That quarter coincided with retaliation meted out after a visit by Taiwan's president, Tsai Ing-wen, in November, when Beijing banned its travel agencies from arranging visits to Palau.
But John Tanner, from the Palau Visitors Bureau, said the tourism industry remained healthy, and the country had been trying to diversify its industry anyway after what he described as an unsustainable influx.
We're trying to bring it back into a more diverse balance of tourism instead of being lopsided by most of our Chinese tourists.
So we're just trying to balance out between all the nationalities a little bit, Mr Tanner said.
A sharp drop in the number of visitors to Palau from China is of little concern, says a local tourism official.
Palau saw a 16 percent drop in arrivals from China in the last quarter of 2017, presumably as a result of the Chinese government's cancellation of the country's approved destination status.
China instructed its tourist agencies in November to stop flights to Palau in protest over its diplomatic relations with Taiwan, reinforced by Taiwan President Tsai Ing-wen's visit.
Despite the last-quarter drop in arrivals, China continues to be the major source market for Palau, with a nearly 48 percent share according to the latest figures from the South Pacific Tourism Organisation.
The share was nearly 52 percent in the prior quarter.
Japan was second highest accounting for 23.7 percent of visitors, followed by Taiwan at 8 percent.
The organisation says the drop in Chinese arrivals also reflected a drastic reduction in scheduled and chartered flights to Palau. 63.9 percent and 17.4 percent, respectively.
Members of the Palau Senate have filed a lawsuit against the government over non-disclosure of information about its airport extension plans.
The government recently signed an agreement with the company Japan Airport Terminal to conduct the extension of Palau's international airport.
However, members of the senate's minority bloc are suing the Ministry of Infrastructure, Industries and Commerce for violation of the Open Government Act.
They said the Ministry had refused to disclose government documents pertaining to the agreement with the Japanese.
Marianas Variety reported that the agreement is the first public-private partnership scheme in Palau.
According to the Office of the President, the lawsuit came as a surprise because copies of the signed agreement were given to the senate.
The senators in their lawsuit said the only documents provided to the Senate were drafts and unsigned agreements.
Palau is to seek a pledge from every tourist to the country to protect its environment.
The government has partnered with a volunteer campaign, the Palau Legacy Project, to raise awareness of the environmental effect of mass tourism on Palau.
Palau's population is only about 21,000, but last year nearly 150,000 tourists visited the country.
Under the project, tourists will be asked to sign a pledge when the Palau visa is stamped in their passports.
Outrage about tourism has grown among locals in recent years due to impacts such as more rubbish on beaches, and tourists capturing turtles in order to take selfies with them.
The pledge requires tourists to agree to tread lightly, act kindly and explore mindfully, and to protect and preserve Palauans beautiful island home.
New legislation aimed at turning Palau into a luxury destination is to be put before the incoming congress which comes into power next week.
The proposed law will restrict future investment to five-star hotel chains.
The legislation is part of the president Tommy Remengesau's vision to reduce tourist numbers and increase tourist spending.
President Remengesau says the new law, which he aims to have passed within the first 100 days of the new government's tenure, will include tax incentives for potential investors.
In our definition of high end tourism would be that they would also come in with their own designed water treatment system, power back-ups.
If there are any other infrastructures that they have to do, like opening a road, the investor would do that themselves.
In return for that we will give them the necessary tax break and exemptions for them, said Tommy Remengesau.
The legislation also comes after a huge influx of tourists in 2015 and 2016, thanks mostly to an increase in package tours from mainland China.
That growth however has come at a cost, with the overcrowding having some negative environmental and social impacts.
President Remengesau says focusing on high end tourism is also aimed at limiting that impact.
Tourism Observer
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