US embassy cable - 05TAIPEI2565

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 002565 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 06/10/2015 
TAGS: ECON, CH, TW, Cross Strait Economics 
SUBJECT: CROSS-STRAIT TOURISM - INDUSTRY HAS HIGH 
EXPECTATIONS, TAIWAN GOVERNMENT STANDING IN THE WAY 
 
REF: TAIPEI 2479 
 
Classified By: AIT Director Douglas H. Paal, Reason 1.4 b 
 
Summary 
------- 
 
1. (C) The PRC has announced plans to allow the general 
public to visit Taiwan as tourists.  The reaction in 
Taiwan's tourism industry has been enthusiastic, with 
Taiwan's tourism stock index increasing 37 percent since 
late April.  A mixed Taiwan government reaction has delayed 
rapid implementation.  Although Premier Frank Hsieh 
indicated that Taiwan would welcome such tourists, the 
Mainland Affairs Council has insisted that some form of 
government-to-government negotiation precede 
implementation.  Estimates of the potential increased 
revenue for Taiwan's economy range as high as NT$ 24 
billion (USD 770 million).  Some of these estimates may be 
excessively optimistic, but the potential for substantial 
economic gains is real if the Chen Administration decides 
to stop standing in the way of implementation.  If the 
Taiwan government is suitably flexible about the model for 
negotiations, there may be hope for progress.  End summary. 
 
PRC Offers to Open the Gate for Mainland Tourists 
--------------------------------------------- ---- 
 
2. (U) On May 20, the PRC's National Tourism Administration 
(CNTA) announced plans to allow the general public to visit 
Taiwan as tourists.  The more formal announcement followed 
the PRC's offer to expand tourism during Kuomintang (KMT) 
Chairman Lien Chan's visit to China April 26 - May 3.  The 
CNTA announcement indicated that private sector 
organizations from each side of the Taiwan Strait could 
negotiate details of the new policy as was the case for 
Lunar New Year charter flights earlier this year, using 
what is now frequently referred to as the "Macao model." 
 
Taipei Wants Government-to-Government Negotiations 
--------------------------------------------- ----- 
 
3. (U) The mixed Taiwan government reaction thus far to the 
PRC's proposal has had the effect of delaying rapid 
implementation.  On May 23, Taiwan Premier Frank Hsieh 
publicly welcomed the initiative.  He argued that currently 
the PRC is responsible for restrictions on travel to Taiwan 
by Mainland tourists.  He indicated that Taiwan would be 
willing to accept up to 1,000 Mainland tourists per day for 
stays as long as 10 days. 
 
4. (C) Officials from Taiwan's Mainland Affairs Council 
(MAC) have insisted that the PRC's proposal requires 
government-to-government negotiations.  According to press 
reports, MAC Chairman Joseph Wu, testifying before the 
Legislative Yuan on May 23, said that the talks modeled on 
the Lunar New Year charter flight negotiations would be 
acceptable to Taiwan.  However, he also emphasized that the 
issue must be discussed by the two governments, and Civil 
Aeronautics Administration Director-General Billy Chang 
would lead the Taiwan delegation.  (Note: The Taiwan 
delegation in the Lunar New Year charter flight 
negotiations in Macao was led by Taipei Airline Association 
Chairman Michael Lo.  Chang and another CAA official were 
the two Taiwan government officials in the delegation.  End 
note.)  MAC Economics Department Director Fu Don-cheng 
later told AIT/T that he expected Taiwan would insist that 
MAC officials also participate in the negotiations.  MAC 
officials have indicated that some form of government-to- 
government negotiations are necessary to discuss issues 
related to illegal overstays, medical emergencies, travel 
documentation, and mechanisms for disputes between 
travelers and service providers.  (Note: Currently, very 
few PRC visitors overstay - less than two out of every 1000 
according to Taiwan's Tourism Bureau.  MAC officials have 
provided AIT/T data indicating that PRC overstay rates are 
lower in Taiwan than in South Korea or Japan.  In addition, 
there already exist mechanisms for returning them from 
Taiwan.  End note.) 
 
5. (C) Nevertheless, the Taiwan government's Tourism Bureau 
is enthusiastic about the potential benefits for Taiwan. 
Tourism Bureau Director General Hsu Wen-sheng told AIT/T 
that the initiative would benefit not only Taiwan's tourism 
industry but also retail sales and other service providers. 
He argued that beneficial effects will be seen throughout 
the island and believes many of the estimates put forward 
by the tourism industry of the potential number of tourists 
and the money they will bring to the Taiwan economy.  MAC's 
Fu, on the other hand, was more skeptical.  He reported 
that since the PRC liberalized tourist travel to Taiwan- 
controlled Kinmen Island in December 2004, only 360 
Mainland visitors had made the trip. 
 
