This country is profiting from China-Hong Kong spat

The Chiang Kai Shek Memorial Park in Taipei, Taiwan.
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The Chiang Kai Shek Memorial Park in Taipei, Taiwan.

As tensions between China and Hong Kong swell, more mainlanders are choosing to vacation in Taiwan.

The number of Chinese tourists entering Taiwan during the first quarter of 2014 rose 45 percent on year, more than double Hong Kong's 20 percent annual increase during the same period, which is significant given that Hong Kong is usually the largest recipient of mainland visitors.

Marcella Chow, emerging Asia economist at Bank of America Merrill Lynch, said there are two factors at play: anti-mainland sentiment in Hong Kong and easing travel restrictions in Taiwan.

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Increasing tension

A number of recent incidents worsened relations between China and Hong Kong.

In April, a video of a mainland Chinese family allowing their toddler to urinate publicly in Hong Kong's busiest shopping district reinvigorated long-standing complaints about the behavior of Chinese tourists.

In February, around 100 residents took to the streets in Kowloon for an "anti-locust" campaign. Mainland visitors, referred to as "locusts," were accused of monopolizing resources and driving up prices of daily goods such as infant milk power.

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At the end of May, Hong Kong chief executive CY Leung said the government is considering a controversial proposal to reduce the number of mainland tourists allowed in by 20 percent.

Ding Ding, a teacher in Shanghai, said that while she's aware of the tensions, she had already decided not to visit Hong Kong.

"Hong Kong is all about shopping. What is the point? If I can choose, I will pick Taiwan because I feel that I can see and feel more of the people and culture. It is different from the mainland," she told CNBC.

Is it time for Taiwan to shine?
Is it time for Taiwan to shine?   

Taiwan opens up

Taiwan is a relative newcomer to China's travel boom. The country first opened its doors to groups of Chinese tourists in 2008 and permitted entry to independent travelers in 2011. Chow says steps taken by President Ma Ying-jeou's government to relax travel restrictions are yielding results.

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"During the Chinese New Year holidays, Taiwan made its administrative process more efficient by increasing the speed of visa approvals and allowing more people to come in," Chow explained.

Subsequently, the government loosened its quota system in May to allow up to 5,000 mainland visitor groups and 4,000 individual travelers each day.

The surge in tourists yielded sizeable economic benefits. Local commercial sales –combined revenue in retail and restaurant businesses – hit a 15-month high in April.

Hong Kong's economy meanwhile has felt the pain from declining visitors. In April, retail sales suffered their biggest drop since 2009, mostly due to a 40 percent on-year drop in luxury goods sales on lower Chinese spending.

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With the number of Chinese visitors to Taiwan expected to increase, Chow warns that the government must learn from Hong Kong.

"To fully embrace the potential of the tourism boom, the government needs to first ensure that the economic advantages of tourism are shared evenly. In particular, local residents in Taiwan should be safeguarded from issues such as overcrowding, in order to limit any resentment caused by an influx of tourists, like in Hong Kong, where some have come to condemn large tourist inflows," she said.