A report published last month The Economist magazine said that the expanding geopolitical rift between the US and China is forcing global manufacturers to search for new Asian production bases outside China. The Economist listed 14 countries, including Taiwan, as part of an “alternative Asian supply chain” — or “Altasia” — that is taking shape. These countries, which collectively rival China in terms of export volume and skilled workers, are attracting manufacturers to move out of China. The trend is backed by evidence, not only in data cited by The Economist, but also by the direction of Taiwan’s industrial, economic and trade development.
Movement of industries generally involves movement of capital, technology, personnel and production methods. It also affects the overall economy in terms of trade, economic growth and employment among others. For example, employment figures published by the Directorate-General of Budget, Accounting and Statistics showed that the number of Taiwanese working in China has declined for eight years in a row and fell by more than 60 percent in a decade, from 420,000 in 2011 to 160,000 in 2021. The decline reflects China’s deteriorating economic and social environment, and growing internal and external uncertainties, which have significantly reduced the willingness of Taiwanese industries and individuals to “go west.”
Other economic indicators show a similar trend. In January and February, the share of Taiwan’s exports that went to the Chinese market including Hong Kong fell to 34.3 percent, a 20-year low for the period. The share of bank loans to China by Taiwanese financial holding groups fell to 16 percent last year from 19.4 percent the previous year, with the total amount of loans the lowest in 31 quarters. By contrast, 29.2 percent of total lending for the same period went to countries that are the focus of the government’s New Southbound Policy, with Australia, Vietnam and Singapore the top three.
The China exit trend is a marked reversal from 20 years ago, when many Taiwanese entrepreneurs and industrialists “boldly went west,” despite the government’s advice to be cautious.
The main reason for the reversal is the dramatic change in China’s investment environment.
The war between Russia and Ukraine, the COVID-19 pandemic, the trade and technology dispute between the US and China, the threat of inflation, debt and financial turmoil, and the one-party state’s tightening control over China’s economy have all affected China’s economic performance.
After China’s annual GDP growth for last year barely reached 3 percent — little more than half of the 5.5 percent target — even Chinese Premier Li Qiang (李強) said on March 13, two days after taking up the post, that achieving this year’s GDP growth target of about 5 percent “is not an easy task.”
In the longer term, China is facing the most severe economic challenges since it launched its policy of reform and opening up at the end of the 1970s. Local governments and financial institutions are heavily indebted, the real-estate sector is plagued by crises, multinational companies are thinking about leaving because they cannot operate with peace of mind, unemployment is on the rise, the population is aging as the birthrate falls, and diplomatic and economic tensions with the US have pushed the two countries to the brink of a new cold war.
Thanks to firm interventions and control by the one-party state, the oft-predicted “financial collapse of China” has not yet happened, but this does not mean that China can challenge orthodox economic theory indefinitely. Without institutional reforms, there is a high chance that China could sink into long-term economic stagnation, as happened to Japan.
Furthermore, with a population that has grown old before it got rich, China might struggle to escape from the middle-income trap, because a country whose productivity and competitiveness do not improve considerably cannot enter high-value markets and join the ranks of wealthy nations.
China’s relatively poor economic performance marks a turning point for Taiwan’s policy in the past few years of taking practical steps to drop its “boldly go west” tendency in favor of “going global.”
When Lee Teng-hui (李登輝) was president, many Taiwanese manufacturers and businesspeople ignored his earnest advice of “no haste, be patient,” and began in large numbers to move investments and production activities to China. They did so to cut costs, but the trend was facilitated by their unfamiliarity with the Chinese Communist Party and confusion over national identity.
The administration of Lee’s successor, Chen Shui-bian (陳水扁), failed to implement its policy of “effective management,” and this was followed by a heavy orientation toward China during the presidency of Ma Ying-jeou (馬英九), when Taiwan put as much as 70 percent of its overseas investment in the China basket and sold 40 percent of its exports to China, making its economic dependence on Beijing “like a diabetic’s need for insulin.”
In the meantime, China attracted foreign investment to become the “workshop of the world.”
Its economic rise allowed it to strengthen its military and international political power, and suppress and coerce Taiwan. Being locked into China, Taiwan was weighed down by production factor-price equalization, which dragged down domestic prices and manufacturing standards. Only a few local manufacturers, including high-tech giant Taiwan Semiconductor Manufacturing Co, kept their bases in Taiwan. This situation caused wages to remain weak for a long time, hurting workers the most.
Taiwan’s economic and trade focus on China might have benefited some manufacturers, but the overall economy has lost more than it has gained, and there has been insufficient progress in industrial transformation.
In terms of security, this situation has subjected Taiwan to China’s efforts to promote unification through the economy and exert political pressure through business. China has sunk its claws into Taiwan’s politics, media and business, inflicting cognitive warfare and internal divisions. Taiwan’s record of strengthening an enemy country by making heavy economic and trade investments has proved to be foolish.
Chinese President Xi Jinping’s (習近平) ambitions are being revealed as China stirs up trouble in the East China Sea, the Taiwan Strait and the South China Sea, causing great consternation in the international community.
The EU, which has been put on alert by the Russian invasion of Ukraine, is no longer naive about China, and many countries, including the US and European nations, have adopted an attitude of “no haste, be patient” with regard to China.
The US’ Democratic and Republican parties see China as a major threat, as do ordinary Americans, with some members of the US Congress calling the competition a “struggle for survival.”
A trade dispute broke out under then-US president Donald Trump, starting with tariffs and followed by US President Joe Biden’s restrictions on advanced technology.
Taiwan has had a role in this and benefited from it.
Trump’s tariffs induced Taiwanese manufacturing businesses and capital to flow back home, as reflected in last year’s 14.3 percent growth in exports to the US, which have been growing for six years running. In the ensuing chip dispute, Taiwan has a key role to play and occupies an important position in the restructuring of the global industrial supply chain.
Taiwan’s economic and trade development has shifted away from “boldly going west” to “going global,” with “going upward” as the main focus, and “going south” and “going west” playing secondary roles. Along with strengthening partnerships with advanced countries such as the US, Japan and European nations, this is the right way for Taiwan to safeguard its security and prosperity.
Translated by Julian Clegg
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