Since the government replaced the "no haste, be patient" policy with "active opening, effective management" in 2001, Taiwanese investment capital has flown to China.
As domestic capital has been squeezed, how is the government going to promote creative high-end manufacturing? Why should we review the ban on direct cross-strait links or loosen the 40 percent investment ceiling on China-bound investment?
These are some of the questions asked by friends opposed to the opening of direct links. I believe I owe them an answer.
Taiwanese -- even including former president Lee Teng-hui (李登輝) -- seem to have the following general impressions.
Taiwan's investment in China was well controlled prior to 2001 thanks to Lee's "no haste, be patient" policy and the amount of China-bound investment only rose sharply after the policy was loosened by President Chen Shui-bian (
This loosening has led to weak domestic investment. This is also the reason for Taiwan's slow economic growth.
These impressions are widespread but unsupported by facts. Lee originally suggested making China Taiwan's economic base, and loosened restrictions on investment in the early 1990s. Although he later proposed the "no haste, be patient" policy in 1996, the amount of Taiwanese investment in China remained high.
Chinese statistics show that Taiwan averaged US$3.14 billion in annual investment in China between 1993 and 1999, but that figure fell to US$2.98 billion between 2000 and 2005. Although the figures are close, today's Taiwanese enterprises are on a scale that differs from that of their counterparts of the 1990s.
For example, the annual business volume of the Hon Hai Group was only NT$38.2 billion in 1999, but that had risen 11-fold to NT$421.6 billion by 2005. So the same amount of money has completely different significance depending on what year we are talking about.
Furthermore, during the China-bound investment push of the 1990s, Taiwanese businesses invested heavily in Taiwan as well. Domestic fixed investment remained steady at a reasonable 22 to 24 percent of GDP.
Then, as investment in China shrank in the 21st century, domestic investment dropped below 20 percent.
Although there was certainly more investment in China prior to 2000, Taiwan's rate of economic growth was higher as well.
It is true that most plants tend to close their Taiwanese production lines once they invest in facilities in China. This is extremely unfortunate. After countries from the ASEAN and China followed the East Asian Tigers to enter global production, Taiwan's labor-intensive export production industry lost its competitiveness. Factories now have to move overseas or close.
After Lee pushed to use China as a base for Taiwan's economy, many Taiwanese businesses went to China. Taiwanese companies gradually formed little settlements in China, such as the one in Dongguan City in Guangdong Province. The attraction was too strong to be stopped by Lee's "no haste, be patient" policy in 1996, and by 2000 the total production value of the electronics industry still in Taiwan had dropped to 49 percent of what it had been in 1991.
That's why, when asked why he moved his entire production line to China, one boss at a major laptop computer factory said in 2001 that the parts are all there: "If I don't go, how could I compete with everyone else?"
There would have been no problem if air shipments had been possible at the time, allowing manufacturers to stay in Taiwan.
Huang Tien-lin (
At the same time, assembly of laptops and motherboards is the final stage of production, and since all the computer companies have moved to China to manufacture them there, there are no more Taiwanese companies left to move.
This is also why, even though Chen initially promoted active opening, the yearly average China-bound investment has been less under Chen than under Lee. The debate over opening up direct links or raising the 40 percent investment cap has therefore become a moot point.
Lin Cho-shui is a former Democratic Progressive Party legislator.
Translated by Eddy Chang and Marc Langer
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