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Chapter 2 - Literature Review
Cross-Strait Relations
This thesis analyses tourism under the paradigm of China-Taiwan economic relations and interdependence. Since the late 1980s, trade and economic exchange has exploded across the Strait (Kastner 2009, Tanner 2007). During the 80s, Taiwan found itself under martial law and the one-party rule of the Kuomintang (KMT), the erstwhile Chinese Nationalist Party that had fled Mainland for Taiwan in 1949. Taiwan’s economy had grown profoundly in the interim, becoming one of the “Asian Tigers” and establishing strong economic and political ties with the West. However, the official stance of the ROC with regards to Beijing was that of the “three no’s” - no contact, no negotiation, and no compromise (Kastner, 2009).
However, the policy was softened slightly in 1985, allowing indirect trade, but more importantly, martial law was lifted in 1987. In 1989 the ROC government announced new regulations governing trade, and ever since, the economic relationship has been a growing one (ibid).
While the economic relationship has proven beneficial for both sides, there are strong indicators that it has posed difficulties for Taipei. Even before China’s and Taiwan’s entrance into the WTO regime, Taiwan had developed a large trade deficit with the Mainland, and a degree of economic dependence was evident (Chang & Goldstein, 2007). Economic dependence, or rather interdependence slanted in favor of the Mainland, has grown even further since. This creates a large problem for Taipei; if Taiwan is economically dependent on its political adversary in the PRC, that adversary could potentially hold leverage over Taiwan. In case there were any doubt, the PRC has explicitly claimed that gaining leverage and influence in Taipei is the most important factor for advancing Cross-Strait economic ties
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(Tanner, 2007). In other words, while the economic relationship has proven fruitful, it seems to work to undermine Taiwan’s political aspirations relative to Beijing, and for many
Taiwanese this is a real cause for concern.
The economic relationship between Beijing and Taipei, while generally on the rise, has seen peaks and troughs in terms of growth. Recognizing the security risks of closer economic ties with Beijing, President Lee Tenghui established multiple policies meant to stem the flow of Chinese money and influence, including the “Go South Policy,” encouraging Taiwan businesses to invest in Southeast Asia rather than the Mainland, and the “Go Slow, Be Patient Policy” limiting the types of technology and services that could be transferred to and conducted in China (Kastner, 2009). However, and rather counterintuitively, first DPP President Chen Shuibian heavily courted Taiwan business interests in his first term, and as such liberalized many of Lee’s policies. He changed tack after 2002, however, again slowing, but not stopping, the growth in Cross-Strait Commerce. Under Ma Yingjeou of the KMT, Taiwan again heavily liberalized trade with China, with President Ma’s administration signing 20+ agreements, including the Economic Cooperation Framework Agreement (ECFA) (Albert, 2016).
ECFA is an important watershed in China-Taiwan economic relations for a number of reasons. It was perhaps the most significant agreement signed with Beijing during the Ma Administration and worked to liberalize Taiwan’s trade policies with China. It also ensured Beijing no longer pre-empted Taiwan signing trade agreements with other Asian nations.
However, and perhaps most importantly, it was largely unpopular in Taiwan and began a steady downturn in KMT approval ratings, ultimately spawning the Sunflower Movement1
1 The Sunflower Movement was a student movement that occupied the ROC Legislative Yuan in April 2014.
The movement received global attention and was aimed at preventing the passage of Cross-Strait Service Trade Agreement, an economic agreement that the then-majority Kuomintang (KMT) was attempting to force through the legislature without promised oversight. The occupation lasted for weeks and ultimately resulted in promises from the KMT-led government that the agreement would be reviewed by the public. The popularity of the
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and culminating in the massive defeat of the KMT in 2016 elections. Taiwanese voters have shown they are largely dissatisfied with closer economic ties, in part because agreements like the ECFA were largely beneficial to large conglomerates with very little tangible benefit for ordinary citizens (Albert, 2016). With the security concerns related to Chinese leverage over Taiwan and anemic economic growth for most citizens, especially young people, the KMT was largely disposed in 2014 and 2016, and Tsai elected president. Considering the mutual distrust between Tsai’s DPP and Beijing, the economic activity across the Strait looks due to take a significant hit, one that seems to already be playing out with tourism.
