The hidden costs of unification economics

By Huang Tien-lin 黃天麟  / 

Thu, Jul 26, 2012 - Page 8

On Wednesday last week, the Institute of Economics at Academia Sinica adjusted its economic growth forecast for this year downward to 1.94 percent, from its previous forecast of 3.8 percent. The new forecast is reasonable, because for the first half of the year economic growth fell to minus-0.5 percent and export growth fell to minus-4.74 percent, making Taiwan the only country among our trading partners to experience a drop. Especially worthy of note is the fact that exports to China decreased by 8.82 percent, almost twice as much as for total exports. This is indeed very strange: How can this happen after we were blessed with the great Economic Cooperation Framework Agreement (ECFA)?

The answer to this question is common sense. All we need do is ask how there can be any exports left at all given that every link in the supply chain — downsteam, mid-stream and upstream — has moved to China. This is the same reason why throughput at Greater Kaohsiung Port has fallen each year for the past decade.

It is only natural that the government feels duty-bound to defend its policy mistakes. It has tried to blame them on the European debt crisis, slowing economic growth in China and the weak US economy. However, the real question is why Taiwan’s economy is slowing so much more than other countries? Over the past four years, whether in terms of economic growth or the stock market, Taiwan has failed to do as well as other countries when things are going well and has done much worse when things have been going badly.

The government’s explanation is that exports are too focused on China and industrial development is preoccupied with the high-tech industry and that this has resulted in an imbalance. If this was true, why did Taiwan’s economy not perform better in the past few years when China’s economy enjoyed double-digit growth? And why did the Taiwanese economy do worse than others in the 2000s, the glory years of the technology industry boom?

Such explanations are clearly excuses. The real reason, and this is something to which the government will never admit, is the mistaken focus of the nation’s leaders on China when it comes to economic development.

Taiwan’s failure to perform as well as other countries is a sign of the nation’s economic marginalization and an inevitable result of linking too closely to the Chinese economy. Not even the ECFA concessions that Beijing has promised can make up for the downside of the increasingly close relationship with China.

Pro-unification media do not agree that integration with China will result in Taiwan’s economic marginalization and they refute these arguments by saying that none of the other countries clamoring to develop relations with China have been marginalized.

However, for countries like South Korea and Japan, China is a foreign country with a different language and culture. That is not true for Taiwan, as there are no linguistic or major cultural differences between us and China. There is also a huge difference in size and geographical proximity. The big markets in China therefore have a much stronger pull on Taiwan than on other countries. As testament to this fact, Taiwanese businesspeople have pumped about US$500 billion in investments into China and about 1 million Taiwanese work there.

Excessive investment in China and the rapid linking of the two nations’ economies have caused a major drop in domestic investment. This has slowed down industrial upgrading and is ultimately responsible for a Taiwan’s loss of global competitiveness.

If the nation’s leaders refuse to admit integration with China is wrong because of their biased understanding and therefore fail to adopt corrective policies as soon as possible, Taiwan’s situation is only going to get worse.

Huang Tien-lin is a former presidential adviser.

Translated by Drew Cameron