Count Palau as the latest victim of Chinese tourism diplomacy. The country is one of the remaining 18 countries that recognize the Republic of China (Taiwan), instead of the People’s Republic of China (China). It’s continued maintenance of official diplomatic relations with Taiwan came to head last year, as Beijing ratcheted up efforts to utilize the growing power of its outbound tourism market to influence the behavior of various countries, most notably South Korea. Much like South Korea, Beijing banned the sale of tour group packages to Palau. This proved too much for Palau Pacific Airways, which has effectively shut down due to a 13 percent drop in passengers and hemorrhaging ticket sales.

The Beijing ban on the sale of tour group packages to Palau has forced the shut down of an entire airline

According to the Hong Kong Free Press, Palau Pacific Airways had around 30,000 passengers in 2015. This year so far, the airline has had 14,000 passengers, not necessarily an enormous drop in volume. However, average fares used to hover around $800, but sat around $300 before the shutdown.

China is a big market for the company the airline, which  spends around $1 million annually in promoting Palau as a tourism destination in China

Most of the countries that continue recognize Taiwan, like Palau, are small island nations in the Caribbean and the Pacific. Palau consists of 340 islands with a population of around 22,000. One outlier among the countries that recognize Taiwan is the Vatican, which suffered a similar fate last year when Beijing banned the sale tour group packages that included a stop at the Holy See. Of course, the Vatican isn’t particularly dependent on Chinese tourism, or tourism in general, for its survival.

The Vatican was also hit with a tourist ban for its continued recognition of Taiwan

The same can’t be said for Palau. In fact, few countries that still recognize Taiwan depend on China economically as much the Pacific island nation does. The country received a total of 122,050 foreign arrivals last year, 55,491 (45.5 percent) of them were from China.

However, the Taiwanese government has offered to come to their ally’s aid. The Ministry of Foreign Affairs announced yesterday that China Airlines, Taiwan’s largest airline, will add two more weekly flights to Palau, with the goal of increasing the number of Taiwanese tourists. The country attracted a fair number of Taiwanese tourists last year, 9,493. However, it seems unlikely that Taiwan will be able to make up for the total shortfall in tourist arrivals.

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