There is dispute between those who presume Taiwan can offset China-Taiwan commerce with trade elsewhere, and those who are convinced the only hope for Taiwan’s economy is through further engagement with Beijing. The Tsai Administration is ostensibly in the first camp, promoting policies that hearken back to the Lee Administration. The “New Go South Policy” literally takes the name of one of Lee’s most significant efforts to stem the tide of greater economic interaction (Hsu, 2016). There is some evidence that the New Go South Policy may be working in tourism already, with the decrease in the number of Chinese visitors having been offset by those from other countries (Chen, 2017). However, most of the buzz around this early success has been generated by DPP-friendly sources, implying that reporting may be cherry-picked and overly exuberant before confident results can be declared.
The other side of the argument, that Taiwan should embrace closer economic ties, is predicated on the reasoning that without normalization of trade across the Strait and greater economic cooperation, Taiwan’s economy is doomed to stagnate. Tourism to Taiwan was tiny until Mainland visitors made it a viable sector, with over a million visitors arriving in 2009 - the first time that many tourists from one source had ever deigned to vacation on the Sunflower Movement and its goals continue to resonate and were an indication of widespread dissatisfaction with closer economic ties with China (Harrison, 2015).
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island (Chen, 2017). Furthermore, beyond tourism, Taiwan is, according to these analysts, unable to make up for the potential gains that could be seen with greater cooperation with China (ibid). The reasons for this are manifold, but the biggest factors are the ease of
integration with the Mainland vs. the relative difficulty of working with Southeast Asia, and Beijing’s maneuvers to isolate Taiwan in the Asia-Pacific should it not cooperate
economically. And while some see trading with nations that are unafraid of Beijing’s dictates as the answer (e.g., the West), the problem is that the trade regimes between Taiwan and these nations are already mature; in other words, there is not much more to squeeze out of them (ibid).
Cross-Strait Economic Relations
Cross-Strait economic relations is a huge and well-researched topic, in both the Sinosphere and the English-speaking world. There is a wealth of literature available, from the sweeping to the minute-detail oriented. In this body of literature, the core aspects of Cross-Strait relations are generally agreed upon.
First, analysts agree that a pillar of Beijing’s strategy relative to Taiwan is an attempt to draw Taipei into its sphere of influence through greater economic integration. This is hardly an opinion - both Chinese and Taiwanese leaders both recognize and acknowledge the reality that Chinese economic policy towards Taiwan is meant to bring its erstwhile province under the political influence of the PRC (Kastner, 2009).
Second, academics and policymakers agree across the board that trade and economic cooperation between Beijing and Taipei has exploded since the end of the 80s. This does not mean the relationship has been free of trouble. Certainly there have been troughs and spikes in the economic relationship, but even a glancing familiarity with the data proves the general trend has been one of meteoric growth. Cross-Strait trade in 1986 was less than $1billion
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USD (Kastner, 2009), but by 2014 trade across the Strait had exploded to almost $200 billion (“China-Taiwan Relations,” n.d.).
Finally, analysts are generally in agreement that economic threats and coercion towards Taiwan has had very little effect thus far. The fact is, in order for the trade relationship to be as deep and significant as it has become, Beijing has had to convince Taiwanese investors, the Taiwanese people, and Mainland interests that economic relations across the Strait would be fruitful and stable. Beijing has largely succeeded in this endeavor, and no further evidence is necessary than the tremendous growth in trade.
However, the tiny effect of economic coercion against Taiwan deserves some qualification. One of the most significant disagreements in the literature on the topic is
whether Beijing has been unsuccessful in its attempts at coercion through economic policy, or if Beijing has simply never tried to use it in any meaningful way. There are strong arguments both ways, but the assertion that China has yet to actually use its economic weight against Taiwan seems to be the more likely scenario.
Other differences between various analyses and assessments of the situation lie in whether economic coercion, like hassling Taishang, has been fruitful for China or has a negative impact on Taiwan. Also important to examine is the degree to which economic coercion, both large and small scale (e.g., tariffs) is useful for Beijing in the long term, and whether or not closer economic ties portend political rapprochement or possible conflict.
