TAIWAN DEPENDENCE: The Trade and Investment Dimension of Cross-Strait Politics

July 30, 2001


 By John Tkacik

When Taiwan's Democratic Progressive Party (DPP) leader Chen Shui-bian announced he was running for the country's presidency in June 1999, Washington policy-makers were alarmed. The prospect of a DPP politician actually winning Taiwan's presidency and moving toward "Taiwan Independence" – a long-held dream of the DPP – was a nightmare that Pentagon planners and State Department diplomats have often war-gamed in scenarios that inevitably provoke China into armed conflict.

They needn't lose sleep over it, though. Since his March 18, 2000, election, Chen has stepped back from "independence". And no wonder -- Taiwan, it seems, is too dependent on China to be independent. Despite their profound sympathies for a formal "non-Chinese" homeland, President Chen, his major financial backers and most of his political party are all too aware of the central fact of Taiwan's economic predicament: its entire export manufacturing sector relies on mainland Chinese labor and factories for growth. And it's not just Taiwan's "sunset industries" that are being forced offshore, but its cutting-edge computer and semiconductor industries as well. Into the 21st Century, Taiwan's drift toward political "independence" will have halted, and Taiwan's increasing economic symbiosis with mainland China will bind the island ever more tightly to the mainland.

There is not enough room in this short chapter to offer a comprehensive study of Taiwan's economic interdependence on China. I will only attempt to give a flavor of the political, investment, trade, and labor factors at play in the dynamics of cross-Strait. Relations. For the foreseeable future, no one need worry that Taiwan will seek to change its "status quo." What China does is another story.

Turning Point

The atmosphere in Taipei's Academia Sinica auditorium was electric the afternoon of March 10, 2000. There were just seven days left before Taiwan's historic presidential election. Reporters, photojournalists and TV cameramen jammed into the small auditorium to witness that was perhaps the psychological turning point of the presidential campaign. On the dais, a lanky and owlish scholar stood up and moved next to former Taipei mayor Chen Shui-bian, the Democratic Progressive Party candidate for Taiwan's presidency. The two men had just completed an hour's meeting in private and were now ready to face the cameras.

Nervously, Academia Sinica President Lee Yuan-tseh, Taiwan's most respected scholar and winner of the 1986 Nobel Prize for Chemistry, cleared his throat and spoke into the microphones in front of him. Calling candidate Chen a "proper national leader," Dr. Lee pledged to join a President-elect Chen's National Policy Advisory Committee and work to help Chen govern Taiwan as the island's first non-Kuomintang (KMT or "Nationalist") party leader since the end of the Second World War. "I admire Chen for his determination to carry out all kinds of reforms and to eradicate the 'black gold' politics of corruption," Lee said. "I will help Chen to govern our country if he is elected, to promote Taiwan's development." The unprepossessing academic explained his support for the former Taipei mayor was spurred by the sight of "too many known members of organized crime groups stumping for other candidates." Flashbulbs snapped, motor-drive cameras whirred. Dr. Lee's endorsement had sealed Chen's victory.

Although former Taipei mayor Chen Shui-bian had maintained a persistent if slight edge in the polls for the previous three months of the 2000 campaign, even this late in the game there were still lingering anxieties about his commitment to the pursuit of "Taiwan Independence," the defining plank of Chen's Democratic Progressive Party. Although all the opinion polls leading up to the presidential election showed a small but increasing sentiment for outright "independence", they also showed the vast majority of Taiwanese, nervous about China's reaction, favored "maintaining the status quo indefinitely". Chen's own DPP polls told him this latter group made up the 20-to-25 percent undecided voters who would swing the election.

For over a year, Chen had been backing away gingerly from his party's militant stance of full-separation from China. While China and Taiwan are two separate and independent countries, Chen would explain to his constituents and fellow partisans (as well as to uneasy Americans), this requires no change in Taiwan's political status. Taiwan, after all had been sovereign and independent of mainland China since 1949, and Chen promised to "maintain the status quo" throughout his term as the Republic of China's next president.

While Taiwan's voters were sympathetic, they needed reassurance that electing Chen wouldn't be catastrophically provocative to China. Dr. Lee Yuan-tseh's words gave them some of that reassurance. But as soothing as Dr. Lee's endorsement was, Chen was about to get a boost from even more convincing supporters – Taiwan's wealthiest and most dynamic ethnic-Taiwanese businessmen and women. As Chen turned to the audience, still basking in Dr. Lee's reflected glory, Chen revealed to reporters that "I have also received promises from Taiwan High-Speed Railway Corp. chairwoman Nita Ing, Chi Mei president Hsu Wen-lung, Evergreen chairman Chang Jung-fa, and current National Security Advisor Chen Pi-chao, and in addition, Dr. Lee has suggested I invite Acer Computers CEO Stan Shih."

