Chapter II Globalization in Taiwan and China
2.6 Conclusion
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With this globalization trend, Taiwanese enterprise motivations for investing in China are dominated by developing the Chinese domestic market. The cross-strait industrial specialization has changed; R&D, marketing and financing occur in Taiwan and product manufacturing and vertical integration occurs in China.
6) Localization becomes the management strategy for Taiwanese enterprises: due to the competitive stresses, Taiwanese enterprises have been using China’s low cost of land, labor, and the cost and the convenient supply of raw materials to obtain benefits. Further, Chinese government provides policies to encourage foreign investment in China, but the desire for foreign investment is not the main motivating driver for China. Currently, as the Chinese market represent the potential to meet foreigner clients’ demand, Taiwanese enterprises invest in China and promote the competitive capability of export, which becomes the primary motivation of investing in China by Taiwan. China’s capabilities are expanding which leads Taiwanese enterprises to conduct more global integration. These reasons also lead to the phenomenon of local Chinese managers replacing Taiwanese manager in those Chinese manufacturing operations.52
2.6 Conclusion
Globalization breaks down barriers on the flows of goods, services, capital, knowledge and people across border. Economic globalization results in competition that does not only occur between countries and their enterprise, but also between employees in a now increasingly global labor market. Employees (labors) are the group who are the most directly affected in this situation.53
52 Ai Wei, op. cit., “The Strategic Choice of Cross-Strait Economic and Trade Relations under the Economic Globalization,” http://www.haixiainfo.com.tw/217-7409.html
53 Shih-Wei Pan, “Economic Globalization and Union’s Movement - Taiwan Experience (Not Finalized),” 2008, http://www.npf.org.tw/post/2/6323
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Globalization caused China’s rapidly rise and it’s attraction to countries from around the world as a target for investment. “An increase in the process of Globalization in China has made almost all international investors invest in the country. This has led to continuous flow of foreign capital into China, boosting up its economic development to large extents.”54 We also find that China’s GDP has been growing and its annual growth rate is over 9.7% over the past 20 years, of which 2.7% was from FDI.55
The effects on Taiwan’s economy have included “capital drain” and “industry hollowing-out.”56 The direct effect on Taiwan’s workers are: the new global division of labor characterized by “Receiving orders in Taiwan and producing overseas.”57 It has further led directly to the structural imbalance in the labor market in Taiwan.58 It has also brought opportunities to Taiwan, because of Taiwan’s advantages in working with China that are difficult to be replicated by other countries. For instance, Taiwan and China have the same language, similar culture and shared history that leads to Taiwanese enterprise capturing more opportunities than other countries to develop business in China. Taiwan also has the comparative advantage over China in technology, brand marketing and production experience,59 Taiwanese employees have more opportunities accruing from these advantages to work in China to expand their work experience and develop themselves.
54 EconomicWatch, “Globalization in China,” 2010,
http://economywatch.com/economics-theory/globalization/china.html
55 Jian-Yong Yue, op. cit., “What does Globalization Mean for China’s Economic Development?”
http://www.globalpolicyjournal.com/blog/24/05/2012/what-does-globalization-mean-china%E2%80%99s-ec onomic-development
56 Ping-Lung Hsin, op. cit., “The Impact of Taiwanese Labor Market from Globalization,” p. 10, www.cy.gov.tw/dl.asp?fileName=0113010254471
