An economic agreement among China, Hong Kong and Macau known as the Closer Economic Partnership Arrangement (CEPA) came into force on Jan. 1.
Members of the business community in both Hong Kong and Macau, along with Taiwanese businessmen, mostly believe that the preferential treatment offered by Beijing under the arrangement will bring a lot of opportunities. In Taiwan, some have begun to talk about how Taiwan ought to join in the integration of the "Greater Chinese region"to maintain economic growth and avoid the risks of marginalization.
Some have even proposed the "innovative" concept of a "Closer Economic Operational Framework" (CEOF), believing that CEOF would avoid the problems associated with the politically sensitive CEPA.
In other words, according to these people, substituting of "operational framework" for "arrangement" would allow the regulation of cross-strait economic and trade exchanges while circumventing potential sovereignty disputes.
Will Taiwan lose business opportunities and become marginalized if it does not agree to CEPA with China?
We should seek the answer through an in-depth analysis of the contents of the arrangement and and its potential effects.
CEPA encompasses three main issues -- trade in goods, trade in services and convenience in investments.
In terms of trade in goods, China on Jan. 1 stopped charging tariffs on the import of 273 categories of goods originating in Hong Kong.
In terms of trade in services, also effective Jan. 1, China opened up the service industries in China to Hong Kong, including the banking, stock, insurance, accounting, medical and management consultation sectors.
As for investments, administrative procedures will be simplified.
Focusing on CEPA's impact on trade in goods, manufacturing costs in Hong Kong are very high. Hong Kong manufacturing companies have mostly relocated to China already. Even with no tariffs, manufacturing costs in Hong Kong remain so high that prices of Hong Kong goods will still not be competitive in the Chinese market. In other words, preferential treatment under CEPA does not benefit the Hong Kong manufacturing industry very much.
The same would be true in Taiwan.
The most important aspect of CEPA may be giving the special administrative regions a competitive edge over foreign businesses in the area of trade in services. Under CEPA, the minimum capital requirement for Hong Kong banks seeking entry into China has been reduced to US$6 billion (NT$202 billion), which is much lower than the US$20 billion required of foreign banks. To qualify for offering banking services in yuan, a bank from one of the special administrative regions must have set up branch bank(s) in China at least two years beforehand, as compared to the three-year requirement for foreign banks.
Many banks in Taiwan have more than US$20 billion. If they seek authorization to offer banking services in yuan through Hong Kong, they save only about one year. This is not to mention that China has already made a commitment to the World Trade Organization (WTO) to completely open up its financial services sector by 2006, only two years from now. So the convenience offered to Hong Kong's small and mid-size financial institutions under CEPA does not hold any irresistible attraction for Taiwan.
Under the circumstances, it is obviously an exaggeration to say that "if we do not take after Hong Kong, we will lose business opportunities, and if we do not establish CEPA with China, Taiwan will be marginalized."
Then why has CEPA created such a fuss in Taiwan? The most important reason is that Beijing is calling on Taiwan to sign a CEPA pact. Beijing plans to use this as a magnet to suck in Taiwan's capital. Over the past 13 years China has sucked away more than US$160 billion in manufacturing capital, which has laid the foundation for China's status as the manufacturing capital of the world.
Beijing's next target is Taiwan's financial capital. China believes that Taiwan's finance industry, which is dominated by big conglomerates, is now the most vulnerable to being sucked dry. It can see the big financial conglomerates' greed and their ambition to expand. Beijing seeks to pressure the Taiwanese government through the financial and banking sectors so that Taiwan begins to seem like a part of China.
Even though Taiwan remains adamant about sticking to the principles of equality and sovereignty in its dealings with China, Beijing continues to hope that CEPA with Hong Kong can successfully lure Taiwan's financial capital to China, so as to facilitate the accomplishment of its policy goal.
These are Beijing's intentions, and the pro-unification media and scholars have joined the CEPA chorus. "If Taiwan does not take part in or does not actively seek to take part in the business opportunities offered by CEPA, Taiwan will be marginalized" -- this is a sort of slogan they use to persuade the people of Taiwan that CEPA is a good idea. CEPA and CEOF are part of the same trap, set by Beijing for the purpose of engulfing Taiwan. "Reviving the Hong Kong economy" is only a secondary part of the regime's strategy.
Can CEPA truly revive the Hong Kong economy? As described above, CEPA won't do much for manufacturing in Hong Kong. As for the financial services sector, since most large Hong Kong banks have already entered the Chinese market, if Taiwan's finance industry does not jump on the bandwagon, it isn't likely that CEPA will do much for Hong Kong's service sector. In other words, Taiwan is the key to whether CEPA can serve the purpose of saving Hong Kong's economy.
As long as Taiwan's scholars, government and members of the business and finance industries do not dance to China's tune, and Taiwan's finance industry does not head en masse to Hong Kong, CEPA can at most give Hong Kong one to two years of good times. Thereafter, the entire service sector of Hong Kong will head West or North, gradually losing its ties to Hong Kong and repeating the exodus of the manufacturing industry 20 years ago.
The vacuuming out of the service sector and the re-enactment of the tragedy of a larger economy engulfing a smaller one will only force the residents of Hong Kong to encounter another wave of painful marginalization.
In recent years, China has suffered no defeats in foreign policy. China has won the right to host not only the 2008 Olympic Games but also the 2010 World Exhibition.
Moreover, it has made moves to take over leadership of APEC. On Dec. 9 last year, Chinese Premier Wen Jiabao (溫家寶) and his entourage were received with fanfare at the White House, where Wen urged US President George W. Bush to issue comments that reflected unfavorably on Taiwan's referendum for peace.
A rapidly expanding economy is the reason that China has been able to get away with murder in the area of diplomacy. Yet the momentum for the rapid growth of the Chinese economy is Taiwanese businessmen. Taiwan sacrificed its own growth, enduring the pain of high unemployment, to help China. Now China wants even more -- Taiwan's financial capital.
CEPA brings no business opportunities, but rather the serious questions of whether Taiwan wants self-determination and sovereignty. In June 1989, after Chinese tanks ran over the dead bodies of innocent students, and as the countries of the world imposed economic sanctions on China, Taiwanese businessmen offered a hand in the form of capital and technology. Fourteen years later, China is targeting Taiwan with 496 missiles.
Now China is asking for our financial capital. Do we want to continue being generous and repeat the financial and economic policies of the pan-blue regime in the 1990s?
CEPA is not the business opportunity spoken of by a certain lawmaker.
CEPA is no wonder drug. Instead, it is a deadly poison. CEOF is a sugar-coated CEPA and is no less lethal. It would dry up financial capital, cause industry to wither and increase unemployment.
Is that what we want?
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