ECFA leads to a drop in share of the PRC market

By Huang Tien-lin 黃天麟  / 

Tue, Jul 12, 2011 - Page 8

Taiwan External Trade Development Council chairman Wang Chih-kang (王志剛) said on July 1 that during the first five months this year, South Korean products captured a 9.2 percent share of China’s market, while Taiwanese products’ market share fell to 7.5 percent from 8.6 percent last year. He added that once Taiwan’s market share dropped below 5 percent, there would be no possibility of a comeback.

A year ago, senior government officials said that after the Economic Cooperation Framework Agreement (ECFA) was signed, Taiwanese exports to China would receive tariff incentives and become more competitive than South Korean products. Why, then, is Taiwan’s market share in China lower than South Korea’s, and why is it dropping?

Before answering this question, Wang deserves thanks for pointing out these facts and exposing the government’s lies. Otherwise, the public would still think that the ECFA was beneficial to Taiwanese exports and has profited the nation.

South Korea’s market share in China rose from 9.6 percent in 2001 to 9.9 percent last year. It is not a significant change, but the small rise shows that South Korea’s market share has approximated the growth in its trade with China during the past decade. On the other hand, Taiwan’s market share fell from 11.2 percent in 2001 to 10.6 percent in 2007 and 8.6 percent last year. The main drop occurred after President Ma Ying-jeou (馬英九) came to power and embarked on improving relations with China. The largest drop occurred after the ECFA took effect, from 8.6 percent last year to 7.5 percent in the first five months of this year.

So why is this happening?

The answer is simple: It is happening because Taiwan signed the ECFA. After liberalizing trade, the manufacture of products for the Chinese market has been moved to China, meaning that those goods are no longer imported from Taiwan. This trend has been accelerated by the recent ECFA-related relaxation of restrictions on Taiwan’s core high-tech industries.

If the ECFA, a framework supposed to connect Taiwan with China, is carried out in its entirety, a “center-periphery effect” — the attraction of a smaller market to a much larger market — will occur and production of semi-finished products and other Taiwanese products will move to the “center” — China — and Taiwanese businesses will grow roots there. Taiwanese exports to China would stagnate, before beginning to decrease. This implies that the items on the ECFA early-harvest list would be the only ones to have benefited from the agreement, while the harm caused by the ECFA on the overall economy would greatly outweigh the benefits.

While I can sympathize with Wang’s comments, made out of concern for the nation’s economy, he failed to see the real source of the problem. What he should be worried about is a second large migration of Taiwanese industries to China caused by the ECFA. Instead, Wang suggested that the government increase the number of council staffers in China. However, if the council does what it is supposed to do, it would help Taiwanese businesspeople establish themselves in China even faster, thus achieving the opposite effect.

Taiwanese hotels, property developers, healthcare providers, night markets, restaurants, retail stores and so on have lately been going mad over a few hundred individual Chinese tourists with limited spending power. China-leaning media outlets are falling over each other to report these visits and the “economic benefits” these tourists supposedly bring. This distorted kind of China fever proves one thing only: Under Ma, Taiwan has been economically marginalized, with all industries except for tourism slowing down.

Huang Tien-lin is a former national policy adviser.

Translated by Drew Cameron