Economists who embrace the idea of moving westward to China view the arguments that "bad cross-strait relations will boost Taiwan's economy" and "good cross-strait relations will hurt the economy" as nonsense. However, Taiwan's more than 400 years of history has proven the continuity and truthfulness of these arguments.
During the period of Dutch occupation of Taiwan, China adopted an isolationist policy, thereby turning the island into a regional hub of commerce for Dutch and Portuguese traders to make connections with Korea, Japan, China and South Asia (which proved that the economy would also do well in the absence of cross-strait relations). But once China adopted an open-door policy and retook Taiwan, Taiwan's position as a regional hub vanished (which proved that Taiwan would change for the worse if cross-strait relations improved).
Taiwan was ceded to Japan after the first Sino-Japanese War. As Taiwan departed from China's orbit, the island's economy was changed inside out. But after Taiwan was returned to China following World War II, it encountered a major economic calamity that lasted four years, undergoing unprecedented inflation with 40,000 old Taiwan dollars worth NT$1. Cash assets disappeared (another example of good cross-strait relations leading to a poor economy for the island).
Later Taiwan adopted the KMT government's "three no's policy" and severed relations with China for 50 years. During this period of separation, Taiwan created its own economic miracle that was admired by the world (which proved for the second time that bad cross-strait relations would improve the economy).
Taiwan resumed relations with China in 1987 when people were allowed to visit their relatives there. Next, a series of "opening-up" policies -- such as tourism -- compelled the government to open up indirect investment in China in late the 1990s. China fever then started to burn off Taiwan's economic power.
Around the time of the so-called 1992 consensus ("one China, with each side having its own interpretation"), our traditional industries started to move to China in great numbers. It was also a period in which the stock market had its darkest phase, with index falling to 3,098 in January 1993. People suffered great losses (which proved for the third time that good cross-strait relations would ruin the economy).
In 1995, when the Constitution was amended to allow for direct presidential elections, cross-strait tensions escalated. Then president Lee Teng-hui's (李登輝) "no haste, be patient" approach in 1996 worsened cross-strait relations, but Taiwan's economy took a favorable turn. In August 1997, the stock market soared to 10,256 points, its highest in 10 years (which proved for the third time that bad cross-strait relations would make Taiwan well). As the "no haste, be patient" policy began to ease in 1998, the Investment Commission of the Ministry of Economic Affairs rarely rejected any applications for investment in China. The nation's high-tech industries then moved quickly to China and Taiwan's stock market plunged (which proved for the fourth time that good relations would hurt Taiwan).
Tension resurfaced when Lee came up with his "state-to-state" model of cross-strait relations in July 1999, but Taiwan's stock market soared to 10,393 points seven months later (which proved for the fourth time that bad cross-strait relations would improve the economy).
Cross-strait relations remained relatively stable after the presidential election in 2000, but the economy showed no sign of improvement. The sneaky transfer of Semiconductor Manufacturing International Corp and Grace Semiconductor Manufacturing Corp to China only accelerated Taiwan's economic hemorrhage. Since then the bear market has continued for three years, largely due to global economic recession and the Sept. 11 attacks on the US (which proved for the fifth time that good relations would hurt Taiwan).
The SARS epidemic broke out in March because of China's cover-up. As people went into a panic, the Chen government announced epidemic-prevention measures. Cross-strait exchanges almost broke off completely. The Council for Economic Planning and Development and various think tanks all expressed concern about the future of the economy and lowered their growth forecasts. However, I believe that SARS, if we can handle it properly, can be a godsend for us to improve our economy and reduce domestic unemployment.
The basis for this is that bad cross-strait relations -- due to reduced personnel exchanges caused by the epidemic and the resultant quarantine measures -- will boost Taiwan's economy. Why? It is simple. The number of Taiwanese touring China last year reached 3.8 million (over 10,000 a day). If SARS can reduce this number by half, Taiwan will save approximately NT$55 billion in travel expenditures.
If the annual Taiwanese investment of US$12 billion in China can also be reduced by half, the nation will save NT$200 billion in production capital and use this amount for domestic investment. If this amount is invested in the stock market, it will raise the index by several hundred points, thereby increasing trillions of dollars of wealth and increasing domestic consumption and investment.
The strong stock trend last month proved this argument. On June 18, the value of TAIEX stocks broke the NT$10 trillion mark, NT$2.5 trillion more than the NT$7.48 trillion at the end of May. The increase of people's wealth will be followed by the recovery of consumption and investment.
Of course, those who embrace the idea of moving to China will not agree with my argument. They say that the current stock trend is a sign of global economic recovery and a result of extensive foreign investment. However, they seem to have forgotten the reconciliation period following the 1992 consensus, during which the European and US stock markets were doing well but Taiwan's stock market was flat and purchases by foreign investors did not have much effect.
The "one country on each side of the strait" theory proposed last August and the SARS storm this February provided Taiwan with the "capital conditions" to move forward with the world. The surprise brought by SARS has a positive effect on our economic development in the long term. This was the fifth example to demonstrate that "bad cross-strait relations will boost Taiwan's economy."
How strong is this power pushing the stock market up and how long will it last? The key is how soon cross-strait exchanges return to normal. If personnel exchanges return to normal as soon as is advocated by the pro-tourism lobby, the China-investment fever will resume. The gift from SARS will start to shrink and the stock market will lose steam. In the end, the stock market boom will have been short-term.
If the government and the Mainland Affairs Council (MAC) can place the lives of the 23 million people of this nation above the interests of a million or so Taiwanese businesspeople in China and insist on the continuation of existing SARS prevention and quarantine measures, then the stock market should do quite well. And if the policy of investing in Taiwan can go hand in hand with SARS prevention, the return to a vibrant economy can be expected soon.
Experience tells us that information from Beijing about epidemics in China is neither transparent nor trustworthy. Although China's name has been removed from World Health Organization's list of SARS-affected areas on the back of its sheer political power, we should not lower our guard. We should still continue quarantine measures for at least six months to make sure that China is epidemic-free, which is the only way for Taiwan to ensure it is a safe distance from the Chinese epidemic.
If the MAC hurriedly lifts the quarantine measures to make it convenient for Taiwanese businesspeople, a second outbreak of SARS will follow and Taiwan may become the only SARS-affected area in the world. The stock market will crash, and any reconstruction work done by the government in the post-SARS period will be in vain.
China's policy toward this country is definitely more brilliant than ours toward them. The first thing China did to us when they started to fight SARS was to stop approving applications for travel to Taiwan. Perhaps we should do the same by taking a firm stand to temporarily suspend non-business travel to China. Should we do so, we will not have problems with home quarantines.
The people of this nation should not to be confused by the incantation that "bad cross-strait relations will hurt the economy," because history tells us the opposite.
Huang Tien-lin is a national policy adviser to the president.
Translated by Grace Shaw
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