What you need to know
With casino gaming off the table, the economy of the idyllic offshore islands of Penghu is more dependent than ever on shaky seasonal tourism.
Citizens of Penghu County voted decisively in October against introducing casino-gaming resorts. By a lopsided margin of 81 percent to 19 percent, Penghu rejected casinos for the second time in seven years, likely sounding a death knell for the development of the gaming industry in Taiwan’s largest group of outlying islands.
Anti-gambling groups hailed the referendum results as a victory for Penghu society. They had argued that casinos would sully Penghu’s halcyon environs and corrupt the citizenry by fostering gambling addiction.
The anti-gaming side got some assistance from President Tsai Ing-wen (蔡英文). On the eve of the referendum, Tsai said that the ruling Democratic Progressive Party (DPP) remained opposed to the launch of casinos in Penghu. “The ruling party used all of its resources to discourage people from supporting casinos in Penghu,” says Liu Day-yang (劉代洋), professor of entrepreneurial strategy at National Taiwan University of Science and Technology (NTUST) and a former advisor to the pro-gaming side.
President Tsai has vowed that her administration will help support Penghu’s financial well-being through other means. With only tourism and fishing as major industries, the offshore islands are dependent on central-government funding. Liu estimates that the national government provides Penghu with 80-90% of its annual budget. But that level is still insufficient when Penghu spends some NT$5 billion a year while taking in only NT$300 million in revenue.
To boost the local economy, President Tsai has urged Penghu to grow its tourism sector. That won’t be easy, however. To begin with, Penghu is a pleasant environment for tourists only from April to mid-October. Harsh winds lash the islands the rest of the year. Gusts are sometimes forceful enough to keep people off the streets, not just the beaches, says a manager at the Oasis Hotel Penghu. That’s not an exaggeration. During this writer’s first visit to Penghu in October 2011, the wind nearly blew my camera and tripod (a combined weight of more than 5 kilograms) off a seaside bluff.
Further, Penghu lacks the infrastructure to accommodate a large increase in visitors. Its small airport serves only domestic routes, and the number of flights – as well as ferries from Taiwan proper – is quite limited. The shortage of flights in peak season has become a problem for local residents, says the Oasis manager. “Now that TransAsia Airways, which offered the largest number of Penghu flights, has shut down, it’s even harder for residents to travel to Taiwan,” he says.
He concurs that rising tourism is benefiting the local economy, but worries that room supply will soon outstrip demand. “Everywhere you look, a new B&B is opening,” he says. “I don’t see how the pie is going to be big enough for all of us.”
At the same time, the nature of the Penghu tourist market is problematic, observes economist Hank Huang, vice president of the Taiwan Academy of Banking and Finance (TABF). “Many visitors to Penghu are young people who go for a weekend getaway,” he says. “They don’t spend much on lodging or food, and there is very little to shop for in Penghu.”
“That kind of tourism isn’t going to drive economic growth,” he adds.
Proposals by lawmakers often reflect a lack of understanding of how to improve Penghu’s economy, Huang says. “They can’t see where the problems are. It’s one of the reasons Penghu’s progress has been very slow.”
For instance, after last year’s referendum, DPP legislator Yang Yao, a Penghu native, suggested that the central government help Penghu build an aquarium and several maritime-themed museums to attract tourists in winter. Unlike a casino resort, none of those venues would be sufficiently attractive to drive tourism traffic in the blustery off-season. Additionally, Penghu had an aquarium in the past, but mismanagement forced it to close down several years ago.
Some of the advice for Penghu can be far-fetched. In a September opinion piece in the English-language Taipei Times, Du Yu, who heads an agricultural-reform task force, urged Penghu to diversify its restaurant menus by offering more dishes made from endemic fish species. That, along with “tourist activities” featuring the fish (presumably living specimens) could help to attract more visitors to the islands, he said.
Winds of change
Given its geographic isolation and challenging climate, Penghu has limited options to expand its economy. The most feasible way forward would be to harness its abundant wind resources. It’s not a new idea. Penghu has had wind turbines since 2002.
In 2011 the Executive Yuan approved a policy to develop the Penghu archipelago as a low-carbon area with wind power as a focus. Today, wind power supplies 30% of Penghu’s electricity.
But like most aspects of life in Penghu, the wind-power sector moves slowly. Speeding things up would generate revenue both for local residents and the government, says Bart Linssen, Taiwan managing director of Enercon, the world’s fourth largest wind-turbine manufacturer and the company that installed Penghu’s first wind turbines 15 years ago. “Penghu has impressive wind-energy potential,” he says, noting that its winter winds are among the world’s strongest.
Linssen supports two initiatives to scale up Penghu’s wind-power sector. The first is to complete construction of a 66-kilometer undersea cable to provide an electricity connection between Penghu and Yunlin County on Taiwan proper. The cable system would spur the development of wind power in Penghu by enabling surplus power to be transmitted to Taiwan in the winter when winds are strong.
In the summer when winds are weak but electricity usage is high, Taiwan could transmit electricity to Penghu. “It would be a new way for Penghu to earn revenue from wind energy, which would be a good thing,” Linssen says.
The project, led by the state-owned Taiwan Power Co. (Taipower) is already underway. The undersea construction portion has been completed, but above-ground work on the power line is pending. Residents of Kouhu, the Yunlin township where the above-ground portion of the system is supposed to be installed, have opposed the project, citing alleged health risks from electromagnetic fields emitted by the system.
Secondly, Linssen advises Penghu to build community wind farms, giving residents priority to invest. “In addition to the jobs that the building and maintenance of the wind farm create, money would be put directly back into the local community,” he says. That business model has made renewable energy successful in Europe, he notes.
Penghu launched its first citizen wind farm in July 2014 – the Penghu Energy Tech Co. But just nine months later, the government-backed operation shut down. According to an April 2015 report in the English-language China Post, the company ran out of money and did not believe its business would be profitable enough to justify a new capital injection.
Linssen notes that banks in Penghu are hesitant to invest in wind energy. “There is a clear ROI [return on investment] but they feel they have no way to assess the risks.
Still, the project did attract NT$14 million in start-up capital: NT$5 million from the Chung-Hsin Electric & Machinery Mfg. Corp., NT$4 million from Taiwan Cogeneration Corp., and NT$5 million from the government. That suggests that funding could be raised for future community wind farms.
Perhaps most importantly, Penghu’s first community wind farm attracted substantial interest from local residents. The government received thousands of applications from prospective shareholders and selected more than 800 people to participate. The farm went bust before they had a chance to invest.
In the future, if wind farms are able to secure funding, the Penghu government can guarantee local residents who invest in them a certain yearly interest rate, Linssen says. In Linssen’s home country of Germany, local governments offer yearly interest rates on wind farms of 7-8%. “It makes sense for local investors from a financial standpoint and reduces the chances they complain about the noise from the turbines,” he says.
NTUST’s Liu is unsure whether Penghu will be able to capitalize on the opportunities offered by wind power. He worries, for example, that local people have become overly dependent on central-government largesse. “What happens when the central government runs out of money?” he asks. “The local community needs to take more initiative.”
The manager of the Oasis Hotel says Penghu will need more able leadership from its elected officials to move forward. “If you look at Hawaii or Okinawa, and you compare either to Penghu, you can see what Penghu’s missing,” he says. “It takes good governance to build yourself into an international tourist destination.”
He adds: “Of course, the rest of us need to also work harder to improve the quality of life here. If we can do that, maybe one day Penghu will become more prosperous.”
The News Lens has been authorized to repost this article. The piece was first published by Taiwan Business TOPICS.
(Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei.)
TNL Editor: Edward White