The message to Taiwan's fence-sitting voters was clear. If Taiwan's top tycoons could support Chen, then a vote for Chen was a vote for economic prosperity. And because all these business leaders had extensive investments on the other side of the Taiwan Strait, a vote for Chen was a vote for stable China relations as well.

A thousand miles away in Beijing, however, Chen's support among Taiwan's top entrepreneurs was cause for panic. Maybe this pro-independence politician could actually win! On March 15, with Taiwan's election just three days away, a clearly alarmed Chinese Premier Zhu Rongji called an unscheduled news conference with foreign reporters. "Let me advise all these people in Taiwan," he warned, "do not just act on impulse at this juncture which will decide the future course that China and Taiwan will follow. Otherwise, I'm afraid you won't get another opportunity to regret.'' Premier Zhu vowed that Chinese were ready to "shed blood'' to prevent Taiwan breaking away.

If China's leaders thought Premier Zhu's hard line would sway Taiwan's voters, they were wrong. In the end, Chen won the March 18, 2000 election with 39.6% of the vote in a hard-fought three-way race. And the following week, Chen invited his advisors, including Nita Ing, Chang Jung-fa, Stan Shih and Hsu Wen-lung to help him choose a new cabinet.

Beijing Pressures Pro-Chen Businesses

The Financial and Economic Times is a small-circulation weekly financial newspaper published in Beijing by the "China Securities Market Research and Planning Center", but on Tuesday, April 11, 2000, its circulation shot up as Taiwanese reporters scurried around town looking for copies. Under a front-page headline "A Minority of Taiwan Businesspeople who Tout Taiwan Independence Stirs the Anger of the Mainland" were four large portraits of none other than Nita Ing, Chang Jung-fa, Stan Shih and Hsu Wen-lung. The paper named these four ethnic-Taiwanese supporters of president-elect Chen Shui-bian (as well as three others: current Minister of Economic Affairs Lin Hsin-yi; E. Sun Bank chair Lin Jong-shong; and I-Mei Foods' Kao Chih-ming). The article complained that although these Taiwan businessmen and women had one thing in common –massive investments in China – they nevertheless had the temerity to support Chen Shui-bian and Taiwan independence.

The first target of the newspaper's attack was Chi-Mei Enterprises' Chairman Hsu Wen-lung. The paper pointed out that Hsu's operations in Taiwan ship over a million tons of raw petrochemicals to China each year, and account for over 40% of China's imports in many major petrochemical sectors. Chi-Mei also has a 300,000 ton/year polystyrene plant in Zhenhai as well as a 125,000 ton/year joint venture acrylonitrile-butadine-styrene (ABS) plant under construction.

Next on the list was Chang Jung-fa, chairman of Taiwan's Evergreen Group which operates one of the world's largest merchant fleets, scores of container ports and several international freight forwarding businesses as well as EVA Airways. Evergreen has 14 offices in China and cooperates with China's top shipping lines to running cargo across the Taiwan Strait via third ports. (And it should be noted that, at the sufferance of the Chinese government, EVA Airways ferries 11,600 passengers weekly between Taiwan and Macao, where most of them book onward flights directly into China.)

The Financial and Economic Times piece then recalled that Stan Chen-jung Shih's Acer Computers is already one of China's top computer sellers, has plans to invest in over 200 separate internet portals in China over the next two years, and more plans to invest another US$3 billion into the China market over the next five years.

The Financial and Economic Times article was a shot across the bow. No longer would Beijing "sit idly by" and "watch Taiwan businesses make money in China to support Taiwan Independence back home," it warned. That week, the planned opening of Evergreen's Shanghai office was delayed, and Chi-Mei's shippers and factories along the China coast were all subject to the incessant inspections of battalions of Chinese bureaucrats, from tax collectors, to safety inspectors to customs agents and policemen. In May, a platoon of tax inspectors appeared at the doorstep of the Chi Mei plant near Nanjing, and while they found no irregularities they made it clear to the Taiwanese managers that the crackdown was tied to Hsu's support for Chen. According to a Business Week article, Chi Mei says authorities have threatened its mainland customers with special tax scrutiny. Although Chi Mei has sunk $200 million into China, the company is now threatening to freeze future investments, and there are rumors that Hsu Wen-lung is pondering ways of pulling out of China altogether.