Industry Chomping at the Bit 
---------------------------- 
 
6. (U) The reaction to the PRC's proposals in Taiwan's 
tourism industry has been enthusiastic bordering on giddy. 
Taiwan's stock market has responded very favorably.  From 
its April 25 close on the eve of Lien Chan's visit to June 
8, the Taiwan Stock Exchange Tourism Index rose 37 percent, 
compared to 7 percent for the TAIEX overall index.  Several 
Taiwan hotel firms have announced increased investment and 
plans to expand capacity.  According to media reports, the 
Ambassador Hotel, Grand Formosa Regent, and Ritz Taipei 
Hotel and others have announced expansions that will add 
2,000 rooms at a combined cost of NT$ 20 million (USD 630 
million).  In addition, two of Taiwan's popular theme 
parks, Leofoo Wonder World and Janfusun Wonder World are 
planning expansions. 
 
7. (SBU) Industry organizations are also anxious to see the 
proposal implemented.  The Travel Agent Association of 
Taiwan (TAAT) and the Taiwan Visitors Association (TVA) 
have both been named as possible representatives for Taiwan 
in cross-Strait negotiations.  Taiwan media reported that 
industry sources had said TVA Chairman S.L. Chang would 
head a Taiwan delegation for negotiations.  Chang was 
formerly Director General of Taiwan's Tourism Bureau.  He 
recently returned from a trip to Beijing where he 
reportedly met with officials from the PRC's National 
Tourism Association.  TAAT Assistant Chairman Yao Ta-kuang 
told AIT/T that his organization, which represents 2,500 
travel agents in Taiwan, is best suited to represent 
Taiwan.  According to Yao, TAAT assisted MAC and Taiwan's 
Bureau of Immigration in communicating with Beijing on 
Taiwan's liberalization of exchange visitors and Mainland 
tourists who reside outside the PRC. 
 
Potential Impact - Estimates Vary but Bullish Overall 
--------------------------------------------- -------- 
 
8. (SBU) Estimates vary on the potential economic impact 
from the potential increase in Mainland tourists, but 
industry observers are optimistic overall that the impact 
will be substantial.  With fewer than 3 million tourists in 
2004, an additional 1,000 tourists per day would increase 
visits by more than 10 percent.  TVA estimates that the new 
visitors will add NT$ 15 billion (almost USD 500 million) 
to the economy.  TAAT is more optimistic with a NT$ 24 
billion (USD 770 million) estimated increase in revenue for 
Taiwan.  TAAT's estimate is based on 1,000 additional PRC 
visitors per day, staying close to 10 days and spending up 
to NT$ 50,000 (about USD 1,600) on travel and accommodation 
expenses and another NT$ 30,000 (more than USD 950) 
shopping while in Taiwan.  According to TAAT's Yao, Hong 
Kong's experience suggests that Mainland visitors to Taiwan 
will spend more than other tourists on average.  He also 
pointed out that its research suggests demand in the 
Mainland will be high.  He said a survey of seven Mainland 
coastal provinces in 2004 revealed that 28.9 million people 
would like to travel abroad with Taiwan as their top 
destination. 
 
9. (SBU) Many analysts point to the experience of Hong 
Kong.  According to a report by CLSA, a brokerage and 
investment banking services firm, tourism revenues in Hong 
Kong rose by USD 4.5 billion between 1999 and 2004 - a 62 
percent increase - largely thanks to increased tourism from 
the Mainland.  As a result, tourism's share of GDP rose 
from 4.6 percent to 7.2 percent.  However, CLSA analysts 
also point out that Taiwan is not currently a top tourist 
destination in Asia.  Although the number of Mainland 
tourists may be high initially, Taiwan may have trouble 
winning back repeat visitors. 
 
Comment - Chen Administration Standing in the Way 
--------------------------------------------- ---- 
 
10. (C) Industry observers agree that the PRC's proposed 
liberalization of tourism to Taiwan could have a 
substantial positive impact on the island's economy.  Some 
of the estimates may be high, but the potential is real. 
The Chen Administration has so far appeared determined to 
stand in the way of this initiative as with others that 
emerged from the Lien Chan visit.  The Taiwan government 
may find it easier to justify obstruction of the tourism 
proposal than the fruit export and panda offers by pointing 
to security and immigration concerns.  However, Taiwan 
currently accepts tens of thousands of PRC exchange 
visitors and Mainland tourists who do not reside in the PRC 
every year - more than 160,000 in 2004.  It has found 
mechanisms to deal with its concerns regarding this kind of 
travel.  Concerns about increased tourism levels could also 
be resolved quickly, when Taiwan's leadership is ready to 
make the political decision to get out of the way and 
facilitate this initiative.  On June 10, MAC Chairman Wu 
told AIT/T Deputy Director that Premier Hsieh might make a 
statement over the weekend indicating Taiwan's willingness 
to move forward on this initiative as well as cargo 
charters and agricultural trade, having come to the end of 
a cooling-off period after passage of the Anti-Secession 
Law.  If the Taiwan government is suitably flexible with 
the model for negotiation, there may be hope for progress. 
End Comment. 
PAAL