57 Tsu-Lung Chou, op. cit., p. 5.
58 Cheng-Tai Huang, op. cit., “Under the Globalization, Cross-Strait Economic and Trade Policy and Taiwan’s Competitiveness,” http://old.npf.org.tw/PUBLICATION/TE/090/TE-R-090-015.htm
59 Ping-Lung Hsin, op. cit., “The Impact of Taiwanese Labor Market from Globalization,” p. 10, www.cy.gov.tw/dl.asp?fileName=0113010254471
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Chapter III
The Cross-Strait Economic Exchange
3.1 Policies before and after Opening the Economic Exchange
Before abolishing Taiwan’s Martial Law, the cross-strait citizens were strictly prohibited to have interaction and contact to each other.1 After abolishing Martial Law2 in 1987, Taiwan and China started to have economic exchanges with each other and lifted the ban on visit relatives in China which helped the interactions with each other. Meanwhile, China opened many items of imports of Chinese agricultural and industrial materials indirectly through Hong Kong.3 In 1990, the Taiwanese government opened up Taiwanese enterprises’
investment and trading indirectly to China. It meant that Taiwanese enterprises needed to invest in China indirectly through Hong Kong, Macau and various third places.4 Therefore, the percentage of Taiwanese enterprise that invested and set up factories in China was increased and obviously enhanced Taiwan’s export growth. By 2011, China became Taiwan’s
1 Rong-I Wu, “Taiwan's China Policy and the Asia-Pacific Regional Peace,” 2012,
http://www.wufi.org.tw/%E5%8F%B0%E7%81%A3%E7%9A%84%E4%B8%AD%E5%9C%8B%E6%94%
BF%E7%AD%96%E8%88%87%E4%BA%9E%E5%A4%AA%E5%8D%80%E5%9F%9F%E5%92%8C%E 5%B9%B3/
2 Hua-Yuan Hsueh, “Encyclopedia of Taiwan: Abolished Martial Law,” Ministry of Culture, July 14, 2010, http://taiwanpedia.culture.tw/web/content?ID=3889
3 Rong-I Wu, “Taiwan's China Policy and the Asia-Pacific Regional Peace,” op.cit.,
http://www.wufi.org.tw/%E5%8F%B0%E7%81%A3%E7%9A%84%E4%B8%AD%E5%9C%8B%E6%94%
BF%E7%AD%96%E8%88%87%E4%BA%9E%E5%A4%AA%E5%8D%80%E5%9F%9F%E5%92%8C%E 5%B9%B3/
4 Kai-Chen Hu, A Study of Influences Caused by the China-ASEAN Free Trade Area on Taiwan's Political and Economic Development (MA Thesis for Graduate Institute of China Studies, Taipei: Tamkang University, 2012), p. 113.
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biggest export market which accounted for 40% of Taiwan’s total exports.5
Responding to China policies towards Taiwan, Taiwan has developed various economic policies towards China at different times. Some of these are as follows:6
1) Chiang Ching-Kuo period (before 1988)
President Chiang announced the abolishment of Martial Law and restrictive bans on newspaper publications and political parties in July, 1987. Before abolishing Martial Law, there were tough restrictions in Taiwan towards China. For instance, the Taiwanese people were forbidden to have interaction and contact with the people of China and it meant that neither side had any economic exchange during that time. After abolishing Martial Law, the Taiwanese government opened its policies on visiting relatives and the opportunities for Taiwanese enterprises to invest in China. Taiwanese liberalization and internationalization of economic policies have been influenced directly by abolishing Martial Law.7
2) Lee Teng-Hui period (1988-2000)
The Taiwanese government established a set of institutions to deal with cross-strait economic development and citizens’ related affairs. For instance, it established the Mainland Affairs Council, Straits Exchange Foundation (SEF) and announced “Act Governing Relations between the People of the Taiwan Area and the Mainland Area” on July, 31th, 1992 to the people of both cross-strait countries on economic, trade and cultural exchange.8
3) Chen Shui-Bian period (2000-2008)
The Taiwanese government discarded the “no haste, be patient” policy and shifted to
“proactive liberalization with effective management” and “proactive management with effective liberalization” policies. This was in order to decrease Taiwanese economic