Hsu Wen-lung is the exception. Most of Taiwan's entrepreneurs hope to remain in Beijing's good graces. Acer's Stan Shih, for example, was so worried about his appearance in the Financial and Economic Times that he flew immediately to Beijing where he hoped to meet some high in the party so he could explain himself, but in the end he spent just a day and gave a speech at a computer trade show. Shih told reporters that he had "never supported Taiwan Independence," while Chi-Mei's representatives in China insisted that their boss, Hsu Wen-lung, "has nothing to do with the China offices" – as if that would exculpate Chi-Mei's mainland operations from Mr. Hsu's political stance. Hsu himself seemed unapologetic, but he remained quiet nonetheless. Evergreen's Shanghai office eventually opened, but as late as November, 2000, the Chinese were still temporizing about extending EVA Airways' landing rights in Macao, rights that were due to expire at the end of that month.

Taiwan Dependence on China

The Chinese leadership's new hardline against ethnic-Taiwanese businesses in following the election of President Chen Shui-bian has heightened Taiwan's sense of vulnerability to Chinese economic pressures. President Chen's response has been moderate. In his May 20, 2000, inauguration address, he acknowledged that "Taiwan's industrial development must move toward a knowledge-based economy, high-tech industries need to be constantly innovative, while traditional industries need to undergo transformation and upgrading." Chen's fears for Taiwan's sunset sectors reflect his private concerns that Taiwan's most of the island's light-industrial firms will sooner or later have to move offshore – to China – in order to remain competitive, leaving Taiwan's advanced information economy to emerge as the engine of Taiwan's future growth. Accordingly, Taiwan is becoming the supplier of advanced-technology components to the labor-intensive assembly lines in China.

Taiwan's economic planners are understandably concerned by this out-migration that is already "hollowing-out" Taiwan's manufacturing sector. This isn't to say they haven't tried to control the problem. President Chen's predecessor, Lee Teng-hui instituted a "don't hurry, be patient" policy of discouraging Taiwan businesses for moving to the Chinese mainland. Earlier, in 1994, President Lee launched a "Southern Strategy" of encouraging Taiwan businesses to look at Southeast Asia as an alternative to China. But, with the exception of a large-scale move into Vietnam (where labor is truly cheap), new investments in China continued to increase at an annual rate of 13-30%.

Paradoxically, Chen Shui-bian's inauguration seemed to speed-up Taiwan's manufacturing exodus to China. Chen campaigned on a promise unilaterally to open up trading links with the mainland, and after his election he has ordered a series of policy initiatives to encourage cross-Strait trade, provided China doesn't levy a "one China" precondition. Although China hasn't obliged, Taiwan businesses view the new Chen Shui-bian regime as much more sympathetic to cross-Strait investments than his predecessor's, and Taiwan investment flows into China ballooned in the first six months of Chen's government.

On September 25, Taiwan's Ministry of Economic Affairs (MOEA) reported that it had approved US$1.612 billion in new Taiwan investments in China for the January-August period – representing an annual expansion of 146%. By October 25, another US$108 million in Taiwan investment applications were approved. Taiwan's newspapers noted that Beijing sources estimate that Taiwan businesses had invested a cumulative US$28 billion in China since 1986, while Taiwan's own Central Bank of China (CBC) seemed to think the figure was over US$50 billion – maybe US$60 billion. As late as November 11, 2000, one Legislative Yuan member claimed the CBC told him Taiwan investments could be as high as US$100 billion, if one includes all the money that Taiwan businesses borrow for their mainland operations without seeking Taiwan government approval. By comparison, Taiwan's Commission on Economic Planning and Development (CEPD) reckons that Taiwanese businesses have invested a cumulative US$43.7 billion in Southeast Asia.

The situation is truly disturbing, even if one weren't concerned about the national security implications of such close economic dependence on a politically hostile power. In early November, 2000, Taiwan's cabinet-level CEPD reviewed the alarmingly high growth of Taiwan industrial investment in China and recommended that laws be enacted which will limit investment to 2% of Taiwan's gross domestic product. And Taiwan is likely to continue its national security ban on making very high-tech computers, powerful motherboards or high-speed modems in China.

Still, when all is said and done, and despite the increasing vulnerability of Taiwan's economy to pressures from China, there is no other choice for Taiwan businesses that hope to remain competitive. China has the labor, the land – and now, the market – while Taiwan has the capital, expertise and entrepreneurship. Already, whole production lines have been closed in Taiwan, and reopened in China.

