Thu, Feb 28, 2013 - Page 8 News List

Balancing power across the Strait

By Russell Hsiao 蕭良其

After the Chinese Nationalist Party (KMT) regained power in 2008, in part due to running on a pro-China trade platform, the momentum behind a comprehensive trade regime across the Taiwan Strait began to pick up steam.

The 2008 election result reflected growing concern among Taiwanese voters that the country’s economic progress was stagnating and they were losing out to their Asian neighbors because their political leaders were not capitalizing on China’s growth.

After multiple rounds of talks, the two sides signed the Economic Cooperation Framework Agreement (ECFA) in 2010. President Ma Ying-jeou (馬英九) argues that the ECFA will enhance the institutionalization of the flow of trade, investment and people between the two sides.

Ma’s supporters argue that such agreements are key to maintaining parity with other countries in the region, including ASEAN countries, which are moving ahead with deeper trade arrangements with China.

While the ECFA and other economic agreements will surely bring the two sides of the Taiwan Strait closer through increased interaction on economic cooperation and trade, the jury is still out on whether such closer economic ties will eventually lead to closer political integration.

Proponents of this theory tend to point to the increasing trade volume between Taiwan and China as an indication of inevitable political integration.

The argument goes that increasing trade volume is one manifestation of economic integration that will invariably lead to political integration.

Yet the deterministic outlook warrants asking: What specifically accounted for the increased trade volume between Taiwan and China?

Could it have been largely attributed to Taiwanese manufacturing companies based in China importing high-tech components from Taiwan? If that is the case, then there may not be as much economic integration as one may think between Taiwan and China.

Since Deng opened up the nation, the Chinese economy has grown increasingly reliant on exports to increase its GDP growth.

According to the World Bank, export accounts for 31 percent of China’s GDP. Indeed, between 2000 and 2007, the value of Chinese exports more than quadrupled, rising rose from 20 percent to 35 percent of GDP.

Additionally, in 2008, the value of China’s high-tech exports surged to US$415.6 billion, accounting for 28.6 percent of its total exports.

In 2002, 76 percent of the value of China’s high-tech exports was achieved by firms with at least 25 percent foreign ownership. (On the import side, the share of foreign-invested enterprises was 67 percent).

That means a significant percentage of China’s GDP is generated by foreign-owned companies.

In 2002, Taiwanese companies produced 47 percent of their value of electronic hardware in China. In 2006, they were responsible for 60 percent of China’s electronics exports.

Yet the leverage that Taipei currently enjoys from its asymmetric economic relationship with China is diminishing.

In 2007, China’s trade deficit with Taiwan reached US$78 billion. This deficit grew during the period 2001 to 2007 (China’s deficit is due to the buying of large quantities of semi-finished products from Taiwan).

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