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Jiang and Bush: The business of
Taiwan
By Terry Cooke
Foreign
Policy Research Institute
High on the agenda
when US President George W Bush met with Chinese
President Jiang Zemin in Crawford, Texas, on Friday was
establishing the two countries' common interests in two
world trouble spots - Iraq and North Korea. Some of the
complexity of both discussions lay in disentangling
secondary, and divergent, economic interests from a set
of overriding, and shared, security concerns.
In
their discussions of a third world hot spot - the
145-kilometer-wide strait separating Taiwan from China -
discussion was surely made easier by a fundamental,
though still underappreciated, fact: that, while the
political relationship between Beijing and Taipei across
the Strait of Taiwan is still mired in stasis and
static, business has been moving fast to stabilize
relations and prod politicians on both sides of the
Strait to focus on practical and productive issues.
This development deserves closer attention in
the United States for two reasons. First, closer
commercial integration between Taiwan and China supports
US policy goals of peaceful resolution through dialogue
and people-to-people exchange. Second, the US shares a
vital economic stake in the globalization dynamics which
this commercial interaction represents - extension of
established global supply chains from Taiwan into China
as well as the guided, sectoral integration of China
into the global economy now that it is a member of the
World Trade Organization.
The sector that best
captures the scale and speed of these developments is
information technology (IT). For well over a decade,
Taiwan supported the rapid growth of US IT brands by
serving as their original equipment manufacturer (OEM)
partners. Relying on an unrivalled OEM track record of
continually bringing US brand-products to market
"cheaper, better, faster", tiny Taiwan rode the IT boom
for more than a decade, holding down the No 3 spot in
global IT production behind only the US and Japan.
But on the heels of the Nasdaq's fall in March
2000 and the global downturn in tech markets, Taiwanese
manufacturers were forced to vary their traditional
formula to keep it a winning one. To maintain margins,
Taiwanese manufacturers were forced to take advantage of
the availability of cheaper land, facilities and labor
on the mainland.
Significantly though, as Taiwan
investors followed other global businesses pouring
investment dollars into China, their business model
differed in one crucial respect: rather than be
dependent on an underdeveloped supply and distribution
infrastructure in China, major Taiwanese IT investors
finessed logistics and supply chain bottlenecks by
bringing with them from Taiwan their entire, established
network of upstream and downstream suppliers. As a
result, Taiwan IT manufacturers have been able to
operate profitably in China, continuing to lower costs
while still ensuring quality and timeliness of delivery
for their US and global customers.
The scale of
this mass migration of IT production from Taiwan to
China is noteworthy. To illustrate: in the process of
China overtaking Taiwan for the No 3 spot in global IT
production in 2001, Taiwanese investors have become
equity owners of as much as three-quarters of China's IT
export production while still retaining control of
virtually all their own fourth-ranked US$23.5 billion of
IT production in Taiwan.
Why has an economic
flow representing tens of billions of dollars annually
in the technology heart of the global economy not
attracted more attention? There are four main reasons.
First, as explained above, it is a relatively
new phenomenon, driven by complex technology dynamics in
the global market. More important, however, is the fact
that throughout the 1990s and until mid-2002, most
high-tech investment in the mainland was barred by the
Taiwan government. Skirting these prohibitions, Taiwan
investors became adept at channeling their investments
into the mainland through offshore subsidiaries in Hong
Kong, the British Virgin and Cayman islands, and other
locales with limited transparency. Offshore, fragmented,
and largely invisible, this pattern of investment
deprived Taiwanese government officials, mainland
customs officials and traditional macro-economists any
easy handle by which to assess its overall dimensions or
underlying dynamics.
A third factor is the
natural reticence of the Taiwanese investors themselves,
the most knowledgeable group of experts on this subject.
While some observers link this reticence to concerns
over the technical illegality of their investments or to
a potential "double taxation" liability, the Taiwanese
government has in large measure already dismantled both
of these sets of sanctions. Not surprisingly, though,
Taiwanese investors still show markedly little appetite
for inserting their companies into a direct line of
political crossfire even after legal disincentives have
been removed.
The fourth and perhaps most
important reason involves the nature of the cross-Strait
political debate itself. As long as no one really knows
who is gaining political leverage as a result of
cross-Strait commercial integration, each constituency
can project its own hopes and fears on the issue like a
Rohrschach test. Cross-currents of public discussion and
commentary in the resultant "dialogue of the deaf" tend
to obscure, rather than highlight, the basic fact of
globalization: that the US, Taiwan, and China all share
important interests in the extension of global IT supply
chains across the political fault-lines of the Taiwan
Strait. These interests need, of course, to be carefully
managed especially in the area of high-technology
transfer. They cannot be adequately managed, however,
unless they are first well understood.
When
Presidents Bush and Jiang turned their attention to the
China/Taiwan security issue, neither was likely to
mention the dynamism of cross-Strait commercial
integration. The fact of this dynamism, however, was in
the background of their discussion in forms as varied as
Jiang's "Three Represents" doctrine (which calls for
private-sector "capitalists" to be eligible for
membership in a Chinese Communist Party more broadly
representative of contemporary society in China) and
Bush's policy inputs from the US private sector.
In short, the cross-Strait security situation
has no simple precedent. Yes, there is there the fact of
contested sovereignty and military standoff, as between
the Koreas or the Cold War Germanys. But there is, at
the same time, a novel element - a vital commercial
interaction and guarded economic embrace more typical of
regional partners such as the United Kingdom and the
European Union. Most intriguing of all in the Strait of
Taiwan is the possibility that global forces of
commercial integration may be transforming a political
legacy of division in ways not yet understood.
Terry Cooke is a senior fellow at the
Foreign Policy Research Institute and leader of the
Cross-Strait Information Technology Project. Currently
on leave from the Senior Foreign Service, Cooke
previously served as a commercial officer at the US
Consulate in Shanghai and, most recently, as chief of
the commercial section at the American Institute in
Taiwan. The views in this article are of a private
capacity and non-official.
(This article was
provided by the Foreign Policy Research Institute, a
non-profit organization in Philadelphia devoted to
bringing the fruits of scholarship to bear on
foreign-policy issues.)
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