The new Presidential Office, Executive Yuan and Democratic Progressive Party (DPP) teams started their work on May 20. This new administration that vows to "unite Taiwan, stabilize cross-strait relations, seek social harmony, and reinvigorate the economy" will bear the responsibility of "paving the way for a sustainable Taiwan," as the title of President Chen Shui-bian's (陳水扁) inauguration speech proposed.
When the administration took office, what received the most attention from all sides was certainly Chen's speech, especially the issues of constitutional reform and cross-strait relations. Before the speech, Chen faced various pressures from both foreign and domestic political forces. But with a pragmatic and responsible attitude, the lawyer-turned-president told the world his policy goals toward building a sustainable nation. The speech generally won US approval and deprived China of any excuse to attack. Even the sensitive stock market responded positively to his speech.
Some of the administrative goals may take a long time to produce the desired results, such as Taiwan's constitutional reform, while others are the present progressive tense, such as cross-strait relations. China's Taiwan Affairs Office issued a statement on cross-strait relations three days before Chen's inauguration, emphasizing its "five nevers" under the precondition of "one China," while proposing "seven suggestions" for exchanges between the two sides. Therefore, cross-strait relations, especially the cross-strait economic and trade exchanges that have been going on for more than 20 years, are surely the administration's most pressing concerns. Thus Taiwan's challenge is to appropriately deal with the opportunities and risks presented by its close business integration with China.
In terms of Taiwan's opportunities, the late Chinese leader Deng Xiaoping (
Over the past five years in particular -- in contrast to economic downturns in the US, Europe, and Japan -- the Chinese economic boom brought by massive investments (including foreign investment) has become a major force maintaining global economic productivity. Calculations based on purchasing power parity (PPP) even suggest that China lies behind 25 percent of global GDP growth.
Indeed, Taiwan has benefited from the rapidly growing Chinese economy, thanks to the flexibility of its enterprises, its geographic advantage and the fact that both Taiwan and China employ a "vertical division of labor" and are often complementary to each other. The positive effects of China's economic development are also quite obvious in its other East Asian neighbors, such as Japan and South Korea as well as Singapore and other ASEAN member states.
Yet economic affairs can never be viewed from a single aspect: profits are always accompanied by side effects.
In late April, Beijing announced its intention to take "macroeconomic control measures" to reduce investment, commodity prices and bank loans through forceful administrative methods. This policy has caused panic in neighboring Asian countries.
Essentially, the Chinese economy has been overheated by excessive investment, not excessive demand. For the latter, commodity prices go up when supply is unable to meet demand. For the former, perhaps price increases are not particularly serious as both supply and demand increase. But excessive production capacity or supply will inevitably cause profit reduction, enterprise bankruptcies and nonperforming bank loans.
In other words, if China does not find ways to cool down its economic growth rate, which is as high as 9 percent at the moment, it will surely face a "hard landing," or even a repeat of the 1994-95 collapse of the investment bubble that could cause deflation and an equipment surplus.
The Chinese government is focusing on macroeconomic control measures, but as a country whose socialist economy is not yet transformed into a market economy, the policy tools it can use are somewhat restricted. The appreciation of the Chinese yuan is an effective tool, but Beijing is unwilling to appreciate enough to damage its exports, nor is it willing to lose face under foreign pressure.
An interest rate hike is also a common way for a nation to cool down its economy. But in China, where the government controls almost half the economy -- including the blind investments by state-owned enterprises and local governments -- the effectiveness of restraining excessive investment by raising costs is also limited.
In addition to currency policies, fiscal policies are also commonly used macroeconomic control measures. However, China's fiscal policies are unable to aid its economy due to financial difficulties in recent years. This is why Beijing so far has merely proposed administrative measures to increase the deposit reserve ratio and scrap investment loans.
Although many view the new policy as "causing short-term pain for long-term gain" because an economic cooldown is necessary, whether these policies will prove appropriate and harmless is still unclear.
Hence the negative impacts of China's macroeconomic control policies have pushed Taiwan to consider how to reduce China's economic influence, and have given it an opportunity for change. At a time when China's economy is growing rapidly, chaotically and unstably, China's risk of economic fluctuations, its banking sector's bad loans, its uneven income distribution and potential political and social unrest pose serious risks to Taiwan.
Cross-strait business relations can hardly be free of political and economic interference. As Chen stressed in his speech, a democratic Taiwan has no hostility toward China, and its democratic and open attitude does not rule out cross-strait development in any form. In comparison, the Beijing government often threatens Taiwan and has set up many preconditions for cross-strait relations, has deployed ballistic missiles aimed at Taiwan and has reduced Taiwan's international space.
Under such hostile and tyrannical Chinese policies, cross-strait exchanges -- including the opening of the "three links" -- are just tools being used to oppress Taiwan to force its surrender.
To be blunt, the biggest obstacle to mutual interest and reciprocity in cross-strait exchanges is China, which does not renounce the use of force and lacks the magnanimity of a leading power. Since Chen has expressed his goodwill, this is an opportunity for Beijing to respond with concrete action, so that the two sides can move toward positive interactions.
Facing the two-edged sword of the rising Chinese economy, Taiwan must resist a magnification effect to avoid the "cavitization" of its industry, so as to reduce China's negative impact on its economy. On the other hand, it must improve its competitiveness so as to ensure the leading role of its own industry. More fundamentally, it should not put most of its investments only in China's basket. As for any nation in the global economy, its international business arrangements should not focus solely on one other nation, much less one with a hostile agenda.
Consider some Asian examples. India has a population of about 1 billion and is strong in computer software development, which should be able to complement Taiwan's computer hardware development. Meanwhile, both Indonesia and Vietnam may be advantageous locations for the international expansion of Taiwanese enterprises.
In this regard, the new administration has had a good beginning. On his first working day, Council for Economic Planning and Development Chairman Hu Sheng-cheng (
With such a clear and definite stance, future cross-strait business exchanges should be based on former president Lee Teng-hui's (
As for mainstream opinion, surveys conducted by the Mainland Affairs Council show that about two-thirds of the public believe that the government should consider both the national security and direct links with China. They also believe that Taiwan should tighten its rules on Chinese investments, rather than loosen them further.
Lu Shih-xiang is chief executive officer of the Foundation for the Advancement of Media Excellence.
TRANSLATED BY EDDY CHANG
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