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From: Matthews Asia <info@matthewsasia.com>
Date: 6 May, 2011 10:17:28 AM PDT
To: <computerdiy@yahoo.com>
Subject: Weekly Asia Update: Postcard from Taiwan
Weekly Asia Update
May 6, 2011
Pineapple cake: a popular Taiwanese treat/ photo by CakeSpy
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Postcard from Taiwan
My recent trip back to Taiwan was my first trip back in almost three years. It also marked my first time arriving in Taiwan via a direct flight from China. Not long ago, visits between Taiwan and mainland China required passing through Hong Kong first. Popular for its convenience, my 90-minute flight to Taipei was fully booked, largely with Taiwanese businesspeople, and one local remarked that travel between the two countries used to take more than half a day. This time, I was able to leave a meeting in Shanghai on a Friday evening, fly out at 7 p.m. and—given Taipei's Songshan Airport location in the city's central business district—check into my hotel by 9 p.m.
Taiwan's economy has historically been known for its strength in technology-related hardware manufacturing. An intricate network of vendor and supplier relationships, coupled with a relentless discipline to be cost-efficient, has allowed Taiwan to spearhead the global growth of the hardware supply chain. While that has provided growth in past decades, Taiwan faces new challenges for sustainable economic growth.
While Taiwan is unlikely to surpass Hong Kong's tourism achievements anytime soon, it is encouraging to see the amount of economic activity (judging by Hong Kong's success) that Taiwan could possibly derive from attracting more mainland tourists. Hong Kong received more than US$13 billion in foreign exchange earnings from tourism in 2007, contributing to more than 6% of the country's GDP. On the other hand, Taiwan generated only US$5 billion in foreign exchange earnings from tourism that same year, just over 1% of GDP. Many Hong Kong retailers I have spoken with say that more than half of their customers are mainland tourists. The Hong Kong retail industry enjoys tourism growth from its no-sales tax status and its relatively open travel agreements with the mainland.
Taiwan does appear to be stepping up efforts to develop its tourism industry. By June this year, the country plans to allow a daily quota of 500 individual travelers from the mainland. Prior to this, Chinese tourists could only visit Taiwan as part of a group tour. One hotel operator I met on my trip mentioned that over the next three years, there will be a 10% increase in new five-star hotels in Taiwan, the largest growth rate seen in some time. Local media also report that for the first time in 20 years, four- and five-star hotels are raising their room rates by 10% to 20%.
The economic multiplier effect from increased tourism revenues should result in higher domestic consumption and investment. In addition, a rise in tourism should help Taiwan develop varied opportunities for growth. One quirky example of the rise: a boom in pineapple cakes. A popular local treat and a must-have souvenir for mainland Chinese tourists, Taiwan's pineapple cake market grew 10 times from US$66 million in 2005 to US$666 million in 2010.
Winnie Phua
Research Analyst
Matthews International Capital Management, LLC
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The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies.
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