In the Dec. 10 televised debate of the vice presidential candidates, the Chinese Nationalist Party’s (KMT) vice presidential candidate, Premier Wu Den-yih (吳敦義), proudly told his Democratic Progressive Party (DPP) opponent Su Jia-chyuan (蘇嘉全) that since President Ma Ying-jeou (馬英九) came to power in 2008, the reliance of Taiwanese exports on China has merely increased from 39 to 41 percent, which he said was much lower than the increase under the government of former president Chen Shui-bian (陳水扁).
While this might appear to be a good debate technique, it actually represents a significant failure in the KMT’s economic strategies. As soon as Ma came to power, his government started pushing to open the three direct links across the Taiwan Strait and sign the Economic Cooperation Framework Agreement (ECFA). The stated purpose was quite clear: to gain a larger share of the Chinese market. If this strategy had been successful, Taiwanese exports to China would have surged, but the growth of China-bound exports has been rather slow. What does Wu have to be happy about?
Originally, the KMT thought import tariffs imposed by Beijing on Taiwanese exports would decrease by NT$7.8 billion (US$257 million) per year after the signing of the ECFA. Unfortunately, that figure was just a little more than NT$40 million in the first half of this year. After the ECFA came into effect on Sept. 12 last year, Taiwanese annual exports to China increased by much less than China’s increase in imports: South Korea’s share of the Chinese market continues to increase, while Taiwan’s share continues to fall. The ECFA is thus having the opposite effect to what the KMT had forecast.
Even worse, the KMT had hoped that opening the three direct links and signing the ECFA would help break down the obstacles posed by what they say was the previous DPP government’s “isolationism,” and thus the volume of Taiwanese goods sold to China would see a great increase, creating a great drop in Taiwanese business investments in China, while increasing foreign investment in Taiwan. Once again, the results are contrary to expectations.
Between January and October this year, Taiwanese investments in China reached a new high of US$13.6 billion. Domestic investment remained stagnant as a result. During the same period, foreign investment in Taiwan dropped to about one-third of investment under the “isolationism” of the DPP in 2007 and 2008.
While Taiwan’s high level of trade dependence on Beijing might give rise to worries that the nation is putting all its eggs in one basket, couldn’t it, after all, create a trade surplus with China? On the contrary — the great increase in Taiwanese investments across the Strait will lead to a greater outflow of resources, production technology and talent to China.
This risk and damage is many times greater than the high trade dependency, as it means that domestic investment is being crowded out, industry undermined and job opportunities lost. For the past three years, the average annual unemployment rate has remained above 5 percent for long periods, the highest figure among the four Asian Tigers.
In the debate, Wu, who knows little about economics, proudly said the increase of Taiwanese exports to China has dropped sharply. Amazingly, this was a truthful admission of the complete failure of the government’s overall strategy of depending on Beijing’s rise in order to increase Taiwan’s share of China’s import market, decrease Taiwanese investment in China and increase foreign investment in Taiwan.