The outbreak of the US-China trade dispute last year has unavoidably had a strong effect on Taiwan, an important economic and trading partner to both countries. However, a crisis can also provide a turning point.
According to data released on June 28 by the Ministry of Economic Affairs, 47.9 percent of orders received overseas were produced domestically last year, 1.1 percentage points higher than a year earlier, and for the first time in four years, higher than the volume of orders produced in China, including Hong Kong.
The survey also showed that 15.8 percent of Taiwanese firms operating in China were considering moving their production lines to other regions, and 41.8 percent of those companies — mainly from the high-tech industry — intended to shift their production back to Taiwan.
One day prior to the survey, the ministry announced that the total volume of investment pledged by Taiwanese businesses returning to the nation had exceeded NT$400 billion (US$12.89 billion).
It is clear that the trend of Taiwanese businesses in China returning home is intensifying, which would help boost the manufacturing sector in Taiwan, improve the nation’s economy, and improve wages and employment.
As a developing country, Taiwan created an economic miracle. Not only were products labeled “Made in Taiwan” seen around the world, the cash flow also helped the TAIEX reach 10,000 points and helped feed a consumer market boom.
Yet, the rapid economic growth had many aftereffects, including sharply increasing wages and soaring land costs, as well as frequent protests organized by environmental and labor rights advocates.
Due to perceived uncertainty, businesses started moving abroad, and they made China their main destination, as reforms there were just beginning, salaries were low and land was cheap. The totalitarian government offered tax incentives and subsidies, and effectively stabilized the labor market. There was also a shared language.
The first wave of Taiwanese businesses moving to China belonged mainly to traditional manufacturing industries, followed by a second wave belonging to technology industries.
Official data show that capital outflows were about US$200 billion to US$300 billion, but the actual number could be several times higher.
The massive outflow of funds, talent and technology from Taiwan to China reversed the economic situation on the two sides of the Taiwan Strait. Having experienced double-digit percentage growth for nearly three decades, China has now become the world’s second-largest economy and “the world’s factory,” as products labeled “Made in China” replace “Made in Taiwan” products.
In Taiwan, by contrast, companies have been emptied out, job opportunities have disappeared, salaries are stagnant, and management personnel and business owners have left the nation. These factors have weakened domestic investment and consumption, resulting in continuous economic deterioration in sharp contrast to China’s rapid growth.
Taiwan’s GDP per capita still far exceeds China’s, but economic behavior involves many psychological factors. As Taiwan’s economic trends point downward, China is on an upward course, and this is having a strong effect on consumer behavior in the two countries.
To Chinese, the future is predictable, so they care less when spending money and make more ostentatious purchases. Taiwanese, on the other hand, tend to be cautious and conservative. Taiwanese would rather accumulate savings to support their families or prepare for retirement than go shopping.
The global market welcomes the Chinese buying frenzy, and this phenomenon has successfully created the illusion that Chinese are richer than Taiwanese.
After large numbers of Taiwanese businesses relocated to China, a trade pattern became prevalent in which orders received overseas by Taiwanese companies were manufactured in China. The growing proportion of overseas orders manufactured abroad, nearly 50 percent in China, made Taiwan’s GDP numbers unreliable, as the employment opportunities created by the orders went to workers in China, while Taiwanese could only watch the nation’s outstanding economic performance without being able to share the benefits.
The main reason that Taiwan’s economic growth was not felt in Taiwan, much like Japan’s “lost 30 years,” is that the nation’s manufacturing sector ran production sites overseas.
It is worrying that the two sides of the Taiwan Strait do not have normal state-to-state relations, as China never has renounced the use of force against Taiwan. China uses mutual economic dependence and Taiwan’s gradual economic marginalization to increase political dependence.
Nearly half the overseas production of Taiwanese businesses is in China, making them political hostages kidnapped by the Chinese government.
China takes full advantage of these relations, either by using its “united front” strategy to infiltrate the nation, families and people’s minds — effectively roping in public figures from all sectors of society — or weakening Taiwanese businesses through the establishment of the so-called “red supply chain.” It even flexes its military muscle.
Using verbal intimidation and saber rattling, as well as sharp power, China resorts to every conceivable means to divide Taiwan from within and cut its economic connections to erode its determination to fight.
Taiwan’s dangerous situation can be seen in the campaigning for next year’s presidential election, where one hopeful launched a dispute over the difference between “making pottage for China” and “begging China for pottage.”
Little did that potential candidate know that neither giving nor begging would change the risk of betting one’s possessions and wealth on China. If such a person, whose interests are so deeply tied to China, were elected president, who knows what could happen to Taiwan?
The US-China trade dispute is a clash between free markets and protectionism. Regardless of which side it chooses, Taiwan is now caught in the middle, and must stop taking orders in Taiwan and producing them in China.
The priority for Taiwan is to make long-term industrial structural adjustments by drawing Taiwanese businesses back home to invest in the nation’s high-tech industry and support the “five plus two” industries — the Internet of Things, biomedical technology, renewable energy, smart machinery and defense industries, plus “new agriculture” and the “circular economy” — to complete the nation’s industrial upgrade and transformation.
As the proportion of overseas orders manufactured abroad decreases and the proportion of domestically produced orders increases, it is clear that the policy to attract businesses to move back to Taiwan and encourage local companies to expand domestic investment is having an effect.
Admittedly, increasing products made in Taiwan by 1 percentage point is not sufficient to change Taiwan’s China-leaning economy, but it means reintroducing high-quality Taiwanese products to the world.
This is the only way that Taiwan can build economic autonomy and become a politically and economically free nation that is unafraid of China’s threats.
Translated by Chang Ho-ming
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