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.
The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations
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.
The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations
The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations
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)
The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations
4. An Assessment of ECFA
The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations
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.
The Taiwanese Economy and Cross-strait Relations
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.
The Taiwanese Economy and Cross-strait Relations
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.
The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations
VII. Conclusion
The Taiwanese Economy and Cross-strait The Taiwanese Economy and Cross-strait RelationsRelations
-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