With Taiwan as dependent as it is on China, President Chen is not about to provoke Beijing with an independence challenge. Indeed, Chen held out the olive branch at his inauguration address by reassuring his Chinese counterparts that "we believe that the leaders on both sides possess enough wisdom and creativity to jointly deal with the question of a future 'one China.'" Chen also made his so-called "Four No's" vow that

as long as the Chinese Communist Party's regime has no intention to use military force against Taiwan, I pledge that during my term in office, I will not declare independence, I will not change the national title, I will not push forth the inclusion of the so-called 'state-to-state' description in the Constitution, and I will not promote a referendum to change the status quo in regards to the question of independence or unification.

So, How Dependent Is Taiwan?

The year 2000 was a benchmark era for Taiwan investment in China. Taiwan's bean-counters say the capital injection from Taiwanese enterprises in China reached US$14.8 billion by mid-2000. But figures compiled by Beijing showed that Taiwan investors have signed agreements to invest US$48 billion capital in the mainland, with actual capital input amounting to US$28 billion.

Much of the early Taiwan investment in China could be said to have been "overestimated" in an effort to "puff-up" their claims to preferential treatment in China. Taiwan's toy, textile, electrical appliance and footwear factories in Fujian and Guangdong, for example, were often older production lines with obsolescent equipment which had been crated up in Taiwan and shipped across the Strait.

But not any more. For the year 2000, an astonishing 72.8% the total US$25.535 billion production value of China's information technology (IT) hardware sector was manufactured by Taiwan-owned production lines. A more ominous fact was that China's US$25 billion IT industry was bigger Taiwan's home-grown US$23.209 billion (according to a November 6, 2000, report by the Taipei Market Intelligence Center, or "MIC", at Taiwan's government-run Institute for Information Industry).

Total Taiwan-controlled IT production for the year 2000 will total US$48.076 billion – 20.5% over 1999 – with only US$23.209 billion worth of the products actually manufactured in Taiwan. US$18.577 billion worth – or 38.6% – of the total will have been assembled in mainland China, up sharply from 1999's level of 23%, and even that number is expected to rise to 51% in 2001.

In October, 2000, Quanta Computer announced it would invest US$26 million in a motherboard factory and computer case production line in Zhongshan, making it the last of Taiwan's notebook manufacturers to set up shop in China. As of late September, about Taiwan's desktop personal computer (PC) manufacturers had moved 42% of their production lines to China, including

• Mitac International (US$30 million in Shunde, Guangdong);
• Hsing Enterprise (Shenzhen, Guangdong);
• Acer Inc. (Zhongshan, Guangdong);
• Tatung (Wujiang, Jiangsu); and
• First International Computer Inc. (Shenzhen).

Taiwan's Ministry of Economic Affairs judges that up to 48% of desktop computers exported by Taiwan makers are now manufactured in mainland plants, 18% turned out by their plants in Taiwan, and the remaining 34% produced in other parts of the world. At the high-end of the PC spectrum is the notebook computer, and Taiwan can already claim a 60% share of global notebook computer market. In 2000, Taiwanese-operated plants in mainland China assembled 6.5% of Taiwan's notebook output, double 1999's figure.

About 56% of Taiwan's motherboard makers also had production lines on the mainland, which in the first half of 2000 produced 45.8% of Taiwan's total motherboard shipments – a figure that rose to over 50% by the end of 2000. Motherboard makers in China include Hsing Enterprises (Shenzhen); Asustek Computer (Suzhou, Jiangsu); Gigabyte Technology (Dongguan, and Huangjiang, Jiangsu); Micro-Star (Shenzhen); and Elitegroup (Shenzhen). 88% Taiwan's scanner manufacturers had moved to the mainland by the end of 2000, including Silitek (Dongguan); Avision (Shanghai, Suzhou); Primax Electronics; Mustek (Dongguan); and Umax Data Systems(Suzhou). 74% of Taiwan's CD-ROM drive makers have moved to, mainland China, including Chien-Hsin Electronics, Behavior Tech, Arima, Acer Communications and Multimedia, and Aopen. And 58% of Taiwan's computer monitor producers, including Lite-On Technology (Dongguan) and Compal Electronic (Kunshan, Jiangsu) have major production lines in China.