5 Rong-I Wu, “Taiwan's China Policy and the Asia-Pacific Regional Peace,” op.cit.,
http://www.wufi.org.tw/%E5%8F%B0%E7%81%A3%E7%9A%84%E4%B8%AD%E5%9C%8B%E6%94%
BF%E7%AD%96%E8%88%87%E4%BA%9E%E5%A4%AA%E5%8D%80%E5%9F%9F%E5%92%8C%
E5%B9%B3/
6 Ibid.
7 Ibid.
8 Ibid.
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dependency on China but even so, now, obviously Taiwan has become overly dependent on China. President Chen adjusted his policy for “proactive management with effective liberalization” in response to this situation of over-reliance on China for the health of the Taiwanese economy.9
4) Ma Ying-jeou period (2008－ )
Since his election to the presidency, Ma Ying-jeou followed immediately with the resumption of official talks with the People’s Republic of China (PRC) through the institutions of SEF for Taiwan and the Association for Relation across the Taiwan Strait (ARATS) for China.10 Intense negotiations have also been held over a cross-strait economic and free trade agreement under the name Economic Cooperation Framework Agreement (ECFA) that was finally signed at the end of June 2010 and became effective on September, 12 of the same year.11 Meanwhile, he accelerated opening up both sides’ economic trade policies, grew Chinese tourist traffic to Taiwan, opened up China’s investments into Taiwan and signed related agreements such as Economic Cooperation Framework Agreement (ECFA), and on the like.12
After Ma Ying-jeou’s election, Kuomintang/Chinese Nationalist Party’s (KMT’s) main political issue vis-a-vis Taiwanese-Chinese relations was how to improve those respective relations and how to coordinate effectively on bilateral economic policy. He devoted his efforts towards the “Three direct link” program and achieved it in a very short time. The MOEA established economic policies, such as the “Bridge-building Project Office” and
9
Kai-Chen Hu, op.cit., p. 113.
10 Frank Muyard, “Mid-Term Analysis of the Ma Ying-Jeou Administration,” China Perspectives, Vol.3, 2010, p. 6; Rong-I Wu, op.cit.,
http://www.wufi.org.tw/%E5%8F%B0%E7%81%A3%E7%9A%84%E4%B8%AD%E5%9C%8B%E6%94
%BF%E7%AD%96%E8%88%87%E4%BA%9E%E5%A4%AA%E5%8D%80%E5%9F%9F%E5%92%8C
%E5%B9%B3/
11 Frank Muyard, op.cit., p. 7.
12 Kai-Chen Hu, op.cit., p. 113.
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signed Economic Cooperation Framework Agreement (ECFA) to promote cross-strait exchanges and cooperation in various industries. Signing Economic Cooperation Framework Agreement (ECFA) to accomplish the following three goals: 1) Normalization of cross-strait economic trade; 2) Avoiding the marginalization of Taiwan: avoiding the marginalization of Taiwan after executing the “Association of Southeast Asian Nations (ASEAN) plus one free trade zone” or “Association of Southeast Asian Nations (ASEAN) plus three free trade zone”
and 3) Promotion of internationalization.13
3.2 Status of the Development of the Cross-Strait Economic Exchange
Since 1950, different leaders have had different economic policies toward China that have effected different results and created new situations. Below Table 3.1 is the comparison table outlining the policies and their effects during the different periods of leaderships.14
Table 3.1 The Cross-Strait Economic and Trade Relations Prior to 2008
Item Year
Leader
(President) Taiwan’s cross-strait policy Taiwanese enterprise’ reaction to policy
2. Moratorium on cross-strait exchange.
14 Feng-Shou Liu, “Cross-Strait Economy and Trade Policy and Kaohsiung Development,” 2006, p. 47, http://nccur.lib.nccu.edu.tw/bitstream/140.119/33850/9/102509.pdf; Chu-Chia Lin et al., Twenty Years of Cross-Strait Experiences－ Cross-Strait Economic Cooperation and Development from 1986 (Taipei:
Commonwealth Publishing Group Press, 2006), p. 41, p. 54.
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2. More trade with the west, but with more restrictions. trading, but restrictions that prevent Taiwanese enterprises from being able to walk away from Chinese relationships.
4.39 (2006)
Source: Lin, Chu-Chia et al., Twenty Years of the Cross-Strait Experience Cross－Strait Economic Cooperation and Development from 1986 (Taipei: Commonwealth Publishing Group Press, 2006), p. 41, p. 54.
The special geo-advantage, culture and language relations that boost the cross-strait investment and personnel exchange constantly. For the reason of why Taiwanese enterprise who have been depending on China’s economy and trade include: Taiwanese investment in mainland China led trade effects, China becomes the manufacturing basement to be the resource of Taiwan’s raw material needs, Chinese purchasing power promote import needs, the cross-strait joined to World Trade Organization (WTO) that drives trading effects and etc.
These reasons makes during the process of the cross-strait development, Taiwan and China’s economic relations exist the competitive and complementary phenomenon.
