Not exactly rundown, but its not the typical touristy place that's flooded with souvenir shops or tour buses. Got a private local guide to drive us around the must-see (like the old gates, Guan Shan... etc) and get around some other places that locals hang around and food that locals liked. Night market is opened only on Sunday nights, we managed to catch it and the guide told us its a 'traditional' taiwan night market as vs those heavily advertised tourist night markets in bigger cities - good experience for a change. Nice to spend a half day or so.
Popularized by the famous movie Cape #7, the often overlooked Hengchun Old Town is every bit as genuine and charming as in the film. Restoration efforts have transformed this tiny little enclave into a world class travel destination. Featuring Taiwan's oldest town gates, Hengchun still have all 4 of the gates intact. The East Gate is still operational and there is a nice park where you can actually walk on the wall between gates. Lush landscape makes this a beautiful place for a brisk morning walk. Within the walls lie historic Hengchun Old Town with charming fruit vendors filled with fragrant fresh produce on every corner. There is also a bustling day market. On Sunday nights, there is a nice night market featuring all sort of delectable Taiwanese snacks.
If you are not a fan of the busy-ness and excitement of Kenting, Hengchun is not a bad option. I personally find Kenting to be full of kitsch and tack. Most restaurants are some kind of western or Thai. There's a night market every night, and unless you're there for the market, it's a pain to pass through. Hengchun on the other hand seems to be a bit more grounded. It's not big, and there's not much to see, but there's plenty of old architecture and a few quaint old streets, and at night you can take a look at Chuhuo or the occasional night market. The food is great for someone like me who's a vegetarian. There are far more choices for vegetarians in Hengchun than in Kenting. The location isn't bad either. It's less noisy and bustling during the day and even some nights. It's not bad starting point for the round the peninsula trip either because you can either head towards Kenting or avoid it altogether and just zip straight towards the west coast which has incredible views.