Labor costs are a major factor in the migration of Taiwan's high-tech sector to China with engineering and technical staff salaries running about one third to a fifth of Taiwan's levels, and assembly labor as cheap as one tenth. Acer Display Technology, Taiwan's largest domestic notebook display manufacturer, announced October 20, 2000, that it would set up a new liquid crystal module (LCM) assembly line at Acer's 53.3-hectare complex in Suzhou, Jiangsu. The company said an exhaustive study showed that moving LCM assembly lines to China would reduce production costs 20%. Although Acer's move displaces over 800 assembly-line workers at Acer Display's Taiwan factory, many of its major Taiwan customers are setting up notebook assembly lines on the mainland and the company has to service them.

Taiwan's Lite-On Electronics announced October 5, 2000 it would relocate its entire Taiwan optoelectronic production line to its factory in Tianjin "due to high production cost in Taiwan." Lite-On's three production lines in Tianjin cover 750,000 square feet of floor space, have 2,000 workers and generated about US$62.5 million income in 2000. The move saves Lite-On about US$1.6 million in production costs and will leave the Taiwan operation focused on R&D and production of high value-added products.

But Taiwan's high-tech sector doesn't just see China as a source of cheap labor. It's a major market as well. VIA Technologies, Taiwan's largest chipset designer, reported in September that China's 12 major computer assemblers (including China's giant Legend Group) have ordered VIA chipsets and processors, and that VIA intends to take over 50% of the mainland Chinese market for chipsets and between 10% and 30% of China's CPU (central processing unit) market within the next few years. On October 30, VIA Tech announced it would invest US$16.08 million to establish its first branch in China, an R&D center in Beijing. VIA sees itself as becoming China's main supplier of chipsets by placing VIA-Cyrix III microprocessors as original equipment manufacturing (OEM) on the majority of motherboards sold in the mainland. VIA's China foray will, of course, put it into direct competition with the Intel which currently dominates China's CPU market, but VIA's strategy is to beat Intel in the China market. Taiwan's motherboard producers already use VIA chipsets on their China-bound OEM products marketed by Compaq and Dell.

Stan Chen-jung Shih's "Acer Sertek" said September 25, 2000, that its PC sales in China will exceed Taiwan for the first time in 2000 making it China's number three PC brand after Legend and Founder Group. With China demand pegged at between seven and eight million units in 2001 and annual growth rate of between 20% and 30%, Acer Sertek sees the mainland as replacing Germany as the third largest PC market in 2001 and Japan as the world's second largest PC market by 2002. To meet the demand, Acer Group is planning PC manufacturing centers in Guangzhou and Suzhou and doubling its PC distribution and service beyond its existing 500 sales centers by first quarter 2001.

2000 was a key year for Taiwan's copper-wire investments in China. Nine of Taiwan's top electric wire and cable producers expanded the output of their Chinese factories to meet the ever-rising demand for cable and wire in mainland China. Walsin Lihwa has invested US$120 million in 14 factories throughout China to make copper wire, power cable, fiber-optics and steel wire. Pacific Electric Wire and Cable invested US$31 million in Shenzhen to make bare copper wire. Tai-I Electric Wire and Cable spent US$17 million in a copper wire line in Guangzhou making that factory the largest factory of its kind in China. Ta Ya Electric invested US$11.8 million to set up a copper wire factory in Dongguan, Jung Shing Wire Co., Ltd. invested US$5.21 million to build two copper-wire factories in Dongguan supply the computer monitor industry.

The petrochemical sector has also been drawn to mainland China in 2000. Nan Ya Plastics, a subsidiary of Formosa Plastics Group (FPG) decided on August 27, 2000 to invest US$49 million to build a refinery in Huizhou, Guangdong. The FPG parent company is also seeking Taiwan government approval for a US$100 million PVC refinery Ningbo, Zhejiang, with a 300,000 metric ton annual output capacity, and plans additional ones in Nantong, Zhejiang, and in Xiamen, Fujian. Taiwan media reports on September 3, however indicate FPG is planning to invest over US$13 billion in a vast 4,000-hectare petrochemical complex at the Ningbo site. While FPG has long been a pioneer in mainland investments, Taiwan's Petrochemical Industry Association (PIA) which represents the island's non-FPG-owned petrochemical manufacturers, have decided to move ahead with a US$700 million joint venture ethylene cracker with an annual capacity of 600,000 tons.

Despite the enthusiasm that FPG and the PIA petrochemical producers show for expansion into China, Taiwan's now-blackballed Chi Mei Petrochemical seems to have other ideas. After six months of harassment by Chinese watchdogs, and a unofficial boycott of Chi-Mei's products, which in late October, prompted Chi Mei to announce a downward adjustment in its November domestic sales prices of ABS and polystyrene, the company is said to be looking for ways out of China – perhaps for Vietnam or the Philippines.

