Paper on Parade: Yes, Chinese tourism is screwing over Taiwan

A major river in Miaoli, bone dry after three years of drought.

In case you were wondering about the effect of Chinese tourism on Taiwan, wonder no more. This edition of our regularly irregular feature, Paper on Parade, takes a look at The Economic, Carbon Emission, and Water Impacts of Chinese Visitors to Taiwan: Eco-efficiency and Impact Evaluation (Ya-Yen Sun  and Stephen Pratt, Journal of Travel Research 2014 53: 733). There are some findings that were pleasantly counterintuitive, but on the whole this paper justifies everything that I've been saying about the pernicious effects of Chinese tourism on Taiwan.

After some opening remarks on the growth of tourism in the region, the authors report:

The development of this Chinese market in Taiwan is highly significant; it accounts for the largest inbound visitor numbers in 2012, with rapid growth of an 86% annual rate from 2008 to 2012 for leisure visitors, and contributes high spending per person per trip (Taiwan Tourism Bureau 2012a). While expanding the Chinese inbound market is the long-term goal for Taiwan tourism, environmental resource requirements need to be considered alongside the economic impacts of international tourism receipts

This paper uses government figures for the spending of Chinese tourists. As you read the discussion, keep in mind that an AP report several years ago compared the receipts of travel agencies to the government claims, and called bullshit:

The government estimates that Chinese tourists spent an average of $246 a day on the island in 2010. That's made up of $142 for shopping and $104 for the services that are provided by tour package operators hotels, meals, local transportation, venue admission and incidentals.

But an examination of tour package prices shows they are much lower than the goverment's estimate and tour operators say that, at best, they get half of the money Chinese tourists pay to mainland tour agencies for these tours. That amounts to at least a $700 million hole in the government figure.

On top of that, it is likely that some of the money Chinese tourists spend on shopping is ending up in Hong Kong, where the owners of some of the major Taiwanese shopping outlets are based.

And at least until recently, a ruse involving special credit card readers that disguised the true location of purchases meant the government was cheated out of sales tax from Chinese tourists. Taiwanese authorities are now investigating this practice.

According to the 2013 Tourism Bureau numbers (download .doc file), Chinese tourists spend nearly as much as Japanese, and significantly outspend tourists from the US, Singapore, and Hong Kong, all of which are wealthier. Strange, eh? It may be because business visitors tend to get taken out by locals more, and more Americans are here on business...

Back to the Sun and Pratt study above...

The purpose of this study is to provide an evaluation of the economic impacts, the carbon footprint, and the water footprint of Chinese tourism consumption in Taiwan. Two objectives are proposed here. First, the eco-efficiency of Chinese visitors is compared against four other major source markets for Taiwan: Japan, Hong Kong/Macao, United States, and Malaysia. Eco-efficiency is measured via the per dollar CO2 emission and per dollar water consumption.

After a detailed discussion of tourism growth and Chinese tourism numbers in Taiwan, the authors point out two salient facts: first, tourism is less efficient carbon-wise than most other sectors of a given national economy, and second, a major culprit in the high CO2 footprint of tourism is air travel.

The idea of water footprint is relatively new in the literature, but has grown. I suspect it will become ever more important as the inevitable effects of human warming of the earth impact our water supply. They note:

In Gössling et al.’s (2012) extensive review of tourism and water usages across major countries, they concluded that the direct water usage per tourist per day ranges between 80 and 2,000 liters (L), and the indirect water consumption per day was tripped to 5,500 L. The tremendous indirect water requirement is mainly a result of the production process for food and fuel, each, on average, contributing more than 2,000 L per tourist per day. For food consumption, a greater amount of water is embedded in agricultural irrigation, which accounts for more than 70% of the total water withdrawn and 90% of water consumed (Bates et al. 2008).

The key point here is that tourism drives demand for foods, which drives increased agricultural water usage. As they note in the paper, Chinese delight in purchasing food souvenirs, which drives up their overall water demand.

