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Three links are not a money mecca

Taiwan's trade surplus this year reached US$25.1 billion by last month. Yet behind this record figure lie some very worrying facts: The proportion of orders made to Taiwanese companies with factories abroad rose from 45.64 percent in April to 47.39 percent in October. These firm's revenues are one-third larger than that of wholly domestic firms, and the number of foreign workers has reached an average of 67 percent of overseas companies' total employees.

Even so, Democratic Progressive Party presidential candidate Frank Hsieh (謝長廷) and Chinese Nationalist Party (KMT) presidential candidate Ma Ying-jeou (馬英九) insist that the absence of the three links with China is causing Taiwanese manufacturing to fall behind other countries.

In reality, judging by the figures above, it has not caused Taiwanese companies to lag behind foreign competitors in terms of utilizing manufacturing resources in China. Furthermore, profits have risen by 22 percent for Taiwanese businesses -- ahead of Hong Kong at 14.4 percent, Japan at 12.9 percent, and South Korea, which Ma and his running mate Vincent Siew (蕭萬長) so envy, at 16.3 percent.

In other words, our competitive edge is not disappearing without the three links. Taiwan should be worried about the decline in domestic industries -- not about the limitations to economic growth as a result of trade regulations.

For the same reasons, Ma and Hsieh's main demand to further open up cross-strait trade has drawn heavy criticism, as this strategy may turn Taiwan into another Hong Kong.

In any case, Taiwanese industries are already developing a new trend.

According to the Ministry of Finance, Taiwan's exports to Hong Kong and China from January to last month rose by 11.7 percent compared with the same period in the previous year.

Yet the same figures rose by 64.4 percent for exports to India, and 14.4 percent to ASEAN nations, of which exports to Vietnam rose by 60 percent last month.

As is the case with China, this trend was led by investment.

Because of taxation, labor and other regulation changes in China, the cost of manufacturing is rising quickly. While Ma and Hsieh eagerly pave the road to China for Taiwanese businesses, the businesses themselves are migrating out of China in droves. Starting from the Dongguan area in Guangdong, major electronics companies such as Hon Hai Technology Group and Compal Electronics Inc are planning factories in Vietnam. Compal envisions a factory there on the same scale as its facility in Kunshan, China.

Taiwan has been Vietnam's largest source of foreign investment for a while, but now the level of investment is growing even more rapidly -- so much so that it is almost a revival of the failed "go south" policy promoted by former president Lee Teng-hui (李登輝) in the 1990s.

Southward investment can balance the problem of increasing China-bound investments, which is of course good news. So should the government encourage investment in Southeast Asia?

Former presidential adviser Huang Tien-lin (黃天麟) brushed aside concerns, but perhaps too quickly. In trade between Vietnam and Taiwan, there is no three links issue and no question of compromising national security. But would it really be beneficial if Vietnam absorbed all of Taiwan's manufacturing industries? Down-stream industries in particular, which would see rising unemployment, are no longer being absorbed into China. The rapidly growing domestic market in China is no longer the cause of closing factories, unemployment and declining industries in Taiwan. If Taiwan were to invade the Chinese domestic market, should the government impose regulations?

In the past, the government promoted southward-bound ventures, but industries moved west. Now, firms are ignoring westward policies and going south.

Internal forces drive structural economics and the effects of governmental policies on the economy are limited. The point of cross-strait trade, which pan-blue and pan-green parties have debated endlessly, is slowly losing focus because of this.

The key to the future of Taiwan's industries is whether they can develop toward high-level manufacturing, increased innovation and effective branding. It is not a question of cross-strait regulations.

Lin Cho-shui is a former Democratic Progressive Party legislator.

Translated by Angela Hong
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