More than a decade ago, the biggest headache for Taiwan's economic and trade officials used to be about how to diversify the market and balance Taiwan-US trade. Now, the most pressing issue for Taiwan's officials is about how to resist China's magnetic pull and lead China toward internationalization. The question has always been how to diversify trade and investment, whether it is with the US or China. In handling its economic dependency on China, Taiwan should follow its experience of handling the trade deficit with the US more than a decade ago and diversify the market.
According to statistics from the Ministry of Economic Affairs, cross-strait trade increased nearly 20-fold between 1987 and 2001. Trade with China accounted for 1.71 percent of Taiwan's overall foreign trade in 1987, rising to 13 percent in 2001. Exports to China accounted for 19.6 percent of Taiwan's exports in 2001, but Chinese goods accounted for only 5.5 percent of Taiwan's imports because Taiwan continues to restrict them. Cross-strait trade totaled more than US$40 billion last year, of which Taiwanese exports to China accounted for US$32.8 billion, or 25 percent of all of Taiwan's exports. Chinese imports to Taiwan totaled US$7.95 billion, with China replacing South Korea as the third largest source of Taiwan's imports. Taiwan's economic dependency on China has increased dramatically.
On the investment side, Taiwan's government had approved investments in China worth US$25.5 billion by the end of last year. Investments in China account for 48.32 percent of all Taiwanese investments abroad, making Taiwan the fourth largest source of foreign investments in China. Now that the Executive Yuan has agreed in principle to allow Taiwan Semiconductor Manufacturing Corp (
In the past, Taiwan's financial authorities used three strategies to handle overconcentration on the US market: market diversification, investment diversification and improving the domestic investment environment. In terms of market diversification, the government should now strengthen global sales expansion plans, set up government procurement Web sites, collect information on foreign government procurement plans and help local businesses bid for overseas projects.
The government should now actively push for free-trade agreements, with priority given to the US, Japan, Singapore, Panama and other South American nations. When it comes to diversifying investments, the "Go South" policy should be rekindled. Of all Southeast Asian nations, Vietnam has the best conditions for Taiwanese investments. Taiwan should first seek a free-trade agreement with Vietnam, and then attract other countries to follow suit.
Besides, the government should plan to attract overseas Taiwanese businesses back to Taiwan. It should also help them set up global strategies and diversify risk. When it comes to creating a favorable investment environment, the government should help local investors acquire industrial land, propose low-price land-lease strategies, help businesses raise funds and use tax breaks to encourage industrial upgrades and innovation. Taiwan should take advantage of a global economic recovery to improve its economic structure and push for internationalization as an alternative to Sinicization. If Taiwan cannot break free from dependence on China, Kenichi Ohmae's prediction of a United States of Chunghwa in 2005 could unfortunately come true.
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