Tue, Dec 30, 2008 - Page 8 News List

The risks and costs of opening to China

By Tristan Liu 呂曜志

When an old system comes to an end and a new one takes its place, people usually anticipate that the new system will offer new hope and new opportunities, but tend to overlook the hidden risks it may bring. The “big three links” — direct transport and communication links between Taiwan and China — are a good example of such risks.

In the short term, the “big three links” will shorten flight and shipping distances between Taiwan and China, and so cut transportation costs for people and goods traveling between the two sides of the Strait.

Beyond this, however, there are other presumed benefits that are not so certain. Most important is the assumption that the “big three links” will help Taiwan retain its competitive position in producing intermediate goods, with final assembly done in China. The idea is that such a division of labor will create a win-win situation by cutting costs to make both Taiwanese and Chinese products more internationally competitive.

However, those who presume that Taiwan can retain its superior position in the supply chain following the opening of the “big three links” underestimate China’s determination to innovate and upgrade its own industries. The Beijing government is pouring huge amounts of resources to implement import substitution in capital and technology-intensive industries.

For example, China has been expanding its petrochemical production capacity and actively collaborating with Germany in machinery building, to the extent that it has gradually come to challenge Taiwan’s position in these sectors. It is therefore wishful thinking to assume that the “big three links” will ensure Taiwan’s competitiveness in manufacturing.

Another factor worth considering is that the “big three links” may lead to a brain drain of highly skilled Taiwanese who previously were not willing to relocate to China because they did not want to be separated from their families or change their living environment.

Lured by the perks offered by Chinese companies, they may reconsider going over to the other side now that the opportunity costs and actual costs involved have fallen.

Think about it: With air travel between Taipei and Shanghai down to 82 minutes, if a Chinese company is willing to pay for a few return flights each month in addition to offering high salaries, high-tech R&D talent from Taiwan may find the package very hard to resist.

With Taiwanese talent moving to China and Beijing carrying out its import substitution policy, the question arises as to why the “big three links” should be a reason for Taiwanese to rejoice and stop worrying about the state of the local economy.

Then there is the market aspect. With the current weak state of Taiwan’s economy, many companies and individuals may take advantage of the “big three links” to go shopping in China and come back to Taiwan laden with cheap varieties of goods instead of buying Taiwan-made products or buying the goods in Taiwan. For example, we may soon see many people carrying Chinese-made replica cellphones.

An even more serious consideration is the “big three links” may open the way for smuggling, organized crime and an outbreak of diseases as quarantine controls are overwhelmed or circumvented.

These risks should be a matter of concern for the whole country.

If the “big three links” are not accompanied by policies designed to deal with such risks, then the links — which have been opened with the laudable intention of benefiting Taiwan’s manufacturing industry — may be paid for by sacrificing the interests of many more people.

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