The Taiwanese Economy and Cross-strait
Relations
The 19th Annual Conference on Pacific Basin Finance,
Economics, Accounting,and Management
Hosted by the Foundation of Pacific Basin Financial
Research and Development
Rong-I Wu
Chairman
Taiwan Brain Trust
July 9, 2011
The Taiwanese Economy and Cross-strait Relations
I. Introduction
II. Changes in the Taiwanese Economy since the 1980s
Table 1
Major Economic Indicators for Taiwan (1980-2010)
1980-1989
1990-1999
2000-2010
GDP growth rate
7.70
6.35
4.10
Private consumption growth rate
7.71
7.29
2.49
Government expenditure growth rate
7.32
4.14
1.09
Fixed capital formation growth rate
8.09
7.56
0.70
Exports growth rate*
11.62
7.54
8.48
Imports growth rate**
10.73
8.27
4.94
16.21
14.32
1,611
7,530
2.069
2.042
4.483
6.79
3.91
0.20
Service industry
6.66
3.40
-0.40
Average per capita
Amount (US$)
3,734
10,781
13,959
income
Growth rate
15.22
4.95
2.90
Exports to China growth rate***
Investment in China***
(annual average in US$1 million)
Unemployment rate
Real wages growth
rate
Manufacturing
industry
Source: *DGBAS, Executive Yuan **Ministry of Finance statistics
***Investment Commission, MOEA
The Taiwanese Economy and Cross-strait Relations
III. Changes in the Government’s Policy of Economic
Opening Toward China
1.On July 15, 1987, the government lifted the “Martial Law for Taiwan Province” that
had been imposed for 38 years. The same year the government opened up direct
imports of selected agricultural raw materials from China, which kicked off some
sporadic trade (such as ingredients for traditional Chinese medicine).
2.In 1988 China promulgated a law that encouraged Taiwanese entrepreneurs to
invest in China. Subsequently the Taiwanese government permitted Taiwanese
businessmen to conduct indirect trade and investment with China, but cross-strait
economic and trade relations were still tightly controlled.
3.During an orientation phase between 1990 and 1996 the government essentially
maintained its original strict control over cross-strait trade contacts.
The Taiwanese Economy and Cross-strait Relations
4.During the 1996-2000 period then President Lee Teng-hui adopted a “no haste,
be patient” policy that still maintained strict restrictions.
5.Under the active opening, effective management policy during the 2001-2008
period the original restrictions were greatly relaxed. In 2006 the policy changed
to “active management, effective opening,” with the goal of strengthening the
management of cross-strait trade liberalization, but the effects of the new
policy were limited.
6.In May 2008 the stage of massive opening under the Ma government began.
The Taiwanese Economy and Cross-strait Relations
IV. The Economic Reasons Behind Soaring Taiwanese
Investment in China
1.Changes in the Economic Environment Favor Overseas Investment
2. The Effects of the Core-Periphery Model
The Taiwanese Economy and Cross-strait Relations
3.International Comparison of Foreign Direct Investment
(FDI)
Table 2
Cumulative Inward and Outward FDI as Share of GDP
Unit: %
1990
2000
2009
Inflow
Outflow
Inflow
Outflow
Inflow
Outflow
9.8
10.0
23.3
25.2
30.7
33.2
9.0
11.2
23.0
28.8
31.5
40.8
13.6
4.1
25.0
12.0
29.1
16.5
United States
9.3
12.6
28.5
27.6
21.9
30.2
Japan
0.3
6.7
1.1
6.0
3.9
14.6
South Korea
2.0
0.9
7.1
5.0
13.3
13.9
Taiwan
5.9
18.4
6.0
20.4
12.7
47.8
Worldwide
Developed
nations
Developing
nations
Source: World Investment Report 2010, UNCTAD
The Taiwanese Economy and Cross-strait Relations
4. An Assessment of ECFA
The Taiwanese Economy and Cross-strait Relations
V. Taiwan’s Counter Strategy
1.we need to transform economic and trade relations between Taiwan and China
into trade between countries and adopt concrete investment and trade policies
to extricate ourselves from our reliance on China.
2.Therefore our counter policy must be dissolving the bilateral regional trade
relationship with China as the core and Taiwan as the periphery.
3.In order to prevent a negative impact from possible economic instability or
social unrest in China, we should adopt risk diversification and prevention
measures. Accordingly we need to take safeguards beforehand with regard to
spreading risk from an overconcentration of exports and investment.
The Taiwanese Economy and Cross-strait Relations
VI. Concrete Policies
1.Principle of autonomy: Industry must not excessively rely on the Chinese market
alone. Our future development direction must be using autonomy in innovation
and technology to reach the goal of industrial autonomy.
2.Principle of sustainable development: ECFA only benefits specific industries and
causes industrial hollowing out, rendering sustainable development impossible.
The Taiwanese Economy and Cross-strait Relations
3.Principle of normalizing cross-strait relations: We hope that China will be
able to understand that cross-strait relations can only be normalized if it
renounces the threat of military force. In the past Taiwanese investors have
poured tens of billions of U.S. dollars into the Chinese economy. They have
helped China’s industrial development, created a large number of jobs,
transferred business management skills and production technology to China
and even provided export markets for Chinese products which allowed
China to earn a huge amount of foreign currency. Taiwanese investors have
made important contributions to and have been a major force behind the
economic development that China enjoys today. China should not bite the
hand that feeds it. Cross-strait confrontation is not only detrimental to
stable economic development in Taiwan and China, but also negatively
affects peace in the Asia-Pacific region.
The Taiwanese Economy and Cross-strait Relations
4. WTO principle: Since Taiwan and China are both WTO members, cross-strait
trade normalization should be negotiated under WTO rules. The two sides
need also to sit down to discuss whether ECFA complies with WTO
regulations.
5. Repatriating earnings from overseas investment: A high ratio of Taiwanese
companies invest overseas. Not only does the government provide business
friendly tax benefits, other factors in the domestic investment environment
such as talent, financing, and capital markets all contribute in a positive way.
Businesses should therefore repatriate overseas income and share it with the
Taiwanese people, thus fulfilling their social responsibility.
The Taiwanese Economy and Cross-strait Relations
VII. Conclusion
-2
Source: DGBAS , Executive Yuan , TAIWAN
4
2010
2008
2009
2007
2006
2005
2003
2004
2002
2001
1999
2000
1998
1997
1995
1996
1994
1993
1992
1990
1991
1989
1988
1986
1987
1985
1984
1983
1981
1982
1980
Figure 1. Growth Rate of Private consumption
%
14
12
10
8
6
3.65
2
0
-5
-10
-15
-20
Source: DGBAS , Executive Yuan , TAIWAN
-11.01
2010
20
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
Figure 2. Growth Rate of Fixed Capital Formation
%
25
23.44
15
10
5
0
Figure 3. Taiwan’s Unemployment Rate and Investment Amount in China
Value(Unit:US$ billion)
Source : Council of Labor Affairs(CLA),Executive Yuan ;Investment Commission,MOEA,TAIWAN
Figure 4. Taiwan’s Unemployment Rate and Number of Unemployed
Persons
%
1,000 people
577
5.21
Source: CLA , Executive Yuan , TAIWAN
Figure 5. Taiwan’s Real Wages and Growth Rate
New Taiwan Dollar(NT)
Growth Rate
7.3
3.1
-8.4
Source: Directorate-General of Budget , Accounting and Statistics(DGBAS),Executive Yuan , TAIWAN
Figure 6. The value and % of Taiwan’s Exports to China
US$ billion
%
115
42
Source : Bureau of Foreign Trade, MOEA,TAIWAN