When asked how Taiwan should deal with future cross-strait politics and economics, some commentators argue that given China’s formidable rise thanks to its powerful trade and economy, Taiwan should adopt a more open and integrated approach toward China to benefit from the process.
However, such a vague and conceptual understanding of the Chinese economy may cause the government to misjudge the priorities for its international and cross-strait economic policies.
Since the 1990s, China has risen rapidly to become a major economic power, but a closer look at the its economic development and, to a greater degree, the operations of the Asia-Pacific economic system reveals an inherent weakness — a heavy dependence on exports and the US market. US Nobel laureate in economics Paul Krugman, Morgan Stanley Asia chairman Stephen Roach and World Bank chief economist Justin Lin (林毅夫) and Chinese economist Shen Minggao (沈明高) have all expressed similar concerns.
The Asian financial crisis in the late 1990s revealed the structural weakness of the East Asian economies, which competed for export markets by depreciating their currencies. These East Asian nations, including China, have since come to realize that relying on exports to the US to spur economic growth has its limitations and have therefore started to adopt strategies to boost domestic demand in the hope of balancing the risks of excessive dependence on exports.
Ten years have passed, but China and other Asian nations are even more reliant on exports to drive economic growth. Looking at the Asian economies as a whole, exports’ share of GDP has risen to 45 percent — up from 35 percent a decade ago. China, for one, draws more than 50 percent of its growth from exports, with the US being its biggest market.
China remains vulnerable in its dependence on exports and the US market to augment its economic growth. This means that a decline in US consumption demand or implementation of trade barriers and sanctions by the US government would lead to a drastic drop in Chinese exports and have a large impact on the entire Chinese economy.
The current global financial storm, which has affected Chinese exports, has prompted Beijing to adopt a 4 trillion yuan (US$585 billion) economic stimulus package in an attempt to revive its economy. This reflects the vulnerability of the Chinese economic growth model.
Given that the US and the EU are still the major end markets, Taiwan should not focus its efforts on how to integrate more closely with the Chinese production chain to stay cost-competitive. Instead, it should pay attention to new policies and industrial changes being implemented by the governments in the EU and the US amid the financial crisis. Both the Taiwanese government and businesses should focus their efforts on improving local industrial technologies and enhancing the global competitiveness and added value of Taiwanese products.
Lu Chun-wei is a research fellow at Taiwan Thinktank.
TRANSLATED BY TED YANG
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