These are just a few examples of the major Taiwan investment initiatives in China during the two mid quarters of 2000. They are a snapshot of the migration of Taiwan's mid and high-tech manufacturing to the mainland. But they also underscore the growing importance of China's market for high-tech products.

The rest of Taiwan's US$25 billion to US$60 billion investment in China's low- to mid-tech industries has been there for at least five years, in some cases (as with shoes and light industrial goods) between 10 and 13 years. Taiwan's largest light industrial sector players -- foodstuffs giant Uni-President, for example -- are now familiar features in the Chinese landscape. Taiwan is now getting comfortable with them as well. On October 22, 2000, Taiwan's Mainland Affairs Council (MAC) and Ministry of Economic Affairs (MOEA) approved the first exception to the island's US$50 million ceiling on investment projects in China. But it was an exception that proved the rule. Taiwan's UNI-President Group actually applied to consolidate 18 of the Uni Group's re-invested firms in China into a large holding company based in Shanghai and capitalized at US$100 million which will handle materials management, fund management and personnel training for the group's 20 other re-invested manufacturing firms in mainland China.

Patterns of Trade

Taiwan's investments in China are the engine behind Taiwan's massive trade across the Strait. And China is the engine for Taiwan's export sector.

Taiwan's trade with China hit record levels in July 2000 for the tenth consecutive month of double-digit year-on-year growth. Exports to China surged a year-on-year 42% in July to US$2.5 billion while imports were US$566 million, up 55.4% from the same month in 1999. Taiwan's trade with China grew to US$18.38 billion in the first seven months of the year, up 30.9% from the same 1999 period and accounted for 11.1% of Taiwan's total external trade.

What does the trade consist of? Mostly components shipped to Chinese factories for assembly into products for export beyond China. A report released by the Taiwan Ministry of Economic Affairs (MOEA) on March 26, 2000, showed that over 26% of all Taiwan export orders received by Taiwan companies are shipped from Taiwan-run factories in China. Now, the wording of the MOEA report indicated that the 26% of export orders are made in-whole or in-part in China. A good chunk of these goods are re-assembled, sent back to Taiwan and then exported from Taiwan as finished products, but more than half appear to be shipped directly from China without showing up on Taiwan's export statistics. Still, the implications are dramatic – over one fourth of all Taiwan exports, direct or indirect, in whole or in part, rely on China.

That's a huge figure. But it puts into perspective why China is not very excited about foreign direct investment. A report prepared by the U.S. Consulate General in Guangzhou in 1992 included a study of the footwear industry which cited the example of a pair of Nike tennis shoes said to cost about US$12.00 ex factory. Of that figure, US$1.00 was for labor, about $0.50 was for rent, electricity, taxes, and US$6.00 was for imported components and US$2.00 for Chinese sourced components. At the time, the consulate extrapolated that for every dollar of exported goods from a foreign venture, only about 30% stayed in China, while the rest went to other foreign countries which supplied the components and entrepreneurship.

Taiwan's dramatic reliance on China to fuel its export economy is far more important to Taiwan than to China, a fact that seems only recently to have dawned on Beijing. Beijing's policy has generally been to insulate the Taiwan economic and political spheres.

As the Beijing Financial and Economic Times article shows, however, the careful separation of trade and politics broke down after Taiwan president Chen Shui-bian's election. A few days before the FET story was published, on April 9, Chinese officials were already reported in the Taiwan press to be "increasing pressure on the investment activities of Taiwanese companies which are thought to be backing the pro-independence policy of President-elect Chen Shui-bian of the Democratic Progressive Party." These unnamed Beijing officials warned that they may consider excluding companies that back Taiwan independence from cross-strait economic activities. Taiwan's businessmen and women, small, big and world-class alike have too much invested – literally and figuratively – in mainland China to risk it by actively supporting Taiwan independence.

They – not just the four whose photos appeared on the front page of a Chinese newspaper – but hundreds of President Chen's supporters – certainly wield enough influence over Chen to restrain any precipitate and overt move to Taiwan independence – presuming he would want to in the first place. In short, although Chen's presidential term thus far has not been the most predictable, it's probably safe to say he would not want to precipitate the economic collapse that would result if China forced Taiwan companies to shut down their mainland operations.

