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Relying on China is muddled economics

The global financial storm has had a severe impact on trade and the domestic market in Taiwan, which has suffered the worst unemployment figures and economic contraction of the Four Asian Tigers.

Figures show that excessive reliance on China is the major cause of Taiwan’s recession. Since the global financial crisis broke last year, China has suffered a grave decline in exports. But Taiwanese exports to China have suffered even more.

The signing of an economic cooperation framework agreement (ECFA) with China may be beneficial to some Taiwanese industries, but it will not be beneficial to Taiwan’s economy as a whole.

Moreover, it is not realistic for Taiwan’s lackluster economy to rely on an economic pact with China and Chinese demand.

The logic of President Ma Ying-jeou’s (馬英九) administration runs like this: As long as cross-strait policy liberalizes, then the nation’s economy is certain to grow and unemployment will fall to below 3 percent.

SPECIOUS

This is a specious assertion. In Taiwan, which has higher labor costs, it is far-fetched to claim that deregulation of economic trade across the Strait and an economic agreement with China will reduce unemployment.

Any form of economic integration has an impact on a country’s autonomy.

To date, the UK, Denmark and Sweden are still not willing to join the EU monetary union. However, the reality is that despite the enormous size of the eurozone as an economic entity, London has not been marginalized. Indeed, it remains the financial capital of the world.

This tells us that having an enormous economy as a neighbor does not necessarily make dependence the best policy.

If dependence leads to a nation losing its economic autonomy, then economic security and even national security will be under considerable threat. We should carefully consider this from the perspectives of local demand and long-term interest when reflecting on strategies for Taiwan’s economic autonomy.

If the government sincerely wanted to prevent Taiwan from being economically marginalized, it would not be promoting reliance on the Chinese market because China still has a low GDP.

Instead, the government should exclude China from industrial policy.

TECHNOLOGIES

Other countries that have attained the goal of an annual average per capita income of US$30,000 have not done so by being dependent on the Chinese market but by relying on technologies that they control and on industries and products with high added value.

Taiwan should adopt a new industrial mindset and abandon the East Asian manufacturing and export mode that emphasizes cost-cutting.

In addition, the government should gradually transfer the focus of national economic development from OEM industries that have long relied on inexpensive labor to export industries that make products with high added value and to domestic industries that improve living standards.

The government is sorely mistaken if it thinks that relying on the Chinese market will bring about its stated goals of annual GDP growth of 6 percent, annual per capita income of US$30,000 and an unemployment rate of less than 3 percent.



Chiou Jiunn-rong is a professor of economics and vice dean of the Management School at National Central University.

TRANSLATED BY TED YANG
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