In a speech to the American Chamber of Commerce on Wednesday, American Institute in Taiwan Director Douglas Paal said that Taiwan should utilize its advantages to integrate resources from the US, China and itself to its own economic advantage and create a win-win situation for all three. Taiwan has always welcomed its international friends to express their opinions because we believe debate clarifies the truth. Especially, when it comes to the political and economic development on the two sides of the Taiwan Strait, only a cool-headed, in-depth exchange of opinions can bring all-round understanding and push Taiwan's government to shape policies that are most beneficial to ensuring national security.
But Paal also said "If Taiwan continues to view the mainland through the prism of economic threat, it is in danger of isolating itself and getting cut out of tomorrow's deals." In fact, Taiwan's past policies aimed at stemming the tide of capital outflow to China -- from former president Lee Teng-hui's (
Taiwanese businesses have invested somewhere between US$60 to US$100 billion in China, but only repatriated US$4 billion over the past 10 years. Taiwan's economy is stagnating -- it will struggle to achieve a 4 percent growth rate this year. Unemployment is on the rise, as is the number of firms moving to China which have left their debts behind. The capital outflow is obviously having a serious impact on the economy.
Because Beijing prohibits most Taiwanese firms from selling products directly on the Chinese market, the companies can only use China as a manufacturing base, taking advantage of low labor costs. The problem is that small and medium-sized businesses are the mainstay of Taiwan's economy. Not many companies have an international manufacturing scale. Most of Taiwan's healthy companies are OEM firms which fill orders from major multinationals. They do not have the ability to develop markets, so when they invest and set up plants in China, they can only work within their original markets. Most of the them are unable to develop international channels to raise profit margins and maintain their operations in Taiwan. Therefore, under the pressure of capital demand, businesses that invest in China have no choice but to close their plants in Taiwan and go after new pastures.
However, when a large-scale Taiwanese firm makes a landing on China, it takes away much more than its own capital, technologies and talent. It also takes away its partner companies. The economic impact of entire industries migrating to China also includes the "imitation" effect on other industries. Such trends will certainly hollow out Taiwan's industries and block the country's plan to upgrade its industries.
Why shouldn't the government try to change this economic predicament? The Chen government's "effective management" policy on China investments should not be interpreted as hostility or resistance against the Chinese economy.
In fact, it is Beijing's hostility which knows no bounds. China has long been trying to use Taiwanese businesses as a weapon against Taipei -- by getting businesspeople to pressure the government as well as luring other businesses from Taiwan. Beijing's "new economic front" is aimed at draining Taiwan's economic lifeblood -- its manufacturing base. If Taiwan loses its economic competitiveness, its economic edge, it will be dead in the water and a sitting duck for Beijing.
Perhaps Paal should think about how a win-win situation could be achieved for the US, China and Taiwan if Taiwan's economy continues to deteriorate as rapidly as it has been doing.
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