Signing an economic cooperation framework agreement (ECFA) with China would pose a threat to white-collar workers, Taiwan Thinktank (台灣智庫) chairman Chen Po-chih (陳博志) said in an interview last week with the Chinese-language Liberty Times (the Taipei Times’ sister newspaper).
Closer business ties with China have dragged down the real wages of the nation’s blue-collar workers in the past decade — a trend that is expected to worsen, he said, as Taiwan has become overly dependent on China.
Chen urged the government to develop a “knowledge-based” economy, which would separate it from developing countries, and promote “non-tradable goods” that do not face foreign competition.
Advanced countries such as the US and Japan have been the nation’s main economic partners, he said, and higher wages in these countries pulled up wages in Taiwan through an effect called the factor price equalization theorem.
But conducting trade with China does not have the same effect on the nation’s wages, Chen said. Factor price equalization is now having a negative impact on the nation’s economic growth as Taiwan’s wages are dragged down by lower wages in China.
Increasing cross-strait economic and trade relations will exacerbate the trend, he said.
In addition, the overwhelming size of China’s population, its geographic proximity and shared customs and language will magnify China’s influence over Taiwan’s economy, further hurting wages and raising unemployment, he said.
To prevent that, Chen said Taiwan must slow down its capital outflow to developing countries — especially China — as the outflow of businesses and talent would hurt the domestic job market, while delaying the nation’s industrial upgrade.
Chen opposed signing an EFCA with China, saying many businesses had focused too much on cutting costs, leading them to move to China and neglect the importance of developing a knowledge-based economy and upgrading industries. In the long-term, this damages the country’s competitiveness, he said.
“China is swallowing many industries in Taiwan,” he said, warning that more businesses and talent would move to China.
Many government officials and business leaders see China as a panacea for the nation’s economy, Chen said, but warned that things were not that simple.
“Even if trade with China is advantageous to our country, our reliance on China far exceeds [reliance on] other countries,” he said.
Chen was chairman of the Council for Economic Planning and Development from May 2000 to January 2002.
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