Sun and Pratt then move on to present the methodology of the study. Overall emissions and water use are calculated via a generally accepted model, while travel emissions are calculated using airline route distance and number of seats.

The meat of the paper is of course the results of the calculations. The authors first introduce the background information. I've grabbed their table below:

Among five inbound source markets, Chinese visitors are one of the top spenders in Taiwan, averaging around US$260 (not including international airfare) per person per day or US$2050 per trip, only after the U.S. segment (Table 1). In terms of spending patterns, Chinese visitors report a greater proportion of their budget on shopping (57%), much higher than visitors from Malaysia (32%), Hong Kong/Macao (28%), and Japan (22%). This shopping spree phenomenon is consistent with observations from Chinese visits to Australia (Wang and Davidson 2010), United States (Jang, Yu, and Pearson 2003), and Hong Kong (Huang and Hsu 2005). Within the shopping component, Chinese visitors spent around 15% of the overall trip expenditure on “featured food, special products and tea” and 10% on “jewelry or jade.” In comparison, U.S. visitors spent two-thirds of their expenses on the lodging (65%) but were quite limited in other categories. This is in part due to a very high proportion of U.S. business and VFR tourists in Taiwan, so their itinerary either involves more with business activities or their local expenses have been covered by friends and relatives (Taiwan Tourism Bureau 2012b).

The authors conclude:

The eco-efficiency of Chinese visitors on both CO2 and water use in Taiwan is superior to the other four major markets, except for total water use intensity (Table 3). For direct and total CO2 intensity per dollar, Chinese visitors are around 21% and 10% more efficient than the second-best performing market. For the direct water use intensity, Chinese visitors also ranked number 1, 32% more efficient than their counterparts. However, after taking into account the indirect water use, Chinese visitors become water-intensive users, requiring 8.26 L of water per dollar, the worst among all five inbound markets.

Recall that the Tourism Bureau numbers for what Chinese tourists spend are probably inflated, meaning that if more realistic numbers were used, the effect of Chinese tourists would only worsen. Since that water is used in the form of foods taken out of Taiwan, our supplies take a  hit, especially groundwater, which is not so easily replenished. In the long-run it returns to the ocean, of course, and comes back. How long?

Based on the inflated Tourism Bureau numbers, the authors then calculate the raw economic effects:

The results from the CGE analysis show that an increase in Chinese visitors to Taiwan is overall beneficial to the economy: the Taiwanese household’s welfare would increase by US$145.1 million (0.06%); the Taiwanese household’s consumption would increase by US$160.7 million (0.07%), and their investment would increase by US$64.0 million (0.07%) (Table 5). Output is estimated to increase by US$8,706.8 million or 0.8% from 2011 to 2016 as a result of the increase in Chinese visitors with corresponding CO2 emissions estimated to increase by 6 million tons, or an additional 2.7% over 2011 figures. The Chinese visitors are estimated to use an additional 591 million tons of water (3.0%).

For a family with a household income of NT50,000 a month, that welfare increase is a couple of bus rides. Overall output increase is less than 1% over the five year estimated period of the study, again using the Tourism Bureau numbers. Never mind that the gains go to a small number of actors, and are not spread out across all the families of Taiwan. Most Taiwanese experience only the negatives of Chinese tourism, from crowding at desirable tourist sites to insults and threats from the sprinkling of idiots that populate those tours. Morever, that Chinese tourist "output" has other, extremely pernicious effects.

As the authors note, when tourists come in, they pull capital and resources from other sectors into tourism, and they drive up the exchange rate because they demand local currency. In Taiwan this pushes up the value of the NT dollar, which causes sales of local exports to fall since their products become more expensive on international markets.

The increase in tourism demand leads to an appreciation in the exchange rate, which leads to import substitution and the contraction of the traditional export sectors. Not surprisingly, the increase in tourism demand expands the tourism-oriented sectors as the increases in prices attract resources (capital and labor) to these sectors. The accommodation services sector (+40%) and the education and entertainment articles sector (+33%) as well as the industries supplying souvenirs such as the textile mill products (+15%), wearing apparel and clothing accessories (+13%), and cleaning preparations and cosmetics (+7%) experience increases in output and hence GHG emissions and water usage. Further,the sectors that will experience the largest growth due to an increase in tourists are not the most resource intensive.

