After China criticized Taiwanese businessmen who support the Democratic Progressive Party (DPP), a Chinese newspaper suggested imposing economic sanctions against Taiwan, causing concerns about national economic security to resurface.
We worry that one day China will decide to impose economic sanctions against Taiwan. Although the general consensus is that China will not abruptly and wantonly make such a decision -- not to mention the fact that in doing so, China will hurt itself -- the general consensus is not necessarily right, because the economic injuries to the two sides resulting from such sanctions would be substantially different.
If an appraisal reveals that the level of injuries sustained by the two sides are disproportionate -- for example, China suffers only a minor skin abrasion while Taiwan is hit with a lethal blow -- Taiwan cannot rely on the belief that sanctions are a from of mutually assured destruction for comfort, and as a result become careless. In view of the totalitarian nature of the Chinese regime, Beijing may very well launch a campaign that it perceives as comparatively advantageous. Taiwan's top priority is to prevent this, and in the event that it happens, minimize the damage to Taiwan. This is the responsibility of those in power, and it should never be evaded with excuses such as market liberalization or economic freedom. The safety of this country is not something that should be overlooked or left to be dealt with by our next generation.
So what is the likelihood of China imposing economic sanctions against Taiwan?
What is the level of potential damage to each country?
The following information should help people judge accurately for themselves, and thereby become immediately alarmed.
Investments are obviously a type of asset, and Taiwanese investors have many investments in manufacturing facilities in China. From the standpoint of assets, acquisitions and associated risks, the market appraisal of the accumulated investments by Taiwan in China is US$160 billion. Even the most conservative appraisals come up with the figure of around US$120 billion. Also, as many Taiwanese hold US passports; as these investors are identified as American or Hong Kong businessmen, the actual figure should be much higher.
In terms of the accumulated percentage of GDP invested in China (Taiwan's 2002 GDP was US$282 billion), the figure is 49.6 percent for Taiwan. The figure is 2.7 percent in Korea, 0.6 percent in Japan, and 0.3 percent in the US (2001 figures). Taiwan's 49.6 percent figure reveals that Taiwanese assets in China amount to almost half of our annual GDP, while the figure is less than 1 percent for both the US and Japan. If China launched an economic blockade, the damage sustained by the US and Japanese economies would be minuscule, while Taiwan's economic injury would be significant.
Let us now look at regular economic exchanges. This year, Taiwan's exports to China have grown to 37.4 percent of the nation's total exports, while the exports to the US are only 15 percent, and to ASEAN member nations they are only 11.1 percent. Thus, the percentage of Taiwan's total exports to the US, Japan and ASEAN countries combined is still far smaller than than the percentage of exports to China. This concentration of exports to a hostile country is obvious. Japan's export dependency on China is 12.3 percent, while the US' dependency is 4.6 percent and Korea's is 18.6 percent.
It also is worrisome that China's trade dependency on Taiwan is only 5.4 percent, while its figure for export dependency is even lower. Due to the overwhelming discrepancy in the two sides' trade dependency and export dependency, the damage from an economic blockade that would be sustained by Taiwan would far surpass that of China.
Some say China's trade dependency on Taiwan is not very high, but imports from Taiwan to China are mostly processed materials and incomplete products requiring further processing and assembly work. Exports of such items should be classified as trading within the industry. So any economic sanctions on Taiwan will immediately affect China's exports to the US. Under such reasoning, China will ultimately be the one suffering.
We do not challenge this argument. However, it should be kept in mind that Taiwan's intensive investment in China has rapidly transformed the horizontal division of labor between the two sides into a parallel division. According to recent reports released by the Ministry of Economic Affairs, last year 84.1 percent of the relationships between Taiwanese parent companies and their subsidiaries in China are parallel divisions of labor, while horizontal divisions have declined to a mere 15.9 percent.
The above economic statistics clearly indicate that Taiwanese businesses' excessive investment in China is the primary reason that China may be able to impose economic sanctions on Taiwan. Excessive investment in China has caused Taiwan to invest too much in an enemy state, making Taiwan dependent on China. Therefore, the top priority of Taiwan is to decrease investments in China, to solidify the roots of Taiwanese industries, to diversify its markets, and to turn Taiwan into a sovereign country with an open and secure economy. Now those in power will need a strong will to face pressure from those with business and personal interests in opening up direct links with China and making investments in China. In addition, effective management is needed in the following areas:
The government must strictly enforce the requirement that business investments in China should not exceed 40 percent of a company's net value. To encourage Taiwanese firms in China to become publicly traded companies in Taiwan, there have been some who have proposed raising this 40 percent ceiling to 50 percent. The proponents of this measure believe that the 40 percent restriction significantly decreases the overseas investment capability of businesses and seriously decreases their willingness to become publicly traded companies on the TAIEX. But those who study risk management know that restrictions in banking laws with respect to credit extension to individual firms (for example no extension of loans exceeding 5 percent of the bank's net value without loan guarantees) obviously limits the operating capability of a bank, as well as hindering development of businesses. For the sake of collective security and stability, everyone still acknowledges the need for such regulations.
Also, the government must immediately request strict reviews of major investment projects in China. No investment project should be approved unless it has been proven that it does not directly or indirectly enhance the capability of the Chinese military to attack Taiwan. In addition, assistance should be given to help investors re-channel their investments to Taiwan. All investment projects that supplement Chinese government projects (for example, in the areas of electricity, medical care and steel) should also be turned down. In view of the Chinese government's recent attacks on "green businessmen," tactfully allowing "non-green businessmen" to make major investments in China is allowing them to become accomplices to potential economic sanctions against Taiwan.
Finally, the government must immediately ask that a technology protection law be enacted to keep key technologies from being leaked. The technology protection law, which had been put together after years of hard work, was submitted to the Legislative Yuan, where it has sat for more than two years without result. Even if enacted, this law will be seriously compromised in terms of effectiveness, since it has been amended beyond recognition under pressure from interest groups and supporters of the "Greater China" myth. There is a need to address this law's deficiencies so as to adequately deal with Chinese infiltration and theft of technology. It is sincerely hoped that the government will have the courage to implement a system to effectively manage investments in China, and that our countrymen will also give the government the support needed to take these actions.
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