Forsaking the Mainland Means Greater Hardship for Taiwan
May 25, 2016 China Times
China Times Editorial (Taipei, Taiwan, ROC)
May 24, 2016
Executive Summary: President Tsai's New Southern Strategy will be among the new government's policy priorities. It constitutes a transparent move toward "economic Taiwan independence". It is certain to strain cross-Strait economic and trade relations. Taiwan has no reason not to cooperate with the Mainland. The two sides should maintain a symbiotic relationship. They must not isolate themselves from each other. This is essential for Taiwan's survival and prosperity.
Full Text Below:
President Tsai's New Southern Strategy will be among the new government's policy priorities. Interpreted positively, it “corrects” the former KMT government's "tilt toward the Mainland". Viewed negatively, it constitutes a transparent move toward "economic Taiwan independence". Either way, it is certain to strain cross-Strait economic and trade relations.
Taiwan has an export-oriented economy. Exports constitute over 60% of its GDP. Investments and consumption constitute only 40%. Its market requires sufficient scale and symbiosis. During early development Taiwan was highly dependent on the North American market. This gradually changed with fluctuations in the global consumer market. Currently nearly 40% of Taiwan's exports go to the Mainland, 24% go to Southeast Asia, and only 10% go to the US. Over half of Taiwan's external investments go to the Mainland. This high degree of integration with the Mainland has provoked concern on Taiwan.
The traditional green camp view is that such links are harmful to Taiwan's economy. They hollow out Taiwan's industry, and reduce domestic investment. This leads to low-wages and unemployment. Cross-Strait links have enabled the Mainland to control Taiwan's economy. Economic dependence on the Mainland must be reduced to ensure Taiwan's economic future. Furthermore, the green camp argues, Mainland economic growth has slowed in recent years. Development potential for Taiwan businesses is now limited. Therefore we must seek out new export markets. If Taiwan is to go its own way, it must rid itself of dependence on the Mainland economy. There may be short-term pain, the green camp concedes, but they must be born in order to survive. The New Southern Strategy is a matter of course.
In fact, whether the Mainland presents an opportunity or a threat to Taiwan, depends on whether Taiwan perceives Mainland China's rise in the proper light. We must point out a few facts. First, Mainland China has the world's second largest economy. Taiwan is dependent on exports and investment. Naturally the Mainland is going to be Taiwan's chief source of economic momentum. Mainland economic growth has indeed slowed. But sheer volume means an annual increase equivalent to that of Indonesia, with its 250 million people.
Second, Taiwan manufacturers began investing in Southeast Asia long ago. Since the 1990s, successive governments have imposed a wide range of investment and export policies. Not one of them has met expectations. Taiwan's economy remains highly dependent on the Mainland. That is the result of market decisions by Taiwan manufacturers. The global recession reduced Taiwan exports to the Mainland, including Hong Kong, by 12.4%. But that was nevertheless better than the 14.2% reduction in exports to ASEAN. Taiwan manufacturers on the Mainland still fared better than those in Southeast Asia.
According to Mainland Ministry of Commerce statistics, by the end of 2015 the Mainland had absorbed 2 trillion NT in capital from Taiwan. That year, listed companies on Taiwan reinvested 213.7 billion NT on the Mainland. This accounted for 39% of the income derived from listed companies worldwide. And that does not even include the astonishing gains derived from rising asset prices. Since 1992, Taiwan has benefited richly from Mainland economic development. How can we possibly give that up?
Taiwan has long been an important part of "Made in China". When the Mainland first began its reform and opening, manufacturing capacity was marginal. Taiwan manufacturers transferred low-end manufacturing operations to the Mainland. This enabled the Mainland to connect with the global supply chain, enabled local industries to combine, and gave birth to local industry groups. During the Mainland's early stages of reform and opening, investment arrived primarily from Taiwan, but also from Hong Kong and Macao, and constituted over half of all outside investment in the Mainland. Taiwan style management spread to all levels. Made in China is now sweeping the globe. Taiwan's historic contribution was indispensable. But Taiwan's past industrial growth and profitability model is rapidly approaching its end.
Taiwan must keep up with rapid transformation on the Mainland. Most large Taiwan businesses still see the Mainland as nothing more than their OEM base. This limits their opportunities for development. Taiwan manufacturers must not be lectured to “Go South!” yet again. Instead, they must have a long-term strategic vision. They must re-examine Taiwan's branding and R&D on the Mainland. The Mainland remains the world's fastest growing market. It has already fostered a number of world-class brands. It also offers opportunities for Taiwan businesses to develop their brands.
Meanwhile, Mainland China is the world's manufacturing center. In a number of forward-looking, high-end realms, Mainland technology and manufacturing lead the world. The Mainland has engaged in years of research and development. Liberation has led to innovation and vitality. The Mainland now leads in electronic payments, e-commerce, unmanned vehicles and drones. It is rapidly catching up in industrial robots. If Taiwan chooses to delink with the Mainland, Taiwan will be the loser.
The new government has condemned the previous government's policies, saying they led to excessive dependence on exports to the Mainland. But the record shows the greatest increase in dependence on the Mainland occurred during the Chen era. It was the result of economic forces, of the Chen government's insistence on changing course and resisting the Mainland, all to no avail. A New Southern Strategy is all well and fine. But we can hardly ignore the most important market of all, the Mainland. The fact is, the new government's ideologically motivated policies are guaranteed to sabotage Taiwan's economy.
Taiwan has no reason not to cooperate with the Mainland. The two sides should maintain a symbiotic relationship. They must not isolate themselves from each other. This is essential for Taiwan's survival and prosperity.