In President Ma Ying-jeou’s (馬英九) inauguration address he talked about “enhancing the drivers of economic growth,” emphasizing that it was important to “speedily complete follow-up talks under the cross-strait Economic Cooperation Framework Agreement [ECFA].” Ma also said he would “expedite negotiations on economic cooperation agreements with important trading partners like Singapore and New Zealand.” However, these two policies expose the contradictions inherent in the Ma administration’s overseas trade strategy.
Because of the age-old political sovereignty dispute, China continues to obstruct Taiwan’s attempts to sign free-trade agreements (FTAs) with other countries in an effort to isolate the nation economically.
In addition, follow-up ECFA talks on a bilateral investment agreement aimed at guaranteeing investments have been delayed by disagreements over dispute resolution mechanisms, jurisdiction and place of arbitration, all of which involve sovereignty.
Meanwhile, China has negotiated and signed duty-free FTAs with the ASEAN, Japan, South Korea and other countries, which has turned the ECFA into an empty framework, leaving no room to offer Taiwan further benefits from the agreement.
Take, for example, data running from January to last month. These show that exports from Taiwan to China dropped by 6.1 percent, while South Korean exports increased by 4.3 percent during the same period. For Taiwan, the ECFA is nothing but an agreement to become a economic colony of China.
Even more concerning, the government has misjudged the changes in China’s economic situation. If Taiwan continues to invest in China, it will be tantamount to putting all the our eggs in one basket, and a broken basket at that.
China, which joined the WTO more than a decade ago, is still reluctant to use research, development and innovation to upgrade its industry. Instead it is dumping duplicated cheap goods in both the European and US markets. This month, the US Department of Commerce decided to impose high anti-dumping tariffs of between 31.22 and 250 percent on companies importing solar power batteries from China, and that was just one of many punitive measures.
In addition to US sanctions on Chinese exports, Europe’s purchasing power has fallen as a result of its debt crisis. Unable to rely on the European and US markets, Beijing is now trying to switch from an export-oriented economy to an economy oriented toward domestic demand.
However, China’s domestic market also faces three major issues. First, increasing wages means that it is becoming less competitive as a factory to the world. Second, its wealth gap is too wide and its middle class is still not large enough to support the domestic market. Third, local government suffers from severe corruption problem at every level.
According to a March report released by the American Chamber of Commerce in Shanghai, commencing this year, some foreign companies in China are adopting a “China plus one” strategy when establishing factories. This means that, in addition to their factories in China, they are establishing other plants in Southeast Asian countries. If everything goes well in the alternate nations, they may even relocate their factories from China wholesale. This development has been well received by the ASEAN countries.
The world’s factory is relocating and the Ma administration needs to pay close attention to the situation as it unfolds, that includes not misjudging the economic situation in China.
Hung Chi-kune is a member of the Democratic Progressive Party’s Central Executive Committee.
Translated by Eddy Chang