Hong Kong Rides Taiwan's Tourism Wave

With the Chinese New Year holidays in full swing, mainland visitors are flocking to Taiwan, which is fast becoming a favored destination for free-spending Chinese tourists. Since it opened to mainland tour groups in 2008, Taiwan has had a tourism bonanza.

But it could be a lot better, say local travel operators, who complain that Hong Kong investors are monopolizing the sector, using expertise gained separating mainlanders from their money during that territory's decade-long mainland-fueled tourism boom.

"Hong Kong tycoons own eight of the 10 travel agencies with the most Chinese customers in Taiwan," an academic with the Taiwan Hospitality and Tourism College recently told the local press.

"Investors from Hong Kong are using 'flush' tactics and exerting control over tour agencies, hotels, restaurants, stores and tour bus agencies in Taiwan," a Taiwanese travel agent alleged, referring to a widespread practice - also common in Hong Kong and elsewhere ‑ that sees tour groups effectively locked up in stores full of over-priced curios made in China.

Indeed, what Hong Kong travel operators find on the island is a near-virgin market with a staggering potential. In 2006, when the Taiwan Strait was still on the brink of war and Taiwan was virtually off-limits to mainland tourists, 3.5 million tourists visited Taiwan, with many of those arrivals not actual vacationers. In 2008, after Beijing-friendly President Ma Ying-jeou allowed in Chinese tour groups, the figure rose to 4.4 million total tourists; 7.3 million came last year, marking an impressive 100 percent rise in just six years.

In 2012, the number of Chinese mainland visitors to Taiwan hit a record 1.97 million, according to China's cross-Straits tourism authority, up 57.6 percent year on year. More than 1 million visitors came from Hong Kong and Macau and Taiwan is also popular among Southeast Asian travelers.

But mainlanders are the big prize. From 2008 to the end of 2012, mainland tourists alone created a windfall for Taiwan of US$7.4 billion. The fact that Taiwan's unemployment rate has remained relatively stable at just above 4 percent despite years of bleak macroeconomic data is widely attributed to the new and important tourism sector. Reportedly, nearly half the jobs created in 2012 were in the island's hotels, restaurants and shops.

But the local Taiwanese tourism industry is not up to the task. A stream of scandals has accompanied the influx of mainland tourists, with hardly a month passing without news of visiting mainlanders being injured or killed in traffic accidents, falling prey to various rip-offs or getting stuck with tight itineraries weighted toward dubious souvenir shops. One recent headline involved a restaurant in eastern Taiwan selling leftover food to guests from China.

Since those incidents are naturally picked up by the media on the other side of the Strait, Hong Kong-run travel operators benefit by default, with Mainlanders seeming to trust their Hong Kong compatriots more.

"Mainland tourists are accustomed to Hong Kong's middleman or turnkey role and it is quite natural for them to call on Hong Kong people for new services such as various tours," said David Ahlstrom, a professor at the Chinese University of Hong Kong's business school.

"Taiwan is just one more location that Hong Kong turnkey entrepreneurs can service and 'deliver' to mainland consumers and travelers, and they will probably do that quite well."

There are also existing institutional arrangements that help Hong Kong investors getting into Taiwan travel. According to Yong Chen, a postdoctoral fellow with the Hong Kong Polytechnic University's School of Hotel and Tourism Management, mainland-registered travel agencies are prohibited from directly organizing tours to Hong Kong without using a Hong Kong-based travel agency as the inbound tour operator.

"This applies to almost all international tourism business originating from the mainland; I think it applies to Taiwan too," he said, noting that from a legal perspective it is difficult to establish whether the inbound tour operator on the Taiwanese side is run by Hong Kong people, a Hong Kong firm or the Taiwanese themselves.

The competition the Hong Kong connection brings to local businesses is devastating, according to a Taiwanese academic in the tourism field, who spoke on condition of anonymity. He said that of the US$60 that mainland tourists spend on average per day in Taiwan, the Taiwanese lose on average a staggering 50 percent to Hong Kong intermediaries. And the margins are already slim. For example, an individual tour guide makes only about US$50 on one tour, forcing him to rely heavily on commissions from restaurants and souvenir shops that lie in wait for unsuspecting tourists. Needless to say, this in turn lowers the overall quality of the mainlanders' travel experience, as shopping tours often take up half of a tour's itinerary.

"Bus drivers do dangerously long overtime, food worsens and some tour guides go so far as to give the mainlanders an earful over the dinner table about how they cannot feed their family without a tip," the source said.

The "flush" tactics to lure travelers into tourist traps has resulted in the Taiwanese countryside being splattered with halls housing banquet-style restaurants and shops for souvenirs and fruit. Garishly lit up with fluorescent lights and shoddily constructed of corrugated sheets, these operations are surrounded by asphalt parking lots big enough to accommodate two dozen or so tour buses. In addition to earning handsome revenues with high-pressure sales tactics, the stores also have a reputation for dodging taxes by burning receipts instead of filing them with the taxman, according to Taiwanese travel agents, whose complaint may be more a case of sour grapes than true outrage over business ethics.

"Flush tactics were not brought in by Hong Kong businessmen - they are actually everywhere, especially relating to Chinese tourists," said Yong, saying that Japanese and Korean tourists also came across these problems when those countries outbound tourism was starting to surge in the 1980s and 1990s.

"The destinations involved included Australia, where a lot of tourists were forced to buy what they did not really need."

Hu Sheng-Cheng, an economist with Academia Sinica, a prestigious Taiwanese research institute, goes further in coming to the defense of the Hong Kong operators. According to him, because many international tourism-related businesses are headquartered in Hong Kong, entrepreneurs, managers and chefs from there are a boon, not a plague, to the Taiwanese tourism industry.

"Local business people complain that they see the money but don't get their hands on it," Hu said. "But a diverse tourism sector is good for Taiwan nonetheless, as diversity is needed for improvement."