How to lose your dragon: How Chinese package tours exploited Taiwan

Taiwan is facing a record tourism trade deficit.

The shortfall in travel spending, which reached NT$700 billion (US$21.7 billion) in 2024, stems from heavy Taiwanese spending on outbound travel, while inbound tourism, particularly from China, has yet to recover.

Chinese visitors, once a major driver of tourism revenue, largely disappeared after Beijing halted individual travel permits to Taiwan in 2019.

In 2008, Taiwan opened to large-scale Chinese tourism amid warming cross-strait ties under then-President Ma Ying-jeou (馬英九), who sought closer economic and cultural links with Beijing. The move ended decades of restricted contact and brought a surge of Chinese tour groups under tightly managed arrangements.

While some see their return as crucial to revitalizing Taiwan’s tourism sector, others caution that Chinese mass tourism, long dominated by an exploitative model known as the “one-dragon” system (一條龍, yī tiáo lóng in Mandarin), may have done more harm than good.

Economic coercion

On July 31, 2019, China announced that it would halt issuing individual travel permits to its citizens to travel to Taiwan. This move, widely viewed to be economic coercion, came just ahead of Taiwan’s pivotal 2020 presidential election.

That election saw Taiwan's Kuomintang party presidential candidate Han Kuo-yu (韓國瑜), seen as pro-China, challenge incumbent Tsai Ing-wen (蔡英文). Tsai consistently and firmly resisted Beijing’s efforts to assert control over Taiwan.

Taiwan sees itself as a self-ruled democracy, but China views the island as a breakaway province and has vowed to reunify it, by force if necessary.

“China has consistently used outbound travel restrictions as a political and economic coercion tool,” Taiwan’s Mainland Affairs Office told TCN. “If a destination does not align with China’s political goals, it can unilaterally suspend travel at any time,” it added.

Following the ban on individual travel permits, China also halted group tours from January 27, 2020, in response to the COVID-19 pandemic, deepening the tourism slump further. On Feb 11, 2020, Taiwan also banned entry for all passengers to all arrivals from Mainland China, Hong Kong, and Macau.

The impact of the 2019 ban, which remains in effect, has been stark. In previous years, mainland Chinese visitors consistently represented Taiwan’s largest national tourist group.


Before the travel bans, it was common to hear a mix of mainland Chinese accents and regional dialects on the streets of Taiwan, along with phrases not typically used by locals. These days, mainland-style Mandarin is rarely heard in public.

In 2018, 2.6 million Chinese visitors arrived in Taiwan, accounting for 24% of the total inbound tourism that year. That same year, inbound tourism contributed 1.06% to Taiwan’s GDP.

Chinese tourists were typically the highest spenders by nationality, accounting for 28.15% of total tourist spending in 2018.


China or broke

Taiwan People’s Party legislator Lin Guo-cheng (林國成) views the return of Chinese tourists as essential to narrowing the tourism deficit. He told China Review News that without easing cross-strait relations, Taiwan’s tourism industry has no real path to recovery. "The current tourism trade deficit of NT$692.2 billion reflects the absence of Chinese tourists,” he added.

Hualien Kuomintang legislator and former magistrate Fu Kun-chi (傅崐萁) supports restoring tourism ties with China. On April 26, 2024, he led 17 KMT lawmakers to Beijing on what was billed as an ice-breaking trip to revive cross-strait relations and tourism.

Hualien and the earthquake

Hualien, with its dramatic, steaming forested mountains and aquamarine waters of the Pacific Ocean, has long been a favorite destination for Chinese tourists. Locals told TCN about the days when traffic diversions and temporary traffic lights managed endless streams of Chinese tour coaches.


Tourism accounts for nearly 60% of Hualien’s economy.

Amid the Chinese tourist drought, on April 3, 2024, the country was hit 7.2-magnitude earthquake, which killed 18 people, left thousands injured, and caused widespread damage to homes and infrastructure worth millions of dollars.

Visitor numbers for May 2024 plummeted 73% compared to 2023 in the steepest decline in a decade. Besides the earthquake’s immediate impact, damage to the region’s top attraction, Taroko National Park, further deterred visitors.

