Investment in China must not be increased

With the approach of the Conference on Sustaining Taiwan's Economic Development, Taiwan Advocates, an advocacy group chaired by former president Lee Teng-hui (李登輝), has become more vociferous in its pleas to the government to not put cross-strait deregulation ahead of issues of sovereignty. This response reflects Lee's anxieties regarding the possibility of closer cross-strait economic relations.

In this era of globalization, a country's self-imposed trade restrictions constitute an obsolete policy, violating free market principles. However, Taiwan's situation is unique as its main trading partner is not a "normal" democracy. Its main trading partner also happens to be its main enemy whose many missiles and "united front" tactics threaten to wipe Taiwan off the map.

There also exists an overwhelming disparity between the two sides in terms of their population, land and economies. Such disparities render a comparison of Taiwan and China to the former East and West Germany inappropriate. If Taiwan's capital were to flow to China to the point where it becomes utterly dependent on China, Taipei would be in a very dangerous predicament. Beijing could then force Taiwan to accept the policy of "one country, two systems" through economic means.

Some that only by increasing Taiwan's Chinese investment can it further its economic development. But didn't Taiwan, South Korea, Hong Kong and Singapore earn the collective title, the "Four Asian Tigers," based on diversified investment strategies? Under Lee's "no haste, be patient" policy during his 12-year presidency, didn't Taiwan's economy grow at an average yearly rate of 10 percent?

China not the only "global factory." What's more, its economy is not as miraculous as local pro-unification media would have us believe. According to the German Bertelsmann Transformation Index (BTI), the "bad loan rate" for the Chinese banking sector ranges between 40 percent to 50 percent, which translates into a loss of about US$500 billion. The Financial Times newspaper reported that China's actual losses maybe as high as US$900 billion. Taiwan's bad loan ratio, on the other hand, dropped in 2004 to 4.35 percent.

According to the Rand Corp, China's unemployment rate has risen above 23 percent while Taiwan's has fallen below 4 percent, setting a new five-year low. The Economist Intelligence Unit, the British think tank attached to The Economist magazine, has predicted that Taiwan's economic growth rate will be 4 percent this year, and 4.3 percent next year, which is higher than Hong Kong's current 4.1 percent.

The IMF is more optimistic, predicting that Taiwan's annual economic growth rate will reach 4.5 percent in both this year and next. Additionally, 250 million of the 1.3 billion people in China make less than US$1 a day, with 700 million more earning less than US$2 a day. Almost half of all Chinese do not have any medical insurance whatsoever.

Japan adjusting its investment policy last year, gradually shifting its focus from China to India. Even Chief Cabinet Secretary Shinzo Abe -- who is widely expected to succeed Prime Minister Junichiro Koizumi in September -- reviewed Tokyo's China policy in his new book, To a Beautiful Country, calling on Japan to not allow Beijing to achieve its political goals through economic means.

If Taiwan puts all of its eggs in China's basket, such a situation is likely to become the biggest political bargaining chip at China's disposal in its bid to annex Taiwan. Additionally, corruption in China is endemic and threatens to lay waste to the Chinese economy -- an economic storm waits in the wings. If Taiwan only becomes aware of this fact when the storm hits, it will be too late.

Cao Changqing is a freelance writer based in the US.

TRANSLATED BY EDDY CHANG