President Ma Ying-jeou (馬英九) has accused the former Democratic Progressive Party (DPP) government of restricting cross-strait trade exchanges, saying that this resulted in a sharp increase in Taiwanese investment in China and cross-strait trade. However, since Taiwan and China signed the Economic Cooperation Framework Agreement (ECFA), Taiwanese businesspeople have shown a renewed willingness to return to Taiwan, Ma said, adding that this has caused cross-strait trade as a proportion of overall trade to decrease.
The truth is that after three years under the Ma administration, Taiwanese investment in China has surged, the number of Taiwanese businesspeople returning home has been limited, foreign investment has dropped and Taiwanese capital has flooded out.
The signing of the ECFA was aimed at canceling the negative impact on Taiwanese exports to China after ASEAN Plus One came into effect on Jan. 1 last year. It was also intended to increase the competitiveness of Taiwanese exports to China, thanks partly to the much-touted early harvest list that was supposed to give Taiwan initial special tariff-free treatment on certain exports.
However, Ma has now turned around and said the slowing growth of cross-strait trade following the -implementation of the ECFA is a good thing. This contradicts his original statements.
Since the ECFA took effect, the growth of Taiwanese exports to China has dropped dramatically, while imports from China have continued to grow. Indeed, the growth in Taiwanese shipments to China, including Hong Kong, have fallen far more sharply compared with Taiwan’s other major trading partners. The proportion of Taiwanese exports going to China, including Hong Kong, accounted for 40.7 percent of overall trade in the first two months of this year compared with 42 percent in the same period last year. As for imports from China, including Hong Kong, they increased from 14.2 percent in the first two months of last year to 14.8 percent this year.
Government statistics showed that cumulative Taiwanese investment in China was US$64.9 billion as of late 2007. By the end of last year, that figure had reached US$97.3 billion. After Ma came into power, Taiwanese investment in China increased by 128 percent year-on-year to US$10.6 billion in 2008. In 2009, annual investment fell 33 percent from a year earlier because of the global financial crisis and cumulative Taiwanese investment totaled US$71.4 billion. Last year, annual investment surged 102 percent from 2009 to US$12.23 billion.
After just three years under the Ma administration, Taiwanese investment in China has reached 50 percent of the total invested there by Taiwanese businesspeople in the 23 years before Ma came into office.
It is hard to say how many Taiwanese businesspeople have returned because many of their investments are not registered as being made by returning businesspeople. The government also does not regularly release such investment figures. According to available statistics, returning businesspeople have invested about US$3.3 billion since Ma took office. However, if we look at foreign direct investment, Taiwan seems to be quickly losing its competitive advantage. In the 1990s, the average growth rate for foreign capital entering Taiwan was 11 percent. Under the DPP government, it was 34.8 percent, but during Ma’s three years in office, it has dropped to a shocking minus 36.2 percent.
A closer look at foreign capital movement — including direct investment and equity investments — shows that the net outflow of foreign capital in the 1990s was less than US$20 billion, with an annual average of less than US$2 billion. From 2000 to 2007 when the DPP was in office, the net outflow of foreign capital reached US$105.8 billion, or an average of US$13.2 billion per year. During Ma’s three years in power, the net outflow of foreign capital reached almost US$60 billion, or an annual average of almost US$20 billion.
Large outflows of capital have led to huge outflows of human capital and a massive decrease in domestic demand. These factors have seriously damaged the impetus for economic growth in the country.
To be precise, Taiwan’s ratio of idle capital is increasing and the impetus for domestic investment continues to fall. In the 1980s, savings on average exceeded loans by less than NT$800 billion annually. In the 1990s this increased to more than NT$2.5 trillion per year. During the eight years the DPP was in power, the annual average was NT$7 trillion, compared with an annual average of more than NT$10 trillion for the three years Ma has been in power.
In this age of globalization, a government cannot force skilled labor and capital to remain in the country. The government must instead attract resources and skilled workers by strengthening national competitiveness. It does not matter whether the DPP or KMT is in charge; what matters are appropriate responses to the challenges posed by globalization.
Tung Chen-yuan is a professor at National Chengchi University’s Graduate Institute of Development Studies.
TRANSLATED BY DREW CAMERON
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