Beware of Radical Labor

If Taiwan's "new economy" firms see the mainland as an opportunity for growth and increased competitiveness, its "old economy" manufacturing businesses see it as the only way to survive. Taiwan traditionally has had a characteristically Asian labor market, with unemployment hovering in the high two-percentages, and yet the island's working wages are far higher than most Asian countries, due to a combination of a thriving economy and one of Asia's narrowest income gaps.

If there is a threat to the political status quo in the Taiwan Strait, however, it is that the income gap is widening. Chen's DPP has traditionally put its ethnic-Taiwanese platform before its populism, but now that independence is on the back-burner, the party has been focusing more on its social and environmental agenda -- hence the Chen administration controversial decision to abandon plans to build a nuclear power plant. DPP party literature calls Taiwan's income gap "alarming," noting that the richest 20 percent of the population earns 5.5 times as much as the poorest 20 percent.

Ironically, that disparity is probably narrower than its "communist" neighbor next door -- but with thousands of jobs moving off the island and onto the mainland every month, it's not going to get any narrower. Unemployment was as high as 2.7 percent in May, and was creeping up at 0.1 percentage point a month to 3.1 percent in October. On November 14, 2000, a coalition of Taiwan labor groups planned fly to Hong Kong where they would demonstrate outside the Xinhua news service building to protest the exodus of Taiwan jobs across the Strait. The prospect of the independence platform resurfacing under a protectionist, pro-labor guise is certainly plausible.


While there is a large constituency for labor relief and efforts to halt the outflow of manufacturing jobs, there is little political sentiment on the island for a challenge to the status quo that calls Taiwan the "Republic of China". If present trends continue - and there's every indication they will – the outlook for the early part of the 21st Century is for increased Taiwan dependence on China for its economic expansion. This, of course, means Taiwan's political leadership will be very circumspect in dealing with the touchy topic of "independence." Of course, there's no need to. Taiwan's formal position is that it's already independent and sovereign, and that's the status quo that has existed since 1949. Taiwan, therefore, has neither need nor desire to change the status quo. China, on the other hand, has declared that "if the Taiwan authorities refuse, sine die, the peaceful settlement of cross-Straits reunification through negotiations, then the Chinese government will only be forced to adopt all drastic measures possible, including the use of force, to safeguard China's sovereignty and territorial integrity and fulfill the great cause of reunification." Strong words. They indicate that if any country would risk changing the status quo in the Taiwan Strait, it's the People's Republic of China. But that's another story.

November 14, 2000


The event was covered in all the Taipei newspapers on Saturday, but the Taipei Times has the best best English language description.. See "Chen to visit Lee Yuan-tseh today", Taipei Times internet edition, March 10, 2000, URL at http:/ /www.taipeitimes.com/ news/2000/03/10 , "Chen's the man, says Lee", Taipei Times, March 11, 2000, at URL http:// www. taipeitimes. com/news/2000/03/11, and "Lien, Soong scrambling on damage control over Lee Yuan-tseh" Taipei Times, March 12, 2000, at URL http:// www.taipeitimes.com/ news

