The Heritage Foundation’s Derek Scissors had a fine piece in the May/June issue of Foreign Affairs magazine (“Deng Undone: The cost of halting market reform in China”), in which he argues that after embracing market reform in the Deng Xiaoping (鄧小平) era, China under President Hu Jintao (胡錦濤) and Premier Wen Jiabao (溫家寶) has backtracked on its reform agenda, with the state gaining more, not less, control over the private sector.
Scissors’ analysis is told from an economist’s perspective and could be problematic in that it presumes to give advice to the Chinese leadership even after the form of free market capitalism he advocates sparked the global financial crisis that is now upon us.
Yet Scissors’ piece is quite informative for two principal reasons. First, it exposes the myth that China is continuing with reforms and gradually embracing capitalism: It shows that in recent years some companies that had nominally gone private remained under state control, while others — especially in the largely undefined “sensitive” sectors — have been pushed behind layers of state control or even renationalized.
The intricacies of these developments, from state monopolies to price control mechanisms, from state bank lending to protectionism, are beyond the scope of this article. Suffice it to say that the Chinese Communist Party (CCP) is showing signs that, while continuing to seek economic development, it may be placing more importance on its grip on social and financial institutions than is commonly believed.
(As Scissors observed, the number of Chinese in 2006 who owned a business dropped by 15 percent to 26 million, while official data showed that during the first nine months of 2007 private companies contributed less than 10 percent of the national tax revenue, a figure that reportedly dropped early last year.)
The second aspect of Scissors’ article that warrants attention is left largely ignored by the author: the political ramifications of China’s volte-face on economic reform. This matter gains special meaning when placed in the context of recent moves by the administration of President Ma Ying-jeou (馬英九) and its Chinese counterparts to liberalize cross-strait investment.
As Scissors points out, state control of private or semi-private firms means that company heads tend to be CCP officials who are either “retired” or part of a cycle in which officials alternate between corporate and government positions. Chinese investment in Taiwanese companies, therefore, means that behind the veneer of private-sector investment likely lies the invisible hand of the state.
For the moment, certain sectors such as telecommunications and defense remain off-limits to Chinese investment, but we can expect those restrictions to be lifted over time, both as a result of political pressure from China and from Taiwanese companies themselves.
We have already observed this in the attempt by China Mobile to buy a 12 percent stake in Far EasTone Telecommunications, Taiwan’s second-largest telecommunications operator (China Mobile chairman Wang Jianzhou (王建宙) is a CCP official who has occupied various posts in government).
Despite restrictions by the Taiwanese government, Far EasTone board members have voted in favor of the investment, so we can expect the company to start pressuring Taipei to lift the restrictions soon if they haven’t started already.
Equally, if not more, disturbing was news that the Taiwanese government-owned Aerospace Industrial Development Corporation, which, among other things, designed the Ching Kuo Indigenous Defense Fighter, is proposing a joint venture with the Commercial Aircraft Co of China (COMAC) to co-assemble commercial airplanes.
COMAC shareholders include the Chinese central government and the municipal government of Shanghai. The chairman of the board, Zhang Qingwei (張慶偉), is chairman of the Commission of Science, Technology and Industry for National Defense of the People’s Republic of China.
These two examples involve transparent attempts by Chinese state-owned companies to invest in Taiwan. In light of signs that Beijing is walking away from market reform and strengthening its grip on the private sector, future investment in Taiwanese companies could be made by Chinese firms that on paper seem to be private but that in reality are very much under state control.
As Chinese investment intensifies (a 12 percent stake in Far EasTone, for example, could just be an opening gambit) and expands into a greater number of sectors, the potential for technology transfer, espionage and compromised security will only increase.
To ensure national security, Taiwanese will have to be vigilant, even when a prospective Chinese investor is ostensibly a private company. With Chinese state banks dominating the lending market and the CCP spreading its tentacles in various sectors in the domestic economy, it will be essential to determine where the money comes from and who’s in charge.
Let’s not be taken in: China has not embraced market capitalism to the extent of compromising its political agenda.
J. Michael Cole is a writer based in Taipei.
In a Facebook post on Wednesday last week, Chinese Nationalist Party (KMT) Taipei City Councilor Hsu Chiao-hsin (徐巧芯) wrote: “The KMT must fall for Taiwan to improve.’ Allow me to ask the question again: Is this really true?” It matters not how many times Hsu asks the question, my answer will always be the same: “Yes, the KMT must be toppled for Taiwan to improve.” In the lengthy Facebook post, titled “What were those born in the 1980s guilty of?” Hsu harked back to the idealistic aspirations of the 2014 Sunflower movement before heaping opprobrium on the Democratic Progressive Party’s (DPP)
The scuffle between Chinese embassy staffers in Fiji and a Taiwanese diplomat at a Republic of China (ROC) Double Ten National Day celebration has turned into a public relations opportunity for the government, Beijing and the Chinese Nationalist Party (KMT). Although the incident occurred on Oct. 8, the Ministry of Foreign Affairs (MOFA) downplayed it, only for the story to be picked up by the foreign media, forcing the ministry to respond. The public and opposition parties asked why the government had failed to remonstrate more strongly in the first instance. It is still unclear whether the ministry missed a trick
US President Donald Trump and his Democratic rival, former US vice president Joe Biden, are holding their final debate tonight. In their foreign policy debate, China is sure to be a major issue of contention for the two candidates. Here are several questions the moderator should pose to the candidates: For both: In the first televised US presidential debates in 1960, then-Democratic candidate John F. Kennedy and his Republican counterpart, Richard Nixon, were asked whether the US should intervene if communist China attacked Taiwan’s outlying islands of Kinmen and Matsu. Kennedy said no, unless the main island of Taiwan was also attacked.
For most of us, the colorful, otherworldly marinescapes of coral reefs are as remote as the alien landscapes of the moon. We rarely, if ever, experience these underwater wonderlands for ourselves — we are, after all, air-breathing, terrestrial creatures mostly cocooned in cities. It is easy not to notice the perilous state they are in: We have lost 50 percent of coral reefs in the past 20 years and more than 90 percent are expected to die by 2050, a presentation at the Ocean Sciences Meeting in San Diego, California, earlier this year showed. As the oceans heat further and