Sunday, December 2, 2018

Two reasons Taiwan must come to terms with China, despite mixed signals from the electorate


  • Michael Tai says Taiwan’s economy is now inextricably linked to China, and the Taiwanese people appear unwilling to pay a high price for independence
  • In economic terms, China does not need Taiwan in the same way that Taiwan needs China, and Beijing can afford to play a waiting game

The Kuomintang’s (KMT) landslide victory over the Democratic Progressive Party (DPP) in local elections marked a dramatic reversal of the 2016 presidential election, when DPP candidate Tsai Ing-wen won by a huge margin over her KMT opponent Eric Chu. Seen as a referendum on Tsai’s policies, the recent elections were fought over bread and butter issues even though many of the woes are due to globalising forces that no government can hold back.

Voters punished the DPP for a lacklustre economy linked to tensions with the mainland barely two years after they rejected KMT president Ma Ying-jeou’s China-friendly policies. The fickle swings put the spotlight once again on cross-strait relations. Taipei should come to terms with Beijing for two fundamental reasons. 

Firstly, the island’s fortunes are closely linked to those of the mainland. Taiwanese businesses attracted by common language, low land and labour costs, and a vast market, started investing in China from the 1990s. Some 70 per cent of Taiwanese outbound foreign direct investment goes to the mainland, and one to two million Taiwanese businessmen and their families live in China, even as Beijing offers further incentives to lure more over.

China accounts for over 40 per cent of Taiwan’s exports, of which 80 per cent are intermediary goods that are assembled in China before being sold domestically or exported. In order to diversify away from the mainland, President Tsai Ing-wen promulgated the New Southbound Policy in 2016 to boost trade and investment ties with the Association of Southeast Asian Nations, but relocating manufacturing to Southeast Asia is easier said than done.

As it has no diplomatic ties with Asean states, Taipei is unable to secure free-trade agreements with them, which means Taiwanese components are subject to sometimes hefty tariffs by the bloc. Taiwan’s most important preferential trade pact remains the Economic Cooperation Framework Agreement signed with the mainland in 2010.

But even more problematic is the fact that Southeast Asia simply cannot match Chinese manufacturing prowess. China boasts a comprehensive supply chain able to turn blueprints into prototypes often in a matter of days. Ninety per cent of the world's electronics are made at least in part in Shenzhen and, despite rising wages, it is still more efficient to manufacture in China, according to Masami Miyashita of the Japanese External Trade Organisation.

Secondly, the Taiwanese are not prepared to pay a stiff price for de jure independence. Measured in purchasing power parity (PPP), Taiwan is the 19th richest country in the world, while its GDP per capita of US$52,304 is higher than that of Canada, France, Italy, Japan or the UK. Crime is low and according to the 2017 Crime Index, Taipei is the third-safest city in the world after Abu Dhabi and Munich (Singapore ranks eighth; Tokyo 16th). Raised in prosperity, the current generation of Taiwanese are less hardy than their parents, the force behind the Taiwan miracle of the 1970s and 1980s.

A recent survey showed that 88 per cent of Taiwanese office and factory employees are interested in working overseas, including on the mainland. Meanwhile, the country is facing difficulty recruiting soldiers. With a history of repressive martial law rule, the military is deeply unpopular, and plans to recruit 80 per cent of its manpower needs by the end of 2018 are unlikely to be realised. Taiwanese society enjoys a high degree of personal freedom and autonomy, and young people value personal freedom over a sense of national duty.


Young people believe that China could crush Taiwan with economic power alone and going to war would be a waste of time and money. Neither is the business community prepared to bear financial pain for the sake of independence. Since Tsai came to power, business has suffered as Beijing curbed agricultural imports from Taiwan and slowed the flow of tourists to the island. In the recent elections, the business sector signalled that profits matter.

Taiwan is a vibrant democracy with a broad range of civil liberties. In the 2018 World Press Freedom survey, it ranked 42nd, three notches above the United States, and its reluctance to be governed by Beijing is understandable. However, China is in no hurry to bring the island under its rule as long as Taipei abides by the 1992 Consensus or “one-China” policy


Consensus or ‘one-China’ policy

The mainland has more pressing matters to deal with, such as environmental degradation, food safety, growing income disparity and corruption, while contending with outside forces seeking to constraint its development.

In economic terms, China does not need Taiwan in the way that Taiwan needs China. The one-China policy, whereby both sides agree that there is only one China but each hold a different opinion as to the meaning of “one China”, offers enough diplomatic ambiguity to maintain the status quo. Tsai refuses to acknowledge the formula and diehard independence advocates in her party are banking on American and Japanese protection if push comes to shove. But that may be wishful thinking as each state ultimately acts in its own best interests.

Beyond verbal support, Washington has no real desire to be sucked into a war in the Taiwan Strait. Meanwhile, thanks to US President Donald Trump and his rejection of global free trade, Tokyo and Beijing are finding common ground. Relations have warmed and during Japanese Prime Minister Shinzo Abe’s three-day visit to China in October, for the first formal Sino-Japanese summit in seven years, he was feted at two state dinners by Premier Li Keqiang and President Xi Jinping, an unprecedented honour for a foreign dignitary. Abe brought along a 500-strong business delegation, his biggest to date, and signed agreements to cooperate on infrastructure projects in third countries and arranged a US$29 billion currency swap with potentially fateful consequences for the dollar in the long run. Taipei would be well advised to take note.

Dr Michael Tai is a visiting scholar at the National Taiwan University's Graduate Institute of National Development



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