"China's Zhu Warns Taiwan to Vote with Cool Head", by Paul Eckert, Reuters from Beijing, March 15, 2000.
The full story is in "Beijing Baozhi Dian Ming Yan Bian Qi Taishang" (Beijing Newspaper names seven Taiwan Businessmen who supported Chen Shui-bian), filed by journalist Xu Donghai in the Shijie Ribao (World Journal), New York, New York, April 12, 2000,. Page 1.
"Uneasy Collaborrators: To China, Taiwan Investors are both Welcome ans Suspect", Business Week, August 14, 2000, p 28.
"Hongqi Xiang Zhonggong Baozheng Zhichi Tongyi" (Acer Assures PRC that it supports Unification), China Times, April 12, 2000. "Shih Zhenrong Yuedi Fang Dalu" (Stan Shih to visit Mainland at end of month), China Times, April 19, 2000, "Shangye Zhoukan: Hongqi Dalu Xinchang Fazhan Kong You Kunjing" (Business Week says progress on Acer's new Mainland Factory May Face Trouble", China Times, April 19, 2000; "Shih Zhenrong Qiangdiao Ziji Zhengzhi Lichang Zhongli" (Stan Shih Insists his own Political stance is neutral), Commercial Times (CommT), April 27, 2000.
"Zhang Rongfa wei Liewei Jinru Dalu Hei Mingdan" (Chang Jung-fa hasn't been entered in any Mainland Black List), Taipei's Commercial Times, April 12, 2000; "Changrong: Cong Wei Zhichi Taidu, ye bu Zhuzhang Taidu" (Evergreen: Never supported Taiwan independence, never advocated Taiwan Independenece), Commercial Times, April 10, 2000; "Zhonggong Jinggao Zhichi Taidu Taishang" (PRC Warns Taiwan businessmen who support Taiwan independence). China Times, April 9, 2000; "Zhonggong Shiya Taishang bu Zhichi Taidu" (PRC pressures Taiwan Businessmen not to Support Taiwan Independence), China Times, April 11, 2000. Regarding EVA Air's Macao routes see "Tai Gang Ao Hangxian Xiayue Jiang Jixu Yue" (Taiwan-Hongkong-Macao Air Agreement Will Continue Next Month), China Times Express, Taipei, October 17, 2000, and "Tao-Ao Hangyue Xiayue Di Jieman Houtian Tanpan" (Taiwan-Macao Air Agreement will end at the end of next month, negotiations in two days), Commercial Times, Taipei, October 23, 2000.
See "Li Teng-hui Defends 'No Haste, Be Patient' Policy' Taipei, China Times, December 4, 1997, translated by Foreign Broadcast Information Service as FBIS-CHI-97-343 OW0912143797.
Taiwan President Lee Teng-hui launched his so-called "Southern Strategy" during his February 9-17, 1994 tour of the Philippines, Indonesia and Thailand.
See attached chart on cross-Strait investment. Data from U.S. Department of Commerce, National Trade Data Base, from an unnumbered telegram from the American Institute in Taiwan (AIT), March 3, 2000.
"Approved Taiwan investment in mainland China up 146% in 8 months", China Economic News Service, Taipei, September 25, 2000.
"Dui Dalu Touzi Qian San Ji Chuang Xin Gao Chengzhang 106%" (Investment in the mainland at new high, grows 106% in first three quarters), Commercial Times, October 25, 2000.
"Taizi Deng Lu Wei Yu Sanbai Yi Meiyuan" (Taiwan investment not over US$30 billion), Central Daily News, November 11, 2000.
"Yang Hang: Taishang Touzi Dalu Yu Qian Yi Meiyuan" (Central Bank: Taiwan business investments in Mainland over US$100 billion), China Times, November 10, 2000.
"Taiwan's mainland-bound investments estimated at US$60 billion", China Economic News Service, Taipei, October 8, 2000.
"CEPD plans mainland investment ceiling at 2% of Taiwan's GDP", China Economic News Service, Taipei, November 2, 2000.

"President Chen Shui-bian's inauguration speech" Source: Office of the President, Republic of China, at the Taiwan Government Information Office website, http://www.gio.gov.tw.

"Mainland China to replace Taiwan as world's 3rd largest IT supplier" China Economic News Service, Taipei, November 6, 2000.
"Half of Taiwanese desktop PCs sold from mainland China" China Economic News Service , Taipei, August. 10, 2000.
"Acer Display to set up LCM lines in mainland China", China Economic News Service,
Taipei, October 19, 2000.
"Lite-On Electronics to move optoelectronic lines to mainland China" , China Economic News Service , Taipei, October 5, 2000.
"VIA Technologies aims for top spot in mainland's PC chip market", China Economic News Service , Taipei, September 21, 2000.
"Acer Sertek to rank as mainland China's third largest PC seller in 2001", China Economic News Service, Taipei, September 25, 2000.
"9 local electric wire & cable makers expanding in mainland China", China Economic News Service, Taipei, September 13, 2000.
"Nan Ya Plastics enjoyed growth in half-year revenue & profit", China Economic News Service, Taipei, August 27, 2000 .
"Chi Mei lowers domestic prices of ABS, PS for November", China Economic News Service,
Taipei, October 24, 2000.
"Gov't to okay US$100M. mainland investment by Uni-President", China Economic News Service, Taipei, October 22, 2000.
"Taiwan's exports to mainland China surged 42% in July: BOFT", China Economic News Service, Taipei, September 26, 2000.
"Taiwan Jiedan, Dalu Chu Huo Bilu Tupuo 26%" (Ratio of Taiwan Export Orders to Mainland Shipment of Goods breaks 26% mark), Commercial Times, March 6, 2000. But also see "Waixiao Jiedan Jin 87% Zai Guonei Chansheng", (Only 87% of Export Orders Produced Domestically), China Times, Taipei, June 26, 2000.
Unpublished report written by the author. You'll have to take my word for it.
"White Paper on the Principle Of One China And The Taiwan Question" Xinhua, Beijing, February 21, 2000



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