On Wednesday last week, China’s Taiwan Affairs Office announced that it would ease the rules regulating the rights of Taiwanese to set up business as “individual industrial and commercial households” in China starting on Jan. 1, opening up more sectors and areas, and improving operational conditions.
Although Taiwan’s presidential and legislative elections are less than a month away, a significant gap between the three presidential tickets means that a policy of such minor scale, although intended to benefit Taiwanese, is unlikely to have an affect on the outcome of the election.
It might be more accurate to say that Beijing is starting to respond to the election outcome in advance using policy measures. Even if a third transfer of government power occurs in Taiwan, China is likely to continue its efforts to strengthen economic and trade exchanges between the two sides of the Taiwan Strait.
However, there are two issues in particular that require serious consideration. First, there seems to be a consensus that it would be next to impossible for China to keep its economic growth rate greater than 7 percent next year, and if this turns out to be correct, it is a sure sign that the transformation of China’s economy is reaching a bottleneck.
It would be difficult to transform the nation’s economy from the export oriented, heavily polluting secondary industries and redirect it toward tertiary industries, which are driven by domestic demand and are focused on high value-added products and services.
However, perhaps the rich experience that Taiwan’s service sector has amassed could become the driving factor behind China’s service industry as it relocates to China.
Second, after the IMF decided that the Chinese yuan would be added to currencies in the basket that make up the IMF’s special drawing rights beginning on Oct. 1 next year, the pressure on making the yuan freely convertible is likely to increase. Add to this the US’ Federal Reserve’s raising of interest rates and that the exchange rate of the Chinese currency is expected to drop in relation to the US dollar over the coming year.
The result of such developments has been large amounts of capital flowing out of China since the first half of this year.
As China seeks to expand economic cooperation with Taiwan, it cannot be helped but to wonder if Beijing is trying to find ways to give Taiwan a taste of the same medicine.
In the past, China has used talent and capital from Taiwan’s manufacturing industry to help shorten its own learning curve and to speed up industrialization. This strategy succeeded in making China the world’s factory and it also helped China create the so-called “red supply chain” that is currently putting pressure on Taiwan.
A relaxation of the rules on Taiwanese individual industrial and commercial households setting up shop in China is just one more link in China’s strategy to learn from the experiences of Taiwan’s service industry.
Taiwan cannot afford to continue ignoring the increasing pressure being applied by China.
Huang Tzu-wei is a researcher at the Taiwan Thinktank.
Translated by Eddy Chang and Perry Svensson
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