This literature review attempts to examine various academic works, and from them build a hypothesis that Beijing is increasingly impatient with Taipei, especially following the landslide electoral victories of the DPP in 2016. As such, CCP leaders seem to be more willing to signal resolve on their attitudes towards Taiwan through costly measures, including punitive economic initiatives. While there is evidence that Beijing undermining the economic relationship between itself and Taipei is ultimately self-defeating, this review will use its
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findings to support the hypothesis that China is in fact increasingly willing to wield the economic bludgeon to bring Taiwan to heel, and tourism is an early and visible example of this strategy.
I selected four texts that act as a foundation for the theoretical framework of this thesis, that being Cross-Strait economic policy and the deepening economic ties between Beijing and Taipei. They are Political Conflict and Economic Interdependence Across the Taiwan Strait and Beyond by Scott Kastner, Chinese Economic Coercion Against Taiwan: A Tricky Weapon to Use by Murray Scot Tanner, The Implications of China-Taiwan Economic Liberalization by Daniel H. Rosen and Zhi Wang, and Economic Reform and Cross-Strait Relations: Taiwan and China in the WTO, edited by Julian Chang and Steven M. Goldstein.
These books delve into the inner workings of the Cross-Strait Economic relationship, including individual trade agreements, economic history, and the relationship’s effects on specific industries. While all of these are pertinent in their own right, for this examination viewing the relationship on the large scale is more useful. However, all of these works also examine overarching policy analysis and its possible effects on China-Taiwan relations, both economic and political.
I will also briefly examine other sources for research, including books, government data, news articles, journal articles, and websites / reports that are cited here and elsewhere in this thesis. These sources are used to fill out the argument that Beijing may use economic leverage against Taipei to further political ends, and that tourism is an early form of that strategy.
The most obvious and ubiquitous claim in the literature regarding China-Taiwan trade is the degree to which it has exploded since the 80s (Chang & Goldstein, 2007). This is a simple matter of fact, but it underpins a tremendous amount information regarding Cross-Strait Commerce. This fact attaches itself to every conversation regarding the political
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relationship between Taipei and Beijing, the economic development of Mainland China, and the health of Taiwan’s economy. Furthermore, it’s an issue relevant globally, including regarding US-China relations, stability in the Asia-Pacific, and in terms of geopolitics at large. Obvious, yes, but difficult to understate its importance.
Some scholars, specifically Daniel H. Rosen and Zhi Wang, have found that not only has cross-Strait commerce been imperative to Taiwan’s recent economic growth, but without it, Taiwan’s economy is sure to flounder in the future. Their work, The Implications of China-Taiwan Economic Liberalization is in agreement that economic engagement between Taipei and Beijing has clearly skyrocketed, that Taiwan is increasingly dependent on China
economically, and that the economies are also increasingly integrated (Rosen & Wang, 2011). However, where other texts have been less willing to make predictions, Implications does offer some strong analysis regarding the future of Taiwan’s economy in various circumstances.
Taiwan has made growth in the service sector a linchpin of continued economic growth, and in order for this sector to grow, Taiwan businesses need access to both Chinese markets and investors. As tourism is a service industry, it is potentially illustrative of what could happen with a reduction in Mainland investment. While anyone can see how much trade has grown across the Strait, Rosen and Wang make the case that it is in Taiwan’s best economic interests to continue to work with Beijing. Tourism clearly plays a role in this discussion, and China seems to be imposing “indirect economic punishments” including limiting travel on the part of Mainland visitors (Stratfor, 2016).
A common refrain in international relations theory is that greater economic interaction between two parties, like states, ultimately means peaceful political interaction (Ho, 2006).
On the surface, this seems self-evident - trade between politically friendly nations is usually
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robust, while states experiencing degrees of conflict tend to limit economic interaction.
However, there are exceptions, and one of these is, possibly, China-Taiwan trade.
WTO membership of China and Taiwan is an interesting aside in discussing China-Taiwan economic relations. Joining less than a month apart, many analysts have come to assume that equal membership in the body would lead to better relations in the Strait.