China is currently the top foreign investor in Taiwan. In 2006, the amount of Taiwanese investment in China was 7.64 billion US dollars which was 27.0% higher than in the same period of 2005. The total sum of the amount Taiwan has invested in China from 1991 to 2006 was totally 54.9 billion US dollars which accounted for over 50% of Taiwan’s total foreign investment. According to Chinese compiled data, from 1991 to 2006, Taiwan represented one eighth of foreign investment in China. China has become the largest market for exports and source for trade surplus for Taiwan.
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Taiwanese enterprises investing in China focus in the Jiangshu and Guangdong Provinces and the primary industries for investment are electronics and appliances, basic metal, food and beverage, plastic and chemical parts manufacturing. After 1990, electronic manufacturing became the first industry from Taiwan to invest to China. Trading structure changed from the traditional industry and subcontractor to electronics and information technology components and raw materials. This forms a new wave of cross-strait economic and trade integration of globalization and the Taiwanese initiation of modern policy promotes cross-strait bilateral trade. Through the processes of globalization, specialization and integration, China plays a competitive role in manufacturing and materials processing.
Likewise, Taiwan provides the equipment, expertise and raw materials to sell jointly designed and manufactured products to Europe, America and other developed nations. Due to the long term of the cross-strait economy and trade exchange, “Taiwanese experience” has become a model to be learned by China to make progress in developing expertise in marketing and economic development. Taiwanese enterprises apply the methods of “global logistic arrangement” to use their knowledge of the Chinese market and utilization of China’s local semi-skilled technological manpower to expand the supply and the production capacity of global partnerships and logistic capacity to promote and expand Taiwan’s potential influence on the world economy.15 According to The Global Competitiveness Report, professor Jean-Pierre Lehmann pointed out that Taiwan must accept the fact that the Chinese economy is large and growing quickly and that Taiwan must create its own competitive advantage by opening its platform of globalization and commercialization. He also mentioned that the cross-strait direct flight is one of the necessary conditions to create such competitive advantages. The entire world has been surprised by Chinese accomplishments in economic development. Now China has become a new and growing productive power and a market in its
15 Feng-Shou Liu, op. cit., “Cross-Strait Economy and Trade Policy and Kaohsiung Development,” pp. 58-59, http://nccur.lib.nccu.edu.tw/bitstream/140.119/33850/9/102509.pdf
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own right bringing large consumption demand and market opportunities that include fulfilling aggregate consumer demand and aggregate service industry demand. To global enterprises from around the world, China represents great potential and seemingly infinite opportunities for investment and development.16
Influenced heavily by domestic and foreign politics, local economic conditions and driven by the marketing economy, cross-strait relations have developed and continue to develop quickly. Cross-strait industrial integration and specialization transformations and changes are obvious reflections of the changes in Taiwanese investment patterns in China.17
3.3 Status of the Taiwan Enterprises that have been Investing in Countries
The data (Table 3.1) compiled by the Mainland Affairs Council (MAC) shows Taiwan's cumulative total investment of US dollars 202.45 billion from 1991 to the end of 2013 worldwide and US dollars 126.885 billion into China during the same timeframe, which accounts for 62.7% of Taiwan’s total worldwide investment amount. From this data, it is clear that China has become the target for Taiwan’s biggest investments in the world.18
Table 3.2 shows the distribution of Taiwan’s investment by industry in China,19 from 1991 through March 2013, the manufacturing industry accounts for 73.8% of the investments
16 Asia Industrial and Economic Roundtable, China Times, Version A4, Dec. 9, 2002; Feng-Shou Liu, op. cit.,
“Cross-Strait Economy and Trade Policy and Kaohsiung Development,” p. 66, http://nccur.lib.nccu.edu.tw/bitstream/140.119/33850/9/102509.pdf
17 Ai Wei, op. cit., “The Strategic Choice of Cross-Strait Economic and Trade Relations under the Economic Globalization,” http://www.haixiainfo.com.tw/217-7409.html
18 Investment Commission, MOEA, ROC., “Taiwan Approved Outward Investment by Country (Area),”
Cross-Strait Economic Statistics Monthly, No. 241, 2013.
http://www.mac.gov.tw/public/Attachment/352817281137.pdf
19 Investment Commission, MOEA, ROC., op.cit., “ Taiwan Approved in Mainland China by Industry.”
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and the rest of 26.2% is into non-manufacturing industries.20
Table 3.2 Taiwan’s Foreign Investment by Country
Unit: US$ million),%
Period
Area
Feb. 2013 Mar. 2013 Jan.-Mar. 2013 Accumulation
(1991-Mar. 2013) Cases Amount Percent Cases Amount Percent Cases Amount Percent Cases Amount Percent China
Note: 1. The figures do not add up to the total because of rounding errors.