Given the scale of Chinese tourism and the positive impact many visitors have on local economies and cultural exchange, Fu’s plan to revive it seems like a sensible step.

However, official data and local accounts indicate that, in Hualien, Chinese tourism also presented unique challenges.

Enter the Dragon

Several people TCN spoke to pointed to the one-dragon business model as a major source of the problems linked to Chinese tourism in Hualien and across Taiwan.

The one-dragon system refers to a vertically integrated tourism business model where a single company manages every stage of a travel group’s journey. Since 2008, this model has attracted significant attention and criticism.

Under the system, a Chinese or China-funded company controls everything from booking flights, accommodations, meals, transportation, and guided tours, to operating shopping outlets where tourists are encouraged to spend. This centralized control enables ultra-low package prices, sometimes even “zero-dollar” tours, with profits recouped through aggressive shopping commissions and cost-cutting kickbacks.

The one-dragon system works by funneling Chinese tourists through a network of affiliated hotels, restaurants, and shops, charging inflated prices. Businesses pay tour operators or guides kickbacks, secret or unofficial commissions, for bringing customers.

Kickbacks may be a percentage of tourist spending or a fixed amount per person, allowing operators to profit from tourist spending rather than tour prices. Because packages are so cheap, guides often pressure tourists to shop at designated outlets. Those who don’t spend enough might face verbal abuse or receive inferior services.

The system depends on volume and strict control, ensuring that all tourist spending remains within the kickback-paying network.

Though lucrative for operators, the practice has been widely criticized for deception and poor travel experiences, prompting some governments to regulate or ban the tours.

For years, the one-dragon model guaranteed a steady income for Hualien’s hotels and restaurants. Although Chinese tourists paid less than other visitors for rooms and food, the volume kept businesses afloat.

Over time, however, the one-dragon system contributed to a downward economic spiral. Mr. Wang (nickname), an employee at a well-established Hualien hotel who chose to remain anonymous because of the sensitivity of the subject, told TCN how the system worked in Hualien.

Mr. Wang said the so-called one-dragon system was dominated by Chinese investors working through Taiwanese partners. “A Chinese investor might have a Taiwanese agent who controls hotels, buses, sightseeing spots, and restaurants, all bundled together,” he said.

The arrangement covered the entire tourism chain. “Travel agencies, transportation, accommodation, dining, it’s all connected, and each layer takes a cut,” he added.

Profits rarely stayed in Hualien, he explained. “The biggest profits go to the top, while local operators make very little despite high volumes,” he said.

Many local businesses went along with it because it still brought in revenue. “Even low margins were better than nothing; they needed the crowds to survive,” he added.

Working conditions, however, were tough. “The workload was heavy, and employees saw little pay raise because the owners weren’t earning much either,” he said.

He reflected that the collapse of group tours has left many without income. “At least they had income then — now, with no group tours, they have nothing,” he added.

“It was basically a China–Taiwan business network dominated by mainland investors that captured most of the profits,” he said.

Data

International hotel revenue data shows that after Chinese tourism came to an abrupt halt in July 2019, hotel revenues not only rebounded but continued to grow over the following three years. The gap left by mainland Chinese tour groups, often tied to heavily discounted rates under the one-dragon model, was increasingly filled by domestic travelers paying standard fees.


Tax me if you can

Tax evasion was a common issue tied to Chinese one-dragon tours. Dragon networks exploited loopholes by not issuing invoices, avoiding audits, and paying high commissions under the table, according to a report from Taiwan's Public Television Service (PTS)

In 2015, these practices led to an estimated NT$2.7 billion annual loss to Taiwan’s treasury, the report said.

Nothing to see here

Chinese tourists frequently used bank cards issued by UnionPay, China’s state-owned bank card system. In 2012, Taiwanese prosecutors discovered UnionPay had illegally supplied offshore UnionPay terminals to local merchants in Taiwan, CardU reported.

This allowed Chinese tourist transaction data to route through UnionPay’s Hong Kong payment network, settling finally via China UnionPay, effectively bypassing Taiwan’s National Credit Card Center auditing system.

