China recently announced a push for "macroeconomic control measures" (
Many people think that China's development has greatly contributed to the world's economic development, but the fact is that the whole world has considerably contributed to the Chinese economy. Since Taiwan and Hong Kong have close economic relationships with China, the macroeconomic control measures will surely affect these two places the most. In fact, we must understand that Taiwan's export volume and surplus with China were not created by the latter. Instead, they were created by Taiwanese industries operating in China. In other words, the increase in our export volume and surplus with China has come in exchange for the decrease in that with the world. The increase is not a Chinese contribution to Taiwan, but a Taiwanese contribution to China. This is actually a result of China stealing Taiwan's industries.
Figures show that Taiwan's exports to China and Hong Kong account for 36 percent of its total exports at present. Four percent of Taiwan's GDP has been invested in China, and Taiwanese tourists visit China 4 million times per year. In the past, many people ignored the crises of drastic economic fluctuations and policy changes in China. Now that they have suffered losses, people may pay more attention to the high risks of the Chinese market. In addition to these risks, what is most serious is Taiwanese businesspeople's wishful thinking and their blind expectations. Yet the cooling down of China's economy at the moment may not really hurt Taiwanese investors. A more miserable situation will occur if Beijing does not carry out this policy, and its economic problems become worse.
If a bubble economy occurs in China, the recovery will take a long time. Therefore, to implement the control effectively, Beijing will inevitably be overzealous in correcting its mistakes. The degree of control may be as severe as monitoring every single credit transaction. Once the Chinese government suppresses the growth of certain industries, it will affect other businesses peripheral to those industries. Still, despite the fact that attempting such control is highly risky, there is a greater danger if Beijing just sits back and does nothing.
What is more worrisome is whether or not the macroeconomic control leads to a hard landing. Will Taiwanese businesspeople suffering from this policy transfer the damage to Taiwan? Lured by the rapidly growing Chinese economy, many Taiwanese businessespeople have forgotten the various opportunities for development in Taiwan. The government should seize this chance to help domestic companies upgrade themselves. It should also expand infrastructure and improve the investment environment, so as to keep the roots of local businesses in Taiwan.
From another perspective, there is one more purpose to China's macroeconomic control: to reduce the pressure on the Chinese yuan to appreciate. Once China's economic growth declines, the Chinese government will have a good reason to prevent the appreciation of the yuan. This is positive news for the New Taiwan dollar and other Asian currencies.
Many people used to mistakenly believe that China's economic development was superb, and that they could profit from business in China. For example, "China-concept shares" (中概股) were unstoppable in Taiwan's stock market, while local businesses were often overlooked. The implementation of macroeconomic controls by Beijing should serve to destroy this myth.
Chen Po-chih is the chairman of the Taiwan Thinktank.
TRANSLATED BY EDDY CHANG
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