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Globalization will restrain China

In January, the value of China's exports to the US grew by only 3.3 percent, and the growth rate was 16 percentage points lower than the previous month.

Meanwhile, the growth rate for Taiwan's exports to China was also 26.4 percent lower than the same period in the previous year. This was not a coincidence but a reflection of the effect of globalization on cross-strait business exchanges -- which were seriously influenced by the US economic slowdown earlier this year.

Since 1993, China has been Taiwan's third largest trade partner and its second largest export market, while the island has been China's fourth largest trade partner and its second largest source of imports since 1990 and 1993 respectively. Cross-strait business relations, however, have not been heading towards either "Chinazation" or "Taiwanization" but to "globalization," as the global division of labor has now become the driving force leading cross-strait investments and trade. Thus, cross-strait business is actually a part of the global production chain.

For example, Taiwanese investments in China have been beneficial to Taiwan's export of intermediate products and capital goods (for example, raw materials, semi-finished products, machinery and equipment) to China. The finished goods are usually exported to advanced countries worldwide after being processed in China. Not only did Taiwan's early shoe, plastics and textile industries follow this path but its current electronics industry is also doing so. One to two thirds of Taiwan's exports to China in the mid 1990s were driven by Taiwanese investments in China, and as much as 14 to 18 percent of the value of China's exports was in fact accounted for by Taiwanese companies.

Since the mid 1990s, Taiwan's electronics industry has been the nation's biggest sector in terms of investments in China, leading to a new wave of integration caused by the globalization of cross-strait business. In fact, since 1996, electronic products and components have been Taiwan's largest single import from and export to China. In 1998, such products accounted for more than one third of the country's total imports from and exports to China.

Through the competitive advantage of labor division, Taiwan has been the world's third largest IT products manufacturer since 1997 -- second only to the US and Japan -- and its gross IT output reached US$48.1 billion last year. Meanwhile, Taiwan has topped the world in the output of 14 IT products and has occupied half of the global market for most of these products.

Under the global division of labor, however, more than half of the Taiwanese products were produced by factories overseas last year, and 39 percent were produced by factories in China, while Taiwan was responsible for providing the necessary materials and manufacturing equipment. For example, in 2000, Taiwan exported semi-conductor products worth US$4 billion to China, which accounted for 15 percent of its total export value to China.

Still, Taiwanese products are mainly selling to advanced countries, and the Chinese factories only play the role of processor. Last year, the international community purchased IT products valued at US$37.6 billion from Taiwan, accounting for 78 percent of the country's total output in the year 2000. In the same year, China's high-tech exports grew by 50 percent, to a value of US$37 billion, accounting for 15 percent of its total export value in 2000. Of these exports, however, 89 percent were processed products while 81 percent were produced by foreign companies (including Taiwanese companies), and about 53 percent of the goods were shipped to the US, Japan and other advanced European countries.

Apart from the division of labor, Taiwanese businessmen have also imported materials and techniques for information products from the advanced countries. Since last year, Taiwan has been the second largest importer of semi-conductor manufacturing equipment after the US, and the country purchased more than US$9.4 billion worth of semi-conductor manufacturing equipment, which was about one fifth of the total sales of semi-conductor manufacturing equipment worldwide.

Only by realizing that cross-strait business is a part of the global production chain can Taiwan confidently promote cross-strait business integration.

On the one hand, such integration will enhance Taiwan's competitiveness and will further promote the country's economic development.

On the other hand, the globalization of cross-strait business will create mutual interests between the international community and the two sides of the Taiwan Strait -- which will strengthen Taiwanese businessmen's leading position in the global economy and will effectively restrain Beijing from harming the stability and peace of the Taiwan Strait.

Tung Chen-yuan is a doctoral candidate at the School of Advanced International Studies, Johns Hopkins University.

Translated by Eddy Chang
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