20100702 Taiwan’s economic suicide note

Taiwan’s economic suicide note

Friday, Jul 02, 2010, Page 8

Given the rate of growth in the China market, Taiwan needs to be part of it if it wants its economy to grow. That at least is the government’s version of events and the main reason it has pushed to sign the Economic Cooperation Framework Agreement (ECFA). President Ma Ying-jeou (馬英九) has accused the previous administration of allowing Taiwan to become marginalized, insisting that Taiwan’s economy needs China to survive.

However, the reality is that China needs Taiwan. Ma has got it the wrong way around. He has allowed his ideological prejudices to get in the way of an objective analysis of what is actually happening. He cannot make the right decisions for Taiwan’s economic development and he doesn’t know how to play to the country’s strengths. He is dancing to China’s tune.

That China’s economy relies on Taiwan is an incontrovertible fact. So why is the government hell bent on saying the total opposite? Because if it told it like it is, the public would see straight away that the supposed economic benefits of the ECFA are nothing but a smokescreen for the real agenda of eventual unification with China. It has got absolutely nothing to do with establishing a lifeline for an ailing economy.

According to a recent study by Tung Chen-yuan (童振源) of the Graduate Institute of Development Studies at National Chengchi University, at the end of 2008, Taiwanese companies in China employed more than 14.5 million people or 1.87 percent of the total working population of China. That figure is more than all of the people employed in Taiwan put together. Creation of jobs notwithstanding, the Chinese government also received almost NT$4 trillion (US$1.2 billion) in tax revenue from Taiwanese-invested firms from 1992 to 2007, 3.71 percent of the total national tax receipts during the same period.

It is important to realize that China’s economic growth is export-driven, and it is a favorable location for companies all over the world to invest. From 1998 to 2008, Taiwanese businesses plowed more than US$166.5 billion in direct investment into China, and the total value of exports from Taiwanese businesses in China amounted to almost NT$2 trillion, or 13.87 percent of China’s international trade volume for the same period.

The above figures do not include indirect Taiwanese investment in China via outlying territories such as Hong Kong, the British Virgin Islands or the Cayman Islands, so they fall short of the actual numbers.

The fact that the figures are underestimating the true picture makes them all the more astonishing. For a start, they completely undermine the present administration’s assertion that the previous government closed Taiwan off to trade with China or that Taiwan did not engage enough economically with China in the past. The reality is Taiwan’s economic woes are due not to too little investment in China, but rather too much, and especially during the period when Taiwan’s economy was in trouble.

We have been bleeding investment into China. Little wonder that the economy has slowly but surely been going downhill. If we are to get Taiwan back on its feet again we need to change tack and stop this over-reliance on China. We need to look further afield and not bind ourselves to the China market. The ECFA is all about creating a single joint market with China and increasing our reliance on it. This is not the way forward.

The government has avoided any mention of the possible disadvantages of signing the ECFA during this entire negotiation process: Its discussion has focused entirely on the positive effects and it has done the same thing with the “early harvest” list, bamboozling the public with figures. “Look,” the government says, “we have 539 products with tariff concessions or exemptions, compared with only 267 allotted to China.” The apparent advantage here is just part of a gambit by Beijing to entice Taiwan into agreeing to sign, and will ultimately evaporate into thin air as WTO regulations do not allow trade barriers to exist between member states. For example, they stipulate that customs duties on anything between 85 percent and 95 percent of products are to be removed entirely, within 10 years.

Negotiators for the Chinese Nationalist Party (KMT) and the Chinese Communist Party, concerned about a public backlash, have been trying to cover up the possible impact of the deal on Taiwan, and decided to hold meetings every six months to review the small print. That means 20 meetings over the next 10 years. If in the first instance it appears that some of Taiwan’s more vulnerable industries have not been exposed to unfair competition from Chinese providers, this does not mean that they can necessarily assume they will be spared in the long term. No Taiwanese industry is going to be protected forever.

Other dangers to look out for include the flooding of the market with cheap Chinese goods adulterated with dubious ingredients of a non-specific origin. Another is the deregulation of Chinese services allowed to operate in Taiwan, opening the door to an influx of Chinese laborers that will take jobs from Taiwanese and exert downward pressure on wages.

There is no way that Taiwanese services will be able to compete with this onslaught and, since service industries account for 75 percent of the economy and between 60 percent and 70 percent of jobs in Taiwan, this is going to be disastrous for the economy, which will be uprooted and vulnerable to collapse.

The consequences of this do not bear thinking about. The ECFA is basically economic suicide, and the government appears blind to this fact. It is important that the public stand up and prevent the government from going through with the agreement, Taiwan’s very survival could be at stake.