Taiwan: A Resource Coordinator and Risk Buffer for Asia(NEWSLETTER NO.6)
English key-word:
Taiwan: A Resource Coordinator and Risk Buffer for Asia
specialist:
Researcher:
Yih-chyi Chuang
Report type:
publish date:
201004
English abstract:
The rise of China since the 1990s has significantly
changed the world economy and regional
production networks in Asia. While the world
economy has been mired in a global financial crisis
since 2008, half of the 2009 world economic
growth was contributed by China, an economic
driving force expected to last in the years to come.
Economic cooperation -- be it bilateral,
plurilateral or multilateral -- has shaped the new
order of international trade, and cross-boundary
investment and outsourcing have dominated
international business. Up to the present, more
than 400 free trade agreements (FTAs) have been
reported to the World Trade Organization (WTO).
In Asia, ASEAN +1 or ASEAN +3 is a prominent
example.
Since the mid-1980s, currency appreciation, rising
awareness of environmental protection, growing
wages and the implementation of the Labor
Standard Law have pushed Taiwanese firms to
invest abroad, first in Southeast Asian countries,
and later in China after the lifting of Martial Law
in 1987.
Taiwan’s official statistics show that up to 2009,
Taiwan’s accumulated investment in China
reached US$82.7 billion and accumulated
cross-strait trade amounted to US$854 billion,
despite the fact that the Taiwan government had
adopted a restricted economic policy toward
China in 1996. In May 2008, when Ma Ying-jeou
became the president with the Kuomintang
returning to power, the government policy began
to focus on strengthening the cross-strait economic
ties and the division of labor. Businesses have
called for the institutionalization of the economic
relations between Taiwan and China to lower
transaction costs and reduce market risks. Thus,
an Economic Cooperation Framework Agreement
(ECFA) between Taiwan and Mainland China is
proposed and urged to be signed in June 2010.
The major implication of ECFA for Taiwan is to
protect Taiwan’s investment in China, strengthen
Taiwan’s de facto division of labor, and maintain
Taiwan’s competitiveness by enlarging the
technology gap and exploiting China’s huge
domestic market. With such a bilateral agreement
with China in place, Taiwan could seek similar
FTAs with other Asian economies to prevent Taiwan from being marginalized in the wave of the
Asia regional integration.
Since June 2008, there have been four talks
between Mr. Chiang Pin-kung, the chairman of
the Straits Exchange Foundation (SEF), and Mr.
Chen Yunlin, the president of the Association for
Relations Across the Taiwan Strait (ARATS). The
two sides reached 11 economic agreements all on
economic issues. The ECFA, which is likely to be
signed at the fifth Chiang-Chen talks this June,
will primarily cover economic issues with no
political or sovereignty issue. Setting the political
issue aside and focusing on the economic matters,
the ECFA is the first step for the two sides to
negotiate and learn from each other and hopefully
reach a certain consensus.
China should not consider the ECFA as a means
for economic reunification eventually leading to
political reunification. If China tries to use the
ECFA to marginalize Taiwan and exclude Taiwan
from the Asian regional integration, this will be
unfavorable for the regional security and stability,
and also not in the national interest of the United
States and Japan. As a result, the U.S. and Japan
or other Asian countries might consider FTAs with
Taiwan if Taiwan is under the threat of being
marginalized. Thus, for a win-win solution, China
should be glad to see Taiwan to sign FTAs with
other Asian countries in Asia, and Asian neighbors
should welcome Taiwan’s membership in any FTA.
The ASEAN is Taiwan’s second largest trading
partner, only second to China. Boasting a highly
entrepreneurial industrialization centered on
small- and medium-sized enterprises, Taiwan can
be an excellent resource coordinator and
technology counselor for the Asia-Pacific region.
Cooperation rather than competition should be the
motto for Asian regional development. One of the
lessons from the 2008 global financial crisis is that
the Asian countries should advance from an
export-oriented economy to a
domestic-demand-oriented economy to enhance
the welfare of the majority of the working class. In
this regard, China’s potential consumption market
plays a very important role. From China’s own
perspective, it is important to develop the inner
rural areas, increase the income of the rural sector,
mitigate regional income disparity, boost domestic
consumption, and maintain a healthy economic
growth rate. From the perspective of the Asian
countries, the growth of Asia needs a momentum
to sustain regional demand and supply. China, in
particular, and Japan should play the pivotal role.
China’s rapid urbanization and the emergence of
the middle class are the driving forces for China’s
domestic economy.
The ECFA enables Taiwanese firms to develop
China’s domestic market in the sense that Taiwan
and Mainland China share a common language,
culture, and similar business practices. For the
past 20 years, Taiwanese firms have made
intensive direct investments in China, particularly
after the turn of the century. After China’s
accession to the WTO in 2001 Taiwanese
manufacturers on food products and home
electronics and distribution chain stores started to
focus on China’s domestic market utilizing local
upstream suppliers. The large Taiwanese
manufacturing firms together with small- and medium-size component suppliers and distributors
will form a complete supply chain from upstream
R&D and product design to downstream
manufacturing and logistic services. Not only will
the coastal development experience be smoothly
transferred to the central and western inner
regions, but the creation of brand names and the
establishment of product standards become
possible in light of the huge domestic consumption
market.
The ASEAN+ 1, namely the ASEAN plus China,
brings in a new era for the East Asia economic
integration. The process of ASEAN +3 or ASEAN
+6 will keep evolving no matter in what form or in
what name in the future. There is confidence that
Asia will soon be the center stage of the world
economy. While the growth of Asia is picking up
momentum, none should be left behind; indeed,
everyone should play a role in facilitating the
process. Among them, based on its past
remarkable experience and its contribution to the
international community, Taiwan should actively
participate in the process as a regional resource
coordinator and technical supporter.
The ECFA will establish an overall economic
framework on the cross-strait economic exchanges
and thereafter Taiwanese firms will play an even
more vital role in China’s domestic market. Also, it
is in the interest of the ASEAN and other
economies in Asia to consider seriously signing
FTAs with Taiwan as a middleman coordinator as
well as a risk buffer in the region. More important,
signing an ASEAN-Taiwan FTA after the
China-Taiwan ECFA will contribute to the
ASEAN's role as a hub of regional integration
process.
It is thus apparent that Taiwan and China signing
the ECFA, and Taiwan signing FTAs with other
Asian economies, will definitely further
consolidate and facilitate the on-going process of
the East Asian economic integration. The
marginalization of Taiwan is not in the common
interest of the Asian economies. For a prosperous
and peaceful Asia, Taiwan needs Asian friends and
Asian communities should not neglect Taiwan.
(Prof. Yih-chyi Chuang is currently Professor of
Economics Department, National Chengchi
University)
English
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