Over the past five years, the cross-strait political “achievement” President Ma Ying-jeou (馬英九) has been the most proud of has been the cross-strait Economic Cooperation Framework Agreement (ECFA). However, the ECFA is merely a framework agreement and even though the agreement has been in effect for more than two-and-a-half years, its benefits have so far been limited to the items opened up for trade on the “early harvest” list.
In terms of export competitiveness, in 2011, Taiwanese exports to China increased 8 percent, while the export of items opened up to trade on the ECFA’s early harvest list fared only slightly better at 9.9 percent. Last year, Taiwanese exports to China grew 5.8 percent overall, while the export of items on the early harvest list increased a mere 2.3 percent. From January to February this year, overall exports to China increased 39.9 percent, but the export of items on the early harvest list merely rose 19.2 percent. It is becoming clear by looking at the export statistics for the past two years that the ECFA has not had much effect.
Second, Ma expected that the ECFA would help attract more foreign investment to Taiwan. However, over the past five years, foreign investment in Taiwan has remained low. In 2007, Taiwan attracted US$13.6 billion in foreign investment, but in 2008, this dropped to US$6.7 billion, and after 2009, it was less than US$4.5 billion. Last year, foreign investment was only US$4.2 billion, a decrease of 4.5 percent compared with the year before.
From 2008 to 2011, Taiwan only managed to attract 0.2 percent of global foreign investment, putting Taiwan last among the four Asian Tigers and even lower than Thailand, Indonesia and Vietnam. In 2011, foreign investment in Taiwan was, shockingly, the second-lowest in the world.
Let us take a closer look at international capital flows, including both direct and securities investment. In the 1990s, the net outflow of funds from averaged US$1.98 billion per year. It was US$13.23 billion during former president Chen Shui-bian’s (陳水扁) eight years in office and rose to US$35.29 billion for the five years that the Ma administration has been in office, 2.6 times more than under Chen’s administration.
Especially worthy of notice is Taiwan’s net outflow of funds in 2011, which reached an unprecedented US$50.4 billion, and rose further to US$52.3 billion last year.
Third, the ECFA has not helped increase domestic investment. In the 1990s, the domestic investment rate was 28 percent, during Chen’s eight years in office it was 23.7 percent, and after Ma’s five years in office it has dropped to 17.2 percent. The Directorate-General of Budget, Accounting and Statistics estimates that domestic investment would drop to an all-time low of 16.2 percent this year and could be further adjusted downward.
Fourth, the ECFA is in some ways beneficial to Taiwan’s negotiation of economic integration agreements with other nations, although it cannot fundamentally solve Taiwan’s international isolation.
Taiwan is about to complete economic partnership negotiations with Singapore and New Zealand, but these two countries only account for 3.6 percent of Taiwan’s total trade volume and offer limited benefits to the economy. On the other hand, South Korea has already signed free-trade agreements with nine economies, including the US, the EU, the ASEAN countries and India, and it is negotiating free-trade agreements with China and Japan, which will place a lot of competitive pressure on Taiwan.