Financial downturn.
But erratic growth rates in the tourism industry are nothing new for Cyprus, or, indeed, for so many other countries with similar economies. And despite these challenges, Cyprus diversification into fi- nancial services and real estate have lessened the impact of the financial downturn. The country has managed to transform itself from a farming community to a wealthy nation with a relatively stable economy in just two decades, with a GDP that comes in above average for European Union member states. As a result, it has earned itself distinction by the IMF as one of the world 32 advanced economies. Cyprus spends nearly 7% of its GDP on education, which is among the highest rates in Europe, and, as a result, boasts an extremely well educated workforce. While the mother tongue of most Cypriots living in the government-controlled area of the island is Greek, the default language of the island business community and financial services sector is English. Cyprus diversification seems to have paid off. The country suffered less of a slowdown than most of its larger EU peers as a result of the recent global financial crisis, primarily on the strength of its financial services sector. Further insulating the island, the Cypriot economy largely did not invest in toxic mortgages, and few banks had much exposure.
Cash rich.
While the early stages of the crisis in the US and Western Europe were characterized by a lack of access to capital, this was not a major problem in Cyprus, as many of the island banks became cash rich overnight when money left countries such as England, Spain and Greece. Though better-off than many others, with its close ties to European markets, the island did not escape completely unscathed, and its economy slipped into recession in 2009, contracting by 0.9%, its first year of negative growth since joining the EU in 2004.
Hands off.
The real estate sector, however, has not fared as well. A recent increase in property taxes meant to redress the situation has drawn criticism from opposition politicians, who say such a tax will only further depress the real estate market. So far, however, the government have not sought to boost its coffers by scaling back financial services, and increased taxation is targeting Cypriots rather than outside investors. With the financial services industry and increasingly lucrative source of income for Cyprus, it is likely although not guaranteed - that a hands-off attitude to offshore financial services will continue. As far as Chinese investors are concerned, it is the island location that is key, as well it economic stability in comparison to its European neighbors.
A difficult past.
A former British colony, Cyprus political history has been dominated by the divisions between the majority ethnic Greeks and minority Turks. As such the island political situation in from 1960 up until the present day has largely been subject to the state of relations between its two ethnic mother countries, who are historic rivals.
Ceding power.
US diplomacy halted a planned Turkish invasion in 1964, but Turkey eventually invaded in 1974, following a Greek military junta. Though a power sharing agreement was reached, ceding proportional representation in parliament to both ethnic groups, in 1983 Turkish Cypriots withdrew to the northern third of the island, and self-declared as the Turkish Republic of Northern Cyprus. Following this declaration, most Greeks living in the newly Turkish controlled area fled south, while most Cypriot Turks flocked to the north, where they have been joined by newly arriving immigrants from Turkey in recent years. Seats reserved for Turkish politicians in the Republic of Cyprus parliament have remained vacant ever since. Though the Turkish Republic of Northern Cyprus is recognized only by Turkey, its regime maintains control of the island northern third, propped up by Turkish economic aid and military support. Thus the Cypriot economy is effectively sequestered below the island so-called green zone, an UN-buffer that runs just north of the capital, Nicosia. Following the division, Cyprus lost access to two airports, along with its deepest seaport, Famagusta, which, at the time handled 83% of the general cargo, an event from which commercial shipping on the island has yet to fully recover. Though Cyprus maintains the fourth-largest ship registry in the world, it is an open registry, with ships from nearly 50 nations drawn by a tax exemption for the industry. Cypriotflagged vessels are banned from docking in Turkish ports, as the two countries have no diplomatic or trade relations, and Cypriot ports are largely overshadowed by traffic through nearby Greece. Ship repair and related maritime industries have expanded in recent years, however. With the Turkish regime lacking international recognition, the island as a whole was technically admitted to the EU in 2004, though EU acquis - the EU body of common rights and obligations - extends only to the areas under control by the Greek Cypriot government. Turkey ambitions to join the EU have led to hopes of an ultimate resolution and reunification, though these hopes have languished in recent years alongside Turkey bid.
Buffer zone.
A potential settlement to the conflict, brokered in 2004 by then UN Secretary General Kofi Annan was accepted by Turkish Cypriots, but ultimately rejected by their Greek counterparts. Despite fighting in the early years of the conflict, it is bloodless today, and 2008 saw renewed hopes with the demolition of a wall dividing the Greek side from the UN buffer zone, which has made crossing the dividing line far easier for the island residents. The recent election of a hard-line Turkish nationalist leader in the north however, has cast doubts on the possibility of settlement and reunification in the near future.
