Taiwan should view China's rise as a major economic power an opportunity and not a threat, according to a report published Friday from UK-based economists Economist Intel-ligence Unit (EIU). In the report, Leaping Dragon, Trailing Tigers?: Taiwan, Hong Kong and the challenge of mainland China, EIU outlines steps that both Taiwan and Hong Kong must take in order to fully exploit the emergence of China as an economic superpower or risk being overshadowed by the neighboring giant.
"The mainland economy will continue to present more economic opportunity than threat to Hong Kong and Taiwan, providing both economies can develop the right policies," said EIU's senior economist for the Greater China region, Paul Cavey.
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Taiwan faces a greater risk of being marginalized than Hong Kong as it does not have the Special Administrative Region's strengths in services, nor its history as a regional hub for multi-nationals.
"Taiwan in particular must become open more to mainland if it is truly to benefit from China's rise," Cavey said.
The greatest hurdle for Taiwan to overcome in the exploitation of China's growth is the lack of direct transportation links between the two countries.
"Taiwan's manufacturing sector will weaken without the opening of more direct economic links with mainland, which will also promote the growth of the neglected service sector," the report said.
Security concerns have prevented direct flights between political rivals Taiwan and China for over 50 years. All flights and shipments between the two sides of the Taiwan Strait have to go through a third destination, usually Hong Kong. Experimental "mini links" were opened between Taiwan's outlying islands and Fujian Province in China in 2001. Attempts to extend the mini links have so far failed.
Even historical direct charter flights laid on earlier this year to bring Taiwanese businessmen working in Shanghai home for the Chinese Lunar New Year had to stop first in Hong Kong before flying on to Shanghai.
Foreign business leaders in Taiwan have consistently called for direct links between Taiwan and China. In reports delivered to the government, both the American and European chambers of commerce list the lack of direct links as their number one concern.
"The top cross-Strait issue is continuing frustration at the business costs of indirect links with China," AmCham said in its 2003 Taiwan White Paper.
"Strategic business planners see Taiwan's lack of progress in establishing direct links as a distressing indication of a self-imposed isolation that jeopardizes their regional business plans," the white paper said.
Friday's EIU report also echoed local business concerns about the standard of Taiwan's infrastructure -- AmCham and the European Chamber of Commerce in Taipei highlight unstable water and electricity supplies in their white papers this year, for example -- and complicated bureaucracy.
"Taiwan's government needs to encourage greater research and development activities and implement much-needed improvements in Taiwan's physical infrastructure and regulatory environment," the EIU report said.
The EIU report was compiled from interviews and a survey of senior executives in Hong Kong and Taiwan.
The report was compiled with the support from Cathay Pacific, Clifford Chance, DHL, the Hong Kong University of Science and Technology, Primasia Securities, Roland Berger and ABN AMRO.
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