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Taiwan must avoid being gutted

`Taiwan's biggest danger does not lie in China's military threats -- it lies in the inability of the Taiwanese to distinguish between friends and enemies because they are blinded by business interests.'

As Taiwan eases its restrictions on investments in China, the "no haste, be patient" policy is finally passing into history.

Does this mean the dispute over investment in China is going to stop here? The matter is not so simple because the other side's grand plan is to promote unification through economic means. What will Beijing's next step be?

The local media and many politicians have recently been harping on about Taiwan's economic marginalization. They note that the ASEAN nations plus China, the so-called "10 plus one," have agreed to set up a "China-ASEAN free trade area" and that Japan and South Korea may also join the group, making it 10 plus three -- and an even bigger free trade zone.

China, which views the absorption of Taiwan as its sacred mission, is playing the leading role in promoting this free trade zone. The bizarre thing is that Taiwan's pro-unification factions and "go west" advocates have not expressed anger with Beijing over Taiwan's exclusion, but have instead heckled their own government by asking: "Can Taiwan afford to be absent [from the zone]?" They stress that Taiwan is in danger of being marginalized if it does not quickly undertake economic integration with China or at least adopt a global strategy with China at its core.

Taiwan is no stranger to marginalization. It has been politically marginalized since it was forced to leave the UN. Over the past 30 years, Taiwan has been known as the "orphan of Asia."

What is marginalization? It is the process or state of being pushed to the fringes and isolated by the central powers. This is different from what we might call "cavitization," a situation in which a large economic entity sucks away a nation's capital and human resources, leading to a speedy decline in its economic, political and cultural influence and finally turning it into a backwater. "Cavitization" is a process of unification in which the economy of the fringe area becomes subordinate to its larger rival and thus it loses its self-determination and identity.

Marginalization is usually imposed by external forces, whereas cavitization usually begins from within -- from market movements. Because marginalization is usually imposed from outside, it can prompt an entity to work even harder and turn misfortune into good.

After Taiwan was politically marginalized in 1972, all its people strove for and finally gained greater economic success. By the same logic, Taiwan can continue to exist as an independent entity even after China has joined a trade pact with ASEAN. ASEAN is not the world. Taiwan still has enough room to maneuver in the vast global economy. The China-ASEAN move could even become a blessing in disguise, forcing Taiwan to break free from China's enormous magnetic pull and achieve a truly globalized position.

Obviously, Taiwan's historical experience as the orphan of Asia tells us that marginalization is not something to be feared. "Cavitization," on the other hand, is a matter towards which we should adopt a state of alert. "Cavitiza-tion" is already taking place. This is clear from the fact that every time cross-strait relations begin to thaw and the "China fever" heats up, Taiwan suffers from stock market slumps, falling real-estate values and rising numbers of bad loans.

The cause of "cavitization" is not overseas investment, but rather excessive overseas investment -- especially the China fever. Since Taiwan began to allow investments in China in 1990, more than 60,000 Taiwanese businesses have been set up there, with investments totaling tens of billions of US dollars.

The ratio of cheap Chinese labor and resources used by Taiwanese manufacturers is 50 times that of their Japanese counterparts, and 80 times that of their US counterparts. This has deprived Taiwan's traditional industries of the drive to upgrade themselves. These industries are losing opportunities to develop and are quickly hollowing out. The extent to which this has already happened can be seen from the numerous abandoned and weed-covered industrial parks across Taiwan.

Overseas investment, however, does not always lead to "cavitization." Japanese manufacturers may move overseas, for example, but the hollowing out of Japanese industries that follows is only temporary. Japan's economy does not suffer "cavitization," because Japanese businesses and overseas workers eventually return home.

But if Taiwanese manufacturers move en masse to China, Taiwan will be "cavitized." Busi-nesses that migrate to China can easily take root there because of cultural and linquistic similarities. Taiwan's economic development is rarely boosted by the business successes of Taiwanese businessman in China. This has also been the main reason why Taiwanese capital that goes to China is seldom repatriated. The effect of the "capital back-flow mech-anism" will also be limited.

I welcome the fact that after a 12-year effort on Taiwan's part, the WTO has finally approved its accession. It is to be hoped that Taiwan, within the WTO framework, will be able to develop normal economic and trade relations with the international community in order to promote its global business arrangements.

Unfortunately, the pro-unification camp and the "go west" advocates have a different plan in mind, as they have single-mindedly concentrated on ensuring that Taiwan does not stray from Beijing's policy of promoting unification through economic means. This trap has been in full play over the past 10 years. It has successfully increased Taiwan's dependence on China while transplanting the nation's economic vitality to China.

Now, with WTO entry, Beijing even hopes to tie Taipei to the chopping block of unification through such arguments as: "Taiwan should work with China so as not to be marginalized during Asia's economic integration," "the only way for Taiwan to prevent marginalization is to hasten its integration with China and open the three direct links," and "Taiwan should adjust its investment policy by taking China as its relay point in its global business arrangements."

At this moment, the people of Taiwan must think deeply about whether, by considering China the "relay point" we are allowing Beijing to take control of our products and overseas markets. Although the Southeast Asian markets are where business opportunities lie, should we abandon our nation when national and business interests conflict?

The people of Taiwan seem to always overestimate the potential of China's market. It is predicted that China's GDP will remain less than one-fifth of that of the US and half of that of Japan over the next 10 years. The true essence of the term "global business arrangements" is that business arrangements should be promoted globally. China should not be taken as the only hinterland, nor as the relay point. We should consider each country's specific weight in global trade and carry out distribution and risk management accordingly.

We should also promptly adjust our pro-China economic and trade policy, which has pushed Taiwan's economy towards "cavitization," so that the nation can return to its core values. Accession to the WTO provides a great opportunity for the nation to globally promote its business. Taiwan must not walk blindly into China's furnace only to face meltdown.

Throughout the past 50 or so years, Western nations, led by the US, have provided the brunt of the support for the ROC's existence and its economic take-off. China, by contrast, has always threatened Taiwan's very existence. Quite apart from the dangers of throwing all its energy and resources at the enemy that is bent on swallowing it in one bite, Taiwan cannot and must not betray its Western allies by embracing China.

Taiwan's biggest danger does not lie in China's military threats -- it lies in the inability of the Taiwanese to distinguish between friends and enemies because they are blinded by business interests. They try to pursue personal business and convenience at the risk of hollowing out the nation's economy. We all understand that it is convenient and profitable to use China's cheap labor and resources. But Taiwan is already the biggest investor in China, throwing tens of billions of US dollars into the country every year. Isn't that enough?

If the people of Taiwan continue to be intoxicated by the pro-unification camp's tune, they will never escape from China's trap. As long as they fail to do so, Taiwan's WTO entry will not help its global business arrangements. Rather, it may serve as a catalyst to push Taiwan's economy further to the fringe.

Huang Tien-lin is a national policy advisor to the president.

Translated by Francis Huang and Eddy Chang
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