Heavy investment in China by Taiwanese businesspeople will have many negative effects on Taiwan in the long run. I will limit my discussion to just two.
First, large amounts of investment in China by Taiwanese means that less money is invested in Taiwan, and this slows down the rate of domestic industrial upgrade. Since the majority of Taiwanese businesspeople can use their existing technologies to manufacture products in China, they have no need to conduct research and development or to invest in Taiwan, nor do they face any immediate pressure to improve the quality of their business operations, which means industrial upgrades here have slowed and will continue to do so.
The second problem is the risk that Taiwan’s exports will be replaced by Chinese exports. When Taiwanese invest in China they strengthen the competitiveness of Chinese products on the international market, and this poses a huge threat to Taiwan’s export sector. This began happening a long time ago and the way in which Taiwan is being disadvantaged and China is benefiting from this situation is already very clear.
Studies by the Taiwan Institute of Economic Research show that in 2004, the export replacement percentage for products made by Taiwan’s manufacturing sector that were replaced by Chinese products in the US and Japanese markets was 13.21 percent and 8.49 percent respectively. Taiwanese technology-intensive products were the item most frequently replaced by Chinese products.
In the US market in 2004, 19.26 percent of Taiwan’s exports of technology-intensive products were replaced by Chinese products, while 8.56 percent and 7.33 percent of less and moderately technology-intensive products were replaced by Chinese products.
In the Japanese market in 2003, 13.22 percent of technology-intensive Taiwanese products were replaced by Chinese products, while 7.35 percent and 10.87 percent of Taiwanese less and moderately technology-intensive products were replaced by Chinese products.
It is worth noting that the Taiwanese-made items most frequently replaced by Chinese products in the US and Japanese markets were the moderately and technology-intensive products, and that the export replacement percentage has been continuously increasing since 2000.
It is now obvious that the substitution effect has started to overtake the complementarity and mutual benefit that is supposed to exist as a result of division of labor in trade conducted between Taiwan and China.
Taiwan’s trade with China so far has seen Taiwanese invest huge amounts in China, which has caused a decrease in investment in Taiwan and had a severe impact on our economy.
If President Ma Ying-jeou’s (馬英九) government ignores the trade issues I have mentioned and signs an economic cooperation framework agreement with China, Taiwan will become increasingly isolated as it is Sinicized, and we will face economic and financial crises that will be very hard to fix.
Wang To-far is a professor of economics at National Taipei University.
TRANSLATED BY DREW CAMERON
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