million mark for the first time. Of this total, some 4,184,100 were from the mainland, a 4.94% rise over the 3,987,200 recorded for 2014. In 2016, however, as cross-Strait relations became somewhat fraught, the number of mainland visitors dropped to 3,511,500, down 16.07% year-on-year. Despite this, the overall number of visitors to Taiwan was said to have risen by 2.4%, taking the annual total to 10,690,300.
For 2017, the Taiwan Tourism Bureau claimed total visitor numbers of 10,739,000, although the number of mainland visitors again dropped, falling to 2,730,000. Significantly, while the mainland accounted for 40% of all tourists visiting Taiwan in 2015, by 2017 this figure had fallen to just 25%.
In spite of the continued rise in the number of inbound tourists visiting Taiwan in the past two years, the local services sector has still struggled, largely because mainland visitors typically spend more than their counterparts from other countries. This has meant that although tourists from elsewhere in Asia have swelled the overall visitor level, takings for the tourism sector as a whole are still down.
According to the Taiwan Tourism Bureau, the average mainland visitor spent US$232.15 a day in 2015, making them Taiwan's biggest-spending tourists. In second place came Japanese tourists, who typically spent $221.45. In terms of shopping alone, mainland tourists spent $122.78 a day on average, far higher than the US$40.06 spent by the Japanese.
This drop in spending has had severe repercussions for a number of Taiwanese businesses, most notably those in the hotel, souvenir, restaurant and transportation sectors. In the case of hotels, many operators had invested in new sites, looking to cash in on the pre-2016 boom in mainland visitor numbers, leaving the sector currently seriously over-supplied. As a consequence, some operators have been obliged to shutter or sell their hospitality businesses.
Interviewed in September last year, Lin Zhong-tai, President of the New Taipei City Hotel Association, outlined the scale of the problem, saying: "In a number of the most popular tourism districts, including Hualien-Taitung, Sun Moon Lake and Alishan, the hotel trade has dropped some 70%-90%. As a result, many hoteliers are now having to slash room rates in order to attract guests.
"Overall, 18 hotels in the New Taipei City district are now up for sale. On just one day recently, three different business hotels announced they were up for sale, a development that shocked many throughout the industry. This does, however, underline the transformation the sector is now undergoing."
As well as room bookings, the visitor numbers at many of Taiwan's most popular tourist attractions are also down. According to Wang Hong-wei, a Taipei City Councillor, the collective number of tourists visiting the Taipei Palace Museum, 101 Observatory, Chiang Kai-shek Memorial Hall and Sun Yat-sen Memorial Hall dropped by 2.7 million in the first six months of 2017. For the same period, the hotel occupancy rate fell by 4.3%, and over the course of the first 10 months of 2017, 12 hotels in Taipei closed down.
A similar story has emerged with regard to the territory's restaurants and souvenir shops. In the case of two of Taipei's tourist-oriented retailers – Vigor Kobo, a well-known local patisserie, and Beauty Forever, a chain of department stores offering tax-free tourist shopping – both have seen a dramatic drop in footfall and turnover.
Taiwan's many tourism factory shops have also suffered. According to the operator of one such establishment, pre-2016 some 90 coachloads of mainlanders would visit his retail facilities every day, whereas today he is lucky to receiver two or three at most.
According to media reports, the total number of visitors to the 27 tourism factory shops in the Taipei New City fell to 850,000 as of the end of 2016, a year-on-year drop of 150,000. Overall, between May 2016 and July 2017, four tourism factory shops in the area shut for good.
The situation in the tour-bus sector is no better. With most mainlanders visiting Taiwan as part of a guided tour, the pre-2016 demand for coaches often exceeded supply, a situation that led to many operators investing heavily in new fleets. As the same time, new entrants moved into the sector, taking the total number of operators to more than 900. Between them, they operated some 17,000 tour buses, of which, 3,500-4,000 were reserved solely for mainland tour groups.
As mainland visitor numbers declined, fewer than 1,000 coaches were required to service their needs, a drop that had severe consequences for the cash flow of many operators in the sector. In December last year, one tour-bus company in Kaohsiung recorded a loss of NT$60 million (US$2 million), obliging it to sell all but 40 of its 126-strong fleet.
With no sign of any improvement in cross-Strait relations, many companies in tourism-related sectors drastically adjusted their business strategies. In the case of hoteliers, many of them switched their focus to non-mainland tourists and to local consumers. In the latter instance, one business hotel in the scenic Beitou district now offers discounts for local residents who book accommodation for their relatives or friends or choose to host celebratory banquets in the hotel.
A quite different tack has been adopted by the Toong Mao Evergreen Hotel in Kaohsiung, a port city in southern Taiwan. While the hotel used to primarily service mainland tour groups, it has now repurposed 170 of its guest rooms to better suit the needs of individual travellers from a wider variety of countries.
A similar innovative approach has been on show in the souvenir sector. Most notably, Sun Kuo-hua, Chairman of Vigor Kobo, clearly despairing of attracting a sufficient number of tourists, has opted to set up new retail premises on the mainland.
Less drastically, Shou Xin Fang, a well-known tourism factory shop in the Tucheng district of New Taipei City, has switched its focus to local parents and their children. It has also begun to actively woo Korean tourists and other Southeast Asian visitors. As a consequence, only about 5% of its revenue is now derived from mainland visitors and it has managed to ride out the consequences of falling visitor numbers.
This approach has been mirrored in the tour-bus sector, with many operators now offering tours geared to the local market, while also seeking to build up their non-mainland client base. Meanwhile, for those struggling to repay the large loans taken out while the sector was booming, Taiwan's Financial Supervisory Commission has stepped in and extended repayment periods by up to one year.
Having learnt to survive without a massive influx of mainlanders, however, many businesses are now seeing signs that visitor numbers may again be on the up. Already, demand for buses by mainland tour operators is said to have increased, with one company apparently offered a day rate of NT$30,000 for one coach, a figure comparable to that commanded during the pre-2016 boom.
The optimism of such operators is also backed up by the official statistics. According to the Taiwan Tourism Bureau, mainland visitor numbers for both October and November last year were in excess of 40,000. More compelling still, over the 1 October National Day long holiday, a 40% year-on-year rise in the number of mainland visitors was recorded.
Although clearly heartened by such statistics, many businesses in Taiwan's tourism sector remain wary. Having weathered the storm triggered by the downturn in mainland visitor numbers, few are willing to become solely reliant on one source of outbound tourism again anytime soon. Indeed, the focus is now on retaining as many non-mainland visitors as possible, while maintaining a cautious welcome for Beijing's apparent change of heart.
Robert Kang, Special Correspondent, Taipei