Closer ties bring significant risks

By Gerrit Van Der wees  / 

Fri, Jan 09, 2009 - Page 8

The Chinese economy is in a tailspin, and it would be wise for Taiwan to wake up to that fact.

Recent indicators show that in November, China’s exports fell for the first time in seven years — decreasing 2.2 percent — while imports plunged an astonishing 17.9 percent. In the meantime, direct foreign investment decreased 36.5 percent from a year earlier, while the producer price index dropped from 10 percent in August to only 2 percent in November.

All this is a strong indication that the goose that was presumably going to lay golden eggs for Taiwan is quickly shriveling up and that the main argument of President Ma Ying-jeou’s (馬英九) administration for closer economic ties with China has disappeared in just a few months.

About a year ago, when China’s economy was still barreling ahead at full steam, there were already warning signs that it was overheating and that — if it continued — it would be in for a hard landing.

Still, Ma, who was then a presidential candidate, and his running mate, Vincent Siew (蕭萬長), painted a rosy picture, saying that closer economic ties between Taiwan and China would generate jobs and investment opportunities.

Taiwan’s own economy was chugging along at a respectable 5.7 percent growth rate, not bad for a developed, mature economy. We must remember that China’s double-digit growth (11.4 percent at the time) was that of a developing economy, which was only at the initial stage of its growth. The Ma-Siew team thus compared apples and oranges.

Now fast-forward to the present: Like in other countries, Taiwan’s economy is being affected by the global downturn: Growth was sagging to 2 percent to 3 percent in November, while according to figures presented by the Directorate-General of Budget, Accounting and Statistics, the unemployment rate rose to a five-year high of more than 4.6 percent in November, with the number of jobless exceeding half a million people.

In the meantime, the Ma administration is in blind pursuit of closer ties with China. On Dec. 15 it started to implement the so-called “three links”: air and shipping links and direct postal services. While on the surface these appear to reduce tension between old adversaries, the practical effect is that Taiwan will be dragged along in the downward spiral of China’s economic meltdown.

Instead of enhancing Taiwan’s economy and the position of Taiwanese businesses, the closer links with China will leave Taiwan more vulnerable to dumping of Chinese goods, especially in the agricultural sector, while China’s cheap labor will undercut Taiwan’s workers in the already weakened traditional industrial sector.

It is particularly interesting to note the offer — announced at the 2008 Chinese Communist Party (CCP)-Chinese Nationalist Party (KMT) forum in Shanghai last month — that China will provide some US$19 billion in loans to Taiwanese companies operating in China and purchase US$2 billion in flat-panel displays.

Taiwanese companies shouldn’t hold their breath or have any high expectations, as this offer has all the appearances of a public relations move with little substance to follow.

In addition to being dragged down in China’s economic tailspin, closer ties bring significant risks in other areas. As has been emphasized by other commentators, the KMT-CCP rapprochement has occurred at the expense of Taiwan’s sovereignty, and has been accompanied by an erosion of human rights, democracy and press freedom in Taiwan.

This was particularly evident in the events surrounding the visit of Association for Relations Across the Taiwan Strait Chairman Chen Yunlin (陳雲林) in early November.

Instead of putting all its eggs in the China basket, Taiwan should diversify its risks, shield itself as much as possible from the Chinese economic meltdown and strengthen its links with the US and Europe in particular, so as to have an advantageous starting position in important high-tech niches once the economy in the West perks up again.

Taiwan’s economy still has significant strengths because of an innovative entrepreneurial class and a solid high-tech sector, especially in information technology and — thanks to the stimulus provided by the previous government — a good head-start in biotechnology and nanotechnology.

These strengths should be leveraged in closer ties with similar industries in the US and Europe.

In the meantime, the Ma administration needs to take steps to reverse the erosion of democracy, human rights and press freedom; to adhere to scrupulous neutrality of the judicial system; and to regain international respect for its advances in the areas of democracy and freedom. Only then will Taiwan’s long-term viability as a free and democratic nation be ensured.

Gerrit van der Wees is editor of Taiwan Communique, a publication based in Washington.