2. Up-to-date investment amounts are in order of cumulative amount.
Source: Investment Commission, MOEA, ROC., “Taiwan Approved Outward Investment by Country (Area),”
Cross-Strait Economic Statistics Monthly, No. 241, 2013, http://www.mac.gov.tw/public/Attachment/352817281137.pdf
20 Ibid.
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Table 3.3 Taiwanese Investment in China by Industry
Unit: US$ million), (%; case)
Total 5615.21 5880.43 4923.0 6008.60 7798.93 7707.68 5439.26 10491.07 11695.12 7841.91 7330.28 2596.50 128021.5
Note: 1. Figures include lagged reports and approvals.
2. An approved case number of 0 indicates the capital-raising of a past case, therefore only indicates the amount.
3. Financial Holding Companies is calculated as part of Financial and Insurance sector from 2003.
4. Up-to-date investment amounts are in order of cumulative amount.
Source: Investment Commission, MOEA, ROC. “Taiwan Approved in Mainland China by Industry,”
Cross-Strait Economic Statistics Monthly,
http://www.mac.gov.tw/lp.asp?CtNode=5720&CtUnit=3996&BaseDSD=7&mp=1&xq_xCat=2012
3.4 Conclusion
Taiwan has had different economic policies towards China during different periods of presidential administration. China and Taiwan each have their own comparative advantages for their respective division and integration roles in new cooperative business ventures.
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China has low-cost raw materials, labors and land. Taiwan has technical, management, operations and professional skills and trains China to play a role in manufacturing and processing. Taiwan often provides equipment, especially that of advanced technological nature .
Taiwanese enterprises apply the methods of “global logistic arrangement” to use their knowledge of Chinese markets and have sufficient local technological manpower to expand the supply of integrated production capacity to the global market. It’s logistic capacity is used to promote and expand Taiwanese power on the economy and relationship.21 Through the division and integration of roles between Taiwan and China, China has become the top foreign investment and development target of Taiwan. From the finding of this research, the author has concluded that government’s policy is very important in its effects on Taiwanese enterprise’s outward investment and industrial development. Government policy also affects worker’s on employment opportunities and choices.
21 Ibid.
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Chapter IV
Status of Taiwanese Enterprise in China
From the perspective of trade, the first reason that the Taiwanese economy leans towards China is the geographical proximity. According to the gravity model of trading theory,22 all other variables being equal, the frequency of any two countries’ trade event will be inversely proportional to their respective distances. A close geographical distance between two countries’ shipping hubs reduce transportation costs, creates for opportunity for interaction between the people and finding appropriate business pattern is done more easily.
Although China has been opening its markets, there have still been some limitations which include their import quotas, visa restrictions, and other administration interventions that make it difficult to engage in commerce with China by foreign countries. The second reason that Taiwan has an advantage in trading with China is its history, language and cultural alignment and heritage shared with China.
The third reason is that Taiwan’s massive investments drives the finance capabilities and supplies components to export to China. After the finished products are manufactured in China for export to Europe, America, Japan and other markets, this forms a “triangle”, a three-way relationship between Taiwan, China and the Western Hemisphere. Further, literature claims that similar language, culture and psychological outlook are important factors in rapid decisions about where to invest.23 Still, it should be noted that Taiwanese
22 N. D. Aitken, “The Effect of the EEC and EFTA on European Trade: A Temporal Cross-Section Analysis,”
American Economic Review, Vol. 63, No. 5, 1973, pp. 881- 892; J. Anderson, “The Theoretical Foundation for the Gravity Equation,” The American Economic Review, Vol. 69, pp. 106-116; Tain-Jy Chen,
American Economic Review, Vol. 63, No. 5, 1973, pp. 881- 892; J. Anderson, “The Theoretical Foundation for the Gravity Equation,” The American Economic Review, Vol. 69, pp. 106-116; Tain-Jy Chen,