TAIPEI - The election of Ma Ying-jeou, of
Taiwan's Beijing-friendly Kuomintang (KMT), for
another four-year presidential term will further
strengthen cross-strait business ties, while
Beijing is almost certain to make numerous
mouthwatering economic concessions to lure the
island into deeper political negotiations.
Mainland China is by far Taiwan's largest
trade partner. Taiwanese investment in the
mainland, direct and via third locations, totaled
US$2.6 billion in 2010. Exports to the mainland
are expected to have hit a record $120 billion
last year, following the January 2011
implementation of the cross-strait Economic
Cooperation Framework Agreement's (ECFA) "early
harvest list" of goods qualifying for tariff
concessions.
ECFA was predicted to
increase Taiwan's gross domestic product
(GDP) by 2020 by about
5.3% from the current trend line. In 2010, 28% of
Taiwan's exports were shipped to the mainland,
with as much as a further 5% to 10% going there in
the form of "ghost exports" via Hong Kong, a
Chinese Special Administrative Region. The
global downturn has lowered growth in demand in
Europe and the United States for the island's
electronics, but mainland consumers were expected
to pick up some of the slack as tariffs on more
than 90% of the items on the early harvest list
will be reduced to zero. Thus until recently,
Taiwan was expected to achieve more than 5% export
growth this year.
Figures turned less rosy
towards the end of 2011 as signs emerged of the
mainland economy slowing. It grew only 8.9% in the
fourth quarter from a year earlier, the slowest in
10 quarters, with slackening demand at home and
abroad for Chinese-made products. Property prices
are declining, as are the mainland's foreign
exchange reserves.
The slowdown in growth
is taking its toll on Taiwanese exporters.
Shipments to the mainland declined 2.4% in
November and 3% in December, compared with a year
earlier. November's orders from the mainland
increased by just 0.14% year-on-year.
According to the popular local view,
Taiwan's economic health depends on the mainland,
where developments can make or break the island's
economy. However, the pictures experts interviewed
by Asia Times Online painted were not as alarming.
The impact on Taiwan's economy of a
stagnating mainland will not be very significant
as Taiwanese companies active there are insulated
to some degree from fluctuations in local consumer
demand, according to economist Professor Ronald A
Edwards, a China specialist.
"Although
Taiwan has become one of mainland China's top
foreign direct investment [FDI] countries, the
investment is strongly centered in regions with
high concentrations of final product assembly
lines and free-trade zones, most notably in
Jiangsu and Guangdong," Edwards said.
That
means that while the mainland has become Taiwan's
leading export destination, these exports are
largely intermediate goods sent from Taiwan to
Taiwanese-owned firms in the mainland for final
assembly. "The goods are then exported to North
America and Europe," Edwards said.
He
acknowledged the possibility of feedback effects
where a drop in China's imports affects the US,
Europe and Japan, which in turn would be felt in
Taiwan. "However, based on some
back-of-the-envelope calculations, I would expect
these indirect effects to be small as well."
Edwards also downplayed local concerns
that the Taiwanese tourism industry would be worst
hit by a mainland slowdown. Last year, about 1.79
million mainland Chinese travelled to the island;
2 million may arrive this year. Since 2008, they
have spent $3.1 billion on the island. In 2010,
when arrivals were limited to 3,000 per day, they
already accounted for 0.72% of Taiwan's GDP.
"If the mainland economy goes sour, there
will still be a small share of people there who
are willing and able to visit Taiwan," he said.
"With a population of 1.3 billion, that still
amounts to a huge number" - if neither Beijing nor
Taipei artificially limits the number of trips, as
has happened before.
Any mainland slowdown
would hurt Taiwan's trade rivals South Korea and
Japan more, Edwards argued.
"Relative to
Japan and South Korea, Taiwan suffered little from
the 1997 Asian financial crisis. One main reason
is that a large share of Taiwan's economy is made
up of small- and medium-sized businesses, unlike
Japan and South Korea. Since smaller firms can
more quickly adjust, this feature might
additionally cushion Taiwan's economy from shocks
to demand for Taiwanese exports."
Hu
Sheng-Cheng, an economist at Taipei's renowned
research institute Academia Sinica, too, started
by pointing out that the taishang, as
Taiwanese businesspeople active in the mainland
are commonly called, and especially the
information and communications technology
manufacturers among them, use the mainland mainly
as a production base for onward export.
"They don't obviously suffer from
shrinking mainland Chinese domestic demand but
instead from the slow European and US markets.
Neither are the taishang that target the
mainland's food sector, such as Want Want or
Masterkong, much affected by the economic slowdown
there," Hu said.
Even so, "being dealt a
harder blow are the growing number of Taiwanese
companies that produce cars, such as Yulon, and
makers of other sophisticated goods meant for the
mainland Chinese market."
Nor does he
believe Taiwan is less vulnerable than Korea and
Japan to a mainland slowdown, citing mainland
custom data that show Korea exported 20% more to
mainland China than Taiwan did in 2010, and that
the Japanese exported 50% more to the mainland
that year than Taiwan. Korea's FDI in the mainland
is on a par with Taiwan's, and Japan's is 2.2
times higher, he said.
"But Korea's GDP is
double that of Taiwan while Japan's is 5.5 times
bigger than Taiwan's. The importance of the
Chinese market is therefore significantly lower to
the Koreans and the Japanese than to us. That
means their sensitivity to a Chinese slowdown is
also lower."
Jens Kastner is a
Taipei-based journalist.
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