Sat, Jul 16, 2005 page8

• Lien's meddling is hurting Taiwan

  • By Lin Cho-shui 林濁水
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  Not long ago, Chinese Nationalist Party (KMT) Chairman Lien Chan's (連戰) public approval ratings reached a 10-year-high, almost double the ratings for President Chen Shui-bian (陳水扁). A satisfied Lien said that one important reason for this was that his visit to China was helpful for cross-strait trade. He believes that Taiwan's economy must now rely fully on China, and thus feels that he has made a contribution worth recognizing.

  Lien's attitude coincides with mainstream opinion in Taipei, which is that although Taiwan's economic growth has in the past relied on running a trade surplus with the US, China has in recent years been supplanting the US as Taiwan's major trading partner. Last year, for example, Taiwan's export trade to the US totaled US$50.5 billion, while exports to China -- including goods channeled through Hong Kong and Macau -- totaled US$61.7 billion.

  More importantly, Taiwan's trade surplus with the US amounted to US$5.7 billion, while the trade surplus with China reached a startling US$28.3 billion. If we subtract that figure from the total export trade figure, then Taiwan has a trade deficit of US$22.1 billion.

  Equally startling is that exports to China make up 25.9 percent of Taiwan's total exports, and 14.2 percent of GDP, evidence that Taiwan is living off Chinese money. That's something we should be ashamed of.

  But focusing just on China provides an incomplete picture. When looking at trade between China and Taiwan, we must also look at China-US trade. Twenty-four percent of China's exports are destined for the US, with a net value of US$70 billion. Subtracting that number from the figure for China's total exports, China also has a trade deficit, to the tune of US$40.1 billion. This shows us how China is living off US money in the same way as Taiwan is living off Chinese money.

  These numbers are no mere coincidences. The global aspect of business means that China-based businesspeople from Taiwan make up an extremely important structural link between China and the US.

  The IT industry is the best example for explaining the interdependence of these three nations. The US provides Taiwanese manufacturers with basic components. Taiwanese manufacturers then set up production in China, importing machinery, equipment and semi-finished products from Taiwan, the production value of which amounted to US$50 billion last year.

  In 2003, 92.5 percent of this production was exported and distributed across the globe with the help of US companies such as HP and Dell. Of these products, 35.8 percent ended up in the US, and only 7.5 percent stayed in China.

  Although China is a huge country, total foreign trade makes up 82.1 percent of its GDP. Exports and enormous inflows of foreign capital are the engines behind its economic growth. According to some estimates, total Taiwanese investments in China has now exceeded US$100 billion, surpassing both US and Japanese investments. The products manufactured with this investment have created enormous export volumes for China, which has made a significant contribution to its economy.

  In order to better use and control Taiwan's role in this triangular interdependence, China has strategically begun to attract Taiwanese businesses. The results are startling. In 2000, 53 percent of Taiwan's IT-hardware manufacturing took place in Taiwan and 32 percent in China. Last year, the figures were 15.6 percent and 71.4 percent, respectively, and the value of manufacturing in Taiwan had fallen from US$30.6 billion to US$10.9 billion according to Industrial Technology Intelligence Services. This makes it clear that Beijing's main goal is to attract Taiwanese businesspeople in the hope that they will bring great benefit to China's economic development, and not to sacrifice its own economic interests for some "united front." Or maybe we could say that the great economic benefits and the "united front" are two aspects of the same strategy.

  The realities of the triangular interdependence between Taiwan, the US and China is that without the US as a source of fundamental technical components and an end-user market for Taiwanese manufacturers, China-based Taiwanese businesspeople would have no chance at all to invest in China, nor would Taiwan be exporting such large volumes to China. Thus, there is no such thing as Taiwan's reliance on China supplanting reliance on the US.

  Taiwan's large volume of exports to China also implies large Taiwanese investment in China. What remains unchanged, however, is that Taiwan is still making its money in the US. The difference is that it is now cheap Chinese labor and the Beijing administration that are earning the salaries and taxes that originally remained in Taiwan.

  The reality is that by using globalization to attract Taiwanese businesspeople, China has not only won massive benefits, but also widened the gap between rich and poor, a common phenomenon in the globalization process. The same phenomenon can be seen in Taiwan, and it has divided society into two camps. The majority feels that the opening of the three direct links must not move too fast, a concern that has become even stronger following Lien's visit to China.

  In an opinion poll conducted by the Mainland Affairs Council in late May, 18.9 percent of respondents said that cross-strait exchanges are developing too slowly, down from 25.7 percent last year. On the other hand, 25.7 percent felt exchanges are moving too fast and 40.2 percent said they are moving at an appropriate pace, the highest numbers since 2001.

  Lien and the pan-blue camp are oblivious to such evidence, and instead insist that we owe China a debt for developing trade while feeling proud of the achievements Taiwanese businesspeople have made on China's behalf. This would all be fine if it were merely a matter of stupidity, but Lien also tries to direct cross-strait developments, and that will only make matters worse.

  Lin Cho-shui is a Democratic Progressive Party legislator.

  Translated by Perry Svensson
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