Lucky, eh? Nope...

An interesting finding occurs with the computers, electronics, and optical products sector. Taiwan exports more than 70% of its production in this sector. In considering the economic impact of each visitor segment, this sector is expected to expand. For example, for the increase in VFR visitors, output is expected to increase by 17% in this sector as tourists and tourism-related businesses demand more computers and electronic goods. This increase in demand falls to 13% for both the business and FIT tourists segments and to 6% for the PT tourists segment. However, in estimating the total impact of 12,000 additional visitors per day in 2016, the large increase in visitor arrivals in this scenario results in this sector being “crowded out” by increases in other sectors. This, coupled with an expected appreciation in the Taiwanese dollar, means that Taiwanese computers and electrical goods become more expensive on the world market. The overall effect is a contraction of this sector with a high export component. This nonlinear nature of CGE models is able to take into account supply constraints and factor in the competition for limited resources.

The authors remark further down that the growth in total foreign tourist dollars, 16.8% between 2008 and 2011, has helped the economy in time of need (US$5.9 billion in 2008 to US$11.1 billion in 2011, accord to their citation of Tourism Bureau numbers).

Let's take a moment to take stock of the full effects here. First, the NT dollar is buoyed by inbound tourists from China buying NT dollars, driving up its value. This is not good for local exporters, but local consumers like it because it keeps the price of foreign goods down. It also makes the central bank governor's job easier, because it is easier to keep the currency stable if flows are reliable and predictable.

This means that it will not be easy to turn off the tap of Chinese tourist inflows because the central bank will correctly point out that the NT dollar will both weaken and become less stable. That will inhibit action by any future pro-Taiwan president. That effect will be independent of the way the KMT has managed the inflows to create new dependencies in local areas that support it.

Chinese tourism is, as I have claimed, hurting Taiwan by reducing its living standards while providing a false promise of economic growth. That is what this paper documents. The economic gains for local families simply don't exist, while tourism does nothing to increase their skills or raise local living standards. At the same time, it also reduces the electronics export sector, the one sector that does raise Taiwan's living standards.

Never mind the effects on territoriality and life quality for those of us who have to live with the traffic, construction messes, and general deterioration in living standards in areas where Chinese tourists appear in great numbers, as well as expanding the effect of Taiwan's parasitic construction-industrial state on local governments and on the national political economy.

The future? Not good. Sun and Pratt note:

Looking to the future, the current environmentally efficient characteristics of the Chinese tourists are expected to wane because of product diversification and repositioning as the propensity to consume luxury goods and services will increase while their average length of stay will shorten. With an intended policy to develop Chinese FIT, medical tourists, and business travelers while shrinking the market of discounted package tours, the share of high-end services, taxi, and car rental is expected to rise in their spending profiles. This type of tourism generally consumes more energy per unit (Becken, Frampton, and Simmons 2001), and the abovementioned transportation types are 25% to 75% more energy intensive per person-kilometer than coach (Huang 2011). Further, the Taiwan Tourism Bureau intends to encourage high-quality package tour itineraries which stay at star-credited hotels, involve fewer mandatory shopping stops, and offer diversified dining and recreational opportunities. In sum, Taiwan’s policy is gradually directing visitors to purchase a basket of goods and services that is more energy intensive in the future.

Taiwan is committed to reducing its global warming emissions, though it is not a signatory to any of the international protocols. Rising Chinese tourism, the authors note, could conflict with this goal.

This paper represents a first pass at the problem, as the authors observe, but nevertheless it is highly indicative. As in all other aspects of economic interaction with China in Taiwan, the claimed economic effects simply aren't there. This will not stop the international media from continuing to spread Chinese propaganda on that topic, but at least my readers will know what is really going on.
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