Money laundering risk

Mr. Chen (nickname), an officer in Taiwan's government who asked to remain anonymous due to the sensitive nature of the topic, said the real purpose of the one-dragon system was to launder Chinese money. “It’s a typical criminal pattern,” he added.

Between 2011 and mid-2013, UnionPay card spending and withdrawals in Taiwan nearly matched, leading Taiwan’s Investigation Bureau to suspect money laundering activity. Matching spending and cash withdrawals often indicates “cash-out” schemes, where fake purchases convert illicit funds into cash.

“Money spent by Chinese tourists went directly to Chinese-funded businesses because of the dragon model. All the money ended up in Chinese pockets,” added Chen.

Vacuum

“When cross-strait policies changed, Chinese investments pulled out, and local businesses began competing for that market instead,” he explained.

Data from Hualien's government shows that after Chinese tourism abruptly stopped in 2019, indicators of improved economic health in the county began to emerge.

Median disposable household income in Hualien County rose 25%, from NT$630,243 in 2019 to NT$792,385 in 2024. Simultaneously, average public debt per person fell from over NT$36,000 in 2016 to around NT$16,000 by 2023.

Rising incomes and reduced debt suggest stronger household finances and more sustainable local economic growth rather than gains driven by borrowing.


Voices on the ground

Hualien hotel worker, Mr Wang, said that after the Chinese tourism restrictions, the better half of the tourists disappeared. "It used to be buses of Chinese tour groups arriving every day," he said.

"Hotels were usually fully booked and only dropped to about 70% occupancy in the off-season,” said Wang. "Today, Chinese tourists mainly come from Macau and Hong Kong, with a few from mainland China," he added.

Mr Wang said some smaller restaurant owners disliked the spending habits of Chinese tourists. Since many package holidays included meals, tourists often didn't spend in smaller restaurants, despite wanting to try local products, he explained.

“Chinese tourists might occupy several tables and not buy much, while other customers willing to spend money have nowhere to sit,” he said.

Politics

Mr. Wang said that the KMT party is eager to welcome Chinese tourists back, viewing both sides of the Taiwan Strait, the strip of sea separating Taiwan and China, as family.

He contrasted this position with that of Taiwan’s ben tu ren—a Mandarin term referring to Taiwanese whose families had settled on the island before the Kuomintang (KMT) retreated there in 1949, after losing the civil war to the Chinese Communist Party.

"Ben tu ren" tend to discriminate against Chinese tourists, he said.

What’s next for Hualien?

Joshua Yu (余明勲), director at Hualien’s Tourism Department, told TCN that the county is not passively waiting for the return of Chinese tourists.
“We are actively creating new attractions to appeal to different markets,” he added.

After the decline in Chinese visitors, Hualien began developing new tourism markets in S. Korea, Japan, and Southeast Asia, and promoted direct flights to destinations such as Hong Kong, South Korea, Japan, Malaysia, and Thailand, said Yu.

“The launch of Hualien–Korea direct flights marked an important breakthrough,” he said. “We partnered with Japanese and Korean travel agencies to design feature itineraries that combine natural landscapes, indigenous culture, and outdoor activities. This approach has successfully attracted more independent travelers,” he added.

Yu said the Hualien County Government is now focused on shifting from dependence on a single market to what he described as a “diversified market plus in-depth experience” strategy.

“Even without Chinese tourists, our goal is to maintain tourism momentum while building long-term resilience and international competitiveness,” he said.

Taiwan appears poised to navigate a careful balance between economic recovery and political realities, with sustainability emerging as a clear priority.

Speaking about the future return of Chinese tourists to Taiwan, the MAC told TCN that local tourism operators need to be able to operate without political interference.

"The reopening process will proceed under the principles of two-way reciprocity, healthy and orderly development," it added.

Taiwan’s experience with Chinese package tours highlights both the economic gains and vulnerabilities of relying on a single, politically sensitive market. As political and travel landscapes evolve, the country’s tourism sector is preparing to chart new paths and redefine its future.