The Ministry of Finance’s trade statistics for last month show that Taiwan’s exports dropped by 1.6 percent, or US$360 million, compared with the same period last year. Being the first decline in six years, it has worried everyone. In particular, exports to China and Hong Kong dropped by 16.3 percent, or US$1.59 billion. This must come as a shock to President Ma Ying-jeou (馬英九), Vice President Vincent Siew (蕭萬長) and Premier Liu Chao-shiuan (劉兆玄).
It has been the belief of the Chinese Nationalist Party (KMT) over the past dozen years that the US is no longer reliable and that Taiwan has to rely economically on China. In his book published in February entitled Expert Rule (專業治國), Siew emphasized that “Taiwan, just like all other Asian states, can no longer depend on the US market to drive growth. They are seeking new ways out, turning their focus on China … as a new way of thinking about solutions for the economic downturn.”
This belief is also shared by the financial and economic officials in the Cabinet, including Minister of Economic Affairs Yiin Chii-ming (尹啟銘), who published several books promoting the same idea before taking office. Yiin has tried hard to implement these ideas since taking office. For example, the ministry organized the 2008 Taiwan Business Alliance Conference, where Yiin told foreign investors that Taiwan could serve as a platform to the Chinese market. This was a clear attempt to get a piece of the action by acting as a broker as foreign companies fight over China as it replaces the US as the engine of economic growth.
Despite the economic downturn, officials had been upbeat in recent months. They must have suffered a heavy blow when they saw these figures, and they will worry even more if they look at the figures in closer detail.
First, despite the US$1.59 billion negative growth in exports to China and the impact of the global crisis, Taiwan’s exports to other regions actually increased by US$1.23 billion. As for the US, Taiwan’s exports increased by US$1.24 billion, so the US is still propping up Taiwan, but not according to Ma or Siew.
No matter what, they believe that when the global, and particularly the US, economy has declined, Taiwan can rely on its exports to China to support its growth. This is wrong.
Some of the figures will be comforting to the administration. Taiwan’s exports to China and Hong Kong still make up most of its exports — 37.5 percent, worth US$82 billion — far higher than exports to the US, which amounted to US$2.75 billion. It is these figures that are the source of misunderstanding by Ma and Siew.
Siew was once head of the Bureau of Foreign Trade. He should understand that exports to China are boosted by Taiwanese businesspeople operating in China, who purchase equipment, semi-finished products and upstream materials from Taiwan. Less than 20 percent of the finished products are sold in China, while more than 70 percent are sold in Europe, the US and Japan. Taiwan’s trade surplus is boosted by the European, US and Japanese markets, not the Chinese market.
This is a common sense viewpoint in today’s globalized world. When discussing Taiwan’s economic dependence on China and the US, the issue must be examined from the perspective of Taiwanese businesspeople’s “intra-industry trade” within the tri-lateral US-Taiwan-China relationship. However, Ma, Siew and Liu insist on comparing bilateral trade between Taiwan and China and between Taiwan and the US. It is this false comparison that makes them believe Taiwan is far more dependent on China than on the US.
Since the US economy is the main force driving Taiwan’s exports and economic growth, Taiwan’s exports to China are the first to be affected when the US economy stalls. This time, the expors that have fallen the most are electronics and industrial equipment, which has dropped by US$300 million. This is obviously a result of the decline in Chinese exports to Europe and the US, which in its turn leads to falling demand for Taiwanese equipment.
Signs of the impact of the US economic downturn on Taiwan’s exports to China surfaced several months ago. The annual growth of Chinese orders dropped to single digits for the first time in July, and it dropped further to 8.86 percent in August.
While the warning signs continue, the government is loosening restrictions on Chinese investments, while it pushes the idea that deregulation will make businesses swarm to China, heat up cross-strait trade and quickly mend Taiwan’s economy. They say we have nothing to fear from an economic downturn in the US because we have China. They have no sense of alarm.
If Ma, Siew and Liu insist on relying totally on China economically, they will weaken Taiwan politically. As Taiwan leans toward China for economic reasons, it will also need to curry favor with Beijing and make concessions on diplomatic and sovereignty issues.
To Ma, Siew and Liu, Taiwan’s economic and political dependence on China is almost a matter of religious belief. Regardless of reality, cross-strait economic and trade figures or public opposition, they show no regret. They are indulging in wishful thinking and nobody can cure them of it.
Lin Cho-shui is a former Democratic Progressive Party legislator.
TRANSLATED BY EDDY CHANG
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