However, “very little induced harmony has seemingly occurred,” and China has put pressure on the organization to limit Taiwan’s apparent independence in the body with what could be seen as petty protests. So, rather than being a de facto bilateral trade agreement, parallel WTO membership has caused some tension between Taipei and Beijing while direct agreements between Taipei and Beijing like ECFA continue to be the most significant paradigms of economic interaction (Charnovitz, 2006).
On one side of the discussion are the theorists who believe greater economic exchange can help create peace; war is bad for business after all. Political Conflict and Economic Interdependence Across the Taiwan Strait and Beyond by Scott Kastner uses the China-Taiwan economic relationship as a case study for the author’s hypothesis that the stronger the influence of “internationalist economic interests” within two competing nations, the more limited the effects of political conflict on economic interaction. While Kastner shows his hypothesis to be correct, he is extremely conservative in drawing conclusions from it (Kastner, 2009).
Kastner points out that both sides of the Taiwan Strait have large coalitions of
“internationalist economic interests” with high degrees of political clout. He notes that the CCP seems to be increasingly dominated by these voices, while in Taiwan these groups are often courted by both major parties. This includes the “Taishang” and other Taiwanese business interests. Because of the robust influence of the internationalist economic narrative
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on both sides of the Strait, the economic relationship between Taipei and Beijing remains strong, even in the face of sometimes intense political confrontation.
Furthermore, according to Chang and Goldstein, ascension to the WTO was promoted most heavily on both sides of the Strait by what Scott Kastner would call “international economic interests” who see liberalization as beneficial both in economic terms, but perhaps also politically. As the introduction makes clear, both sides have reasons to play by the rules of normal international exchange when dealing with each other. And as liberalization across the Strait has occurred, economic interaction has increased at an ever greater clip than previously (Chang & Goldstein, 2007).
One shortfall of their work however, at least as it applies to this examination, is that it almost completely decouples the economic implications of WTO membership and greater Cross-Strait commerce with the political implications. This is probably the responsible course for the authors - as Kastner points out, the political implications of economic interaction are difficult to predict and can be influenced by circumstances beyond economic jurisdiction.
Still, hoping for a “smoking gun” as to the political implications of economic
interdependence would make it easier to prove a thesis. Regardless, this text provides valuable information that will assist in determining whether decreasing tourism from China implies economic coercion.
However, Kastner points out that the effects of trade on peace and Taiwan’s sovereignty are unclear. Many analysts take it for granted that greater economic exchange implies a decrease in political conflict, but that is hardly a causal relationship. Analysts on the other side of the argument have noted that it could be the other way around - a cooling of political conflict could be the cause of more bilateral economic activity. Furthermore, there is very little evidence that nations with starkly different systems of government will necessarily
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be peaceful with each other, regardless of economic activity. Thus, Kastner is reluctant to predict that greater economic engagement on both sides of the Strait will guarantee peace.
Kastner states that, with the right conditions, Beijing and Taipei are more likely to avoid military conflict if there are more economic links, but again, that is largely dependent on those conditions. If Beijing relies too heavily on “stick” as opposed to “carrot” diplomacy, they are liable to empower nativist Taiwanese constituencies and undermine the clout of Taishang (Taiwanese business owners in China) and other internationalist economic interests in Taiwan. Other factors include continued agreement between internationalist economic interests and PLA in Beijing, as well as the strength of the respective economies and relations with other players in the region, especially the United States.
Another consideration is that if Beijing finds that economic channels are counter-productive in drawing Taipei closer politically to the Mainland, much of CCP policy towards Taiwan is rendered ineffective. These policies have been crafted by PRC leaders who are convinced Taiwan can be brought into the fold peacefully, and have argued against harsher methods proposed by the PLA and other, more hawkish voices. Should economic avenues not pan out for Beijing, these “hawks” could gain the upper hand in policy decision-making.
Rosen and Wang also chime in regarding future China-Taiwan relations as it relates to Taiwan’s economy. They conclude Taiwan would suffer should it try to abandon its
economic relationship with the Mainland. Their claim is that even if Taiwan were able to untangle its economy from the Mainland, and were able to enter trade deals with other
economic relationship with the Mainland. Their claim is that even if Taiwan were able to untangle its economy from the Mainland, and were able to enter trade deals with other