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Heeding an `economic one China'

The latest trade statistics show that South Korea's total exports grew 14.5 percent in the first five months of the year, while those of Taiwan grew only 6.8 percent -- the lowest among the four Asian tigers.

Some believe that this is a result of the ailing global information industry, on which Taiwan's export relies, and that this is a temporary problem of little significance. I am not going to challenge this, but would like to remind the public that Taiwan's unsatisfactory import and export growth rates did not start this year. According to WTO figures, when global trade volume saw rapid growth between 2003 and 2005, Taiwan's average export growth rate was in fact 13.61 percent, lower than South Korea's 20.52 percent and Singapore's 22.4 percent, but slightly higher than Hong Kong's 13.09 percent.

Last year, Taiwan's export growth rate was 12.9 percent, once again lower than South Korea's 15.4 percent, and Singapore's 18 percent. Actually, Taiwan's export growth started lagging in 2002 after the government launched its "active opening, effective management" cross-strait policy in 2001, and the situation is getting worse.

To find the reasons behind Taiwan's falling export growth compared with neighboring countries or why Taiwan is falling behind the growth in global trade volume, we do not need to rely on profound economic theories.

When Taiwanese factories relocate to China, the export of their products of course have to pass through China. As the rate of Taiwanese investment rises, the higher the rate of Taiwanese exports being replaced by Chinese exports. Export growth will be lower. It's really that simple.

We all know that using business to promote unification always has been the guiding light for China's Taiwan business policy. The goal is to realize an economic "one China" and then use that to push for a political "one China."

The strategy seems to be quite successful. Taiwan's leading exports, including clothing, home appliances, toys and shoes had almost all disappeared from local ports by 1996 because most manufacturers had been lured to China.

As exports of goods declined, the demand for commercial vessels shrank, which is the main reason why Kaohsiung Harbor's position continues to drop after once being the world's second-biggest container port.

But in the beginning of this industrial relocation, Chinese-bound investment boosted the export of components, materials, and equipment, or what those supporting the relocation to China naively calls mutual benefits. Thus, during the 1990s, the relocation of production lines did not significantly affect Taiwan's export volume. Perhaps we can call this period the first stage of the "economic one China" project.

The strongest blow to Taiwan during this first stage was the decline of its economic growth strength. Although it was still possible to maintain an economic growth rate of 6.3 percent, domestic investment rates dropped and Taiwan lost its position against South Korea and Singapore. Domestic asset prices shrank sharply because of capital outflows.

The trade policy of relying on overseas investments to boost exports increased the trouble. After Taiwanese businesspeople investing in China quickly set up production chains, the continued growth of Taiwan's export rates required continuous, larger and more frequent investments. Unfortunately, as mid and upper-stream industries relocated to China, Taiwanese exports to China decreased. The 2001 "active opening, effective management" policy accelerated this trend.

The more complete the Taiwanese businesspeople's information hardware production chains along China's Yangtze River are, the fewer Taiwanese-made components they need.

In addition, on June 28, the government used the creation of business opportunity as an excuse to give four local companies approval to offer low-end chip testing and packaging services for their customers in China. This looks more like sponsoring China's economic development.

If Taiwan keeps investing in China based on the thinking that this will boost exports while ignoring innovation and research and development in Taiwan, the nation will face zero or even negative export and economic growth in the near future. This will be the day that the second stage of the "economic one China" project will be successfully completed. By that time, Taiwan will need a CEPA "closer economic partnership arrangement" and other preferential treatment from China, and that will complete the political "one China."

Shouldn't our political elite be more cautious?

Huang Tien-lin is a former national policy adviser to the president.

Translated by Eddy Chang
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