Hosted by the Foundation of Pacific Basin Financial Research and Development The 19th Annual Conference on Pacific Basin Finance, Economics, Accounting,and.

Hosted by the Foundation of Pacific Basin Financial

Research and Development

The 19th Annual Conference on Pacific Basin Finance, Economics, Accounting,and Management

The Taiwanese Economy and Cross-The Taiwanese Economy and Cross-strait Relationsstrait Relations

Rong-I WuChairmanTaiwan Brain Trust

July 9, 2011

The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations

I. IntroductionII. Changes in the Taiwanese Economy since the 1980s

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

rate7.32 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

Exports to China growth rate*** 16.21 14.32

Investment in China***

(annual average in US$1 million) 1,611 7,530

Unemployment rate 2.069 2.042 4.483

Real wages growth

rate

Manufacturing

industry6.79 3.91 0.20

Service industry 6.66 3.40 -0.40

Average per capita

income

Amount (US$) 3,734 10,781 13,959

Growth rate 15.22 4.95 2.90

Table 1 Major Economic Indicators for Taiwan (1980-2010)

Source: *DGBAS, Executive Yuan **Ministry of Finance statistics ***Investment Commission, MOEA

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.


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.



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

1990 2000 2009

Inflow Outflow Inflow Outflow Inflow Outflow

Worldwide 9.8 10.0 23.3 25.2 30.7 33.2

Developed

nations9.0 11.2 23.0 28.8 31.5 40.8

Developing

nations13.6 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

Table 2 Cumulative Inward and Outward FDI as Share of GDPUnit: %

Source: World Investment Report 2010, UNCTAD

3.International Comparison of Foreign Direct Investment (FDI)


4. An Assessment of ECFA


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.


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.


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.


VII. Conclusion


-2

0

2

4

6

8

10

12

14

Figure 1. Growth Rate of Private consumption

%

3.65

Source: DGBAS , Executive Yuan , TAIWAN

Figure 2. Growth Rate of Fixed Capital Formation

%

-20

-15

-10

-5

0

5

10

15

20

25

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-11.01

Source: DGBAS , Executive Yuan , TAIWAN

23.44

Source : Council of Labor Affairs(CLA),Executive Yuan ;Investment Commission,MOEA,TAIWAN

Value(Unit:US$ billion)

Figure 3. Taiwan’s Unemployment Rate and Investment Amount in China

Figure 4. Taiwan’s Unemployment Rate and Number of Unemployed Persons

Source: CLA , Executive Yuan , TAIWAN

1,000 people%

5.21

577

Figure 5. Taiwan’s Real Wages and Growth Rate

Source: Directorate-General of Budget , Accounting and Statistics(DGBAS),Executive Yuan , TAIWAN

7.3

3.1

-8.4

New Taiwan Dollar(NT) Growth Rate

Figure 6. The value and % of Taiwan’s Exports to China

42

115

%

US$ billion

Source : Bureau of Foreign Trade, MOEA,TAIWAN

Hosted by the Foundation of Pacific Basin Financial Research and Development The 19th Annual Conference on Pacific Basin Finance, Economics, Accounting,and.

Documents

china growth rate

taiwanese government

taiwanese economy

exports growth rate

imports growth rate

gdp growth rate

crossstrait economic

crossstrait relations