economics

June 27, 2010

China’s bear hug has benefits for wary Taiwan By David Pilling

Filed under: Uncategorized — ktetaichinh @ 5:58 pm
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Published: June 24 2010 00:10 | Last updated: June 24 2010 00:10

Along with their electricity bill from the state-owned power company, Taiwanese residents recently received a pamphlet extolling the virtues of a trade agreement with mainland China. The Economic Co-operation Framework Agreement, or Ecfa, as it is known in the elegant phraseology of trade negotiators, is the centrepiece of the Taiwanese government’s drive to repair relations with Beijing. If things go to plan, an agreement could be inked by the end of the month.

Ma Ying-jeou was elected president in May 2008 with a mandate to mend fences with Beijing. In truth, there was not really much of a fence left. His predecessor, Chen Shui-bian, had infuriated Beijing by pursuing what it regarded as a “splittest” agenda. Mr Chen, the first non-Kuomintang leader of Taiwan in 50 years, had sought to enact a new constitution that would strengthen the island’s independence. He had “Taiwan” – rather than the Republic of China – embossed in passports and pursued a United Nations seat for an island that Beijing still regards as a breakaway province.

Mr Chen’s presidency ended in ignominy. He is currently serving a 20-year sentence for corruption. Mr Ma, the beneficiary of that fall from grace, has moved swiftly to unpick his predecessor’s separatist handiwork. Taiwan has cooled the independence rhetoric and established direct flights and shipping routes across the 110-mile-wide Taiwan Strait. The island’s 23m people – 4 per cent of whom live and work on the mainland – can now fly direct to 23 Chinese cities. Shanghai is an hour and 20 minutes away instead of the day-long slog, via Hong Kong, that it used to be.

The kiss-and-make-up atmosphere was symbolised by China’s delivery, six months into Mr Ma’s premiership, of two giant pandas to Taiwan. Their names, Tuan Tuan and Yuan Yuan, cunningly combine to spell the word “reunion”, angering an opposition already complaining that the black-and-white ambassadors did not come accompanied by the requisite export papers. (Beijing naturally regarded their transfer as a purely domestic affair.)

Now, Mr Ma, who was born in Hong Kong of mainland parents, wants to go one step further by concluding a trade agreement. The not-unreasonable rationale is that Taiwan’s political status is making it increasingly isolated. It has been excluded from a web of free trade agreements that have shot, Spiderman-like, across Asia. Its growth slowed to a lacklustre average of 4 per cent during the eight years of Mr Chen’s presidency. Mr Ma says Taiwan’s isolation is damaging its attractiveness as a destination for foreign investment.

The danger of being left out in the cold was illustrated with the January enactment of the China-Asean free trade agreement. This gives the 10 countries of the Association of South East Asian Nations preferential access to China’s vast market, potentially deepening Taiwan’s disadvantage. Mr Ma says a deal with China will even things out by reducing tariffs on Taiwanese exports to the mainland and clear the path for agreements with other Asian nations too scared to offer bilateral deals to Taipei.

The opposition senses a trap. It says Beijing wants to draw Taiwan into its economic embrace until reunification becomes a fait accompli. Frank Hsieh, who lost to Mr Ma in the 2008 presidential election, says mainland companies have started to infiltrate Taiwanese media, spreading the pro-Beijing gospel. He concedes that lower tariffs might help some big businesses in industries such as petrochemicals and textiles, but says smaller ones will suffer from a flood of cheap Chinese imports. Taiwan, he says, already sends 41 per cent of its exports to China. It needs to diversify, not deepen its dependence.

Morris Chang, considered the father of Taiwan’s world-class semiconductor industry, supports the deal, though he says it won’t affect his own business. “The general direction we should take is to be more open to China and vice versa,” he says. Mr Ma is not a “babe in the woods” who will negotiate away Taiwan’s economic wellbeing or de facto independence for a quick deal.

Even Jimmy Lai, a staunchly anti-Beijing entrepreneur and media impresario, supports the agreement, saying Taiwan can benefit from China’s dynamism without compromising its freedoms. “China wants to integrate the economies slowly, slowly and eventually overwhelm it. But this is a dream devoid of reality,” he says. “People won’t give up democracy just because Beijing has given them some goodies.” Mr Lai, who moved to Taiwan from Hong Kong because he found its democracy and civil liberties “irresistible”, says that by drawing closer to China economically, culturally and socially – but not politically – Taiwan will get a new burst of vitality.

It may seem odd to be considering any kind of agreement with a country that has 1,300 missiles pointing at your tiny, isolated island. But Mr Ma is betting that China will never use them. Both sides are waiting. Beijing hopes the Taiwanese will eventually see the light and come home to a strong and vibrant China. Taiwan hopes that China will grow rich and more democratic, by which time reunification might not be such a pressing issue. If that is right, Taiwan could yet turn out to be an international flashpoint that, mercifully, will never flash.

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