4. Security issues and the military asymmetry of the Cross-Strait
5.4 US-China-Taiwan economic connections
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Despite these dreads, the CCP also know how fruitful the connection between Beijing and Washington is.
5.4 US-China-Taiwan economic connections
The United States’ economical connections are presumably the most significant ones that interconnect the North American country with Asia. As stated by Rupert Hammond-Chambers, member of the US-Taiwan Business Council, at the American Enterprise Institute’s Free Trade Agreements in Asia event “If the United States doesn’t have a trade policy, it doesn’t have an Asia policy”. (Hammond-Chambers 2009) As for this reason, Washington ought to pay close attention to economical developments in the region, including Taipei’s and Beijing’s relations in this sector.
The economical connection between Taiwan and China affects the United States and its economical sector. Two reasons can be listed as explanations, one of them being the US’s status and focus on this region, that would not allow it to leave this connection unnoticed. Besides this, the other interpretation is Washington’s general, or in other words, political and military involvement in the relation supports the need to intervene in the economical processes as well. As for the bilateral connections, both Taiwan-US and China-US economical relations run deep and strong. (Rosen-Wang 2011)
As the general and military connections between Taiwan and the US got stronger in the 1950s and 1960s, so did the economic relations. The importance of this relation never lost its significance. One of the arguments supporting this statement is the fact that the economical connection can be listed among the reasons of the US to continue supporting the ROC. According to the data of the United States Census Bureau, as of February of 2014, Taiwan was the thirteenth largest trade partner of the US with the ROC being twelfth largest import partner of the United States. (See Figure 4.4 - 4.5) (Bergsten et al. 2008, Womack 2010, United States Census Bureau 2014)
Another argument that can be raised is the fact that Washington constantly helped and helps Taipei’s participation in various international organizations – which do not require statehood, as it was stressed above - , of which many have economic focuses, including APEC and the Asian Development Bank. Taiwan’s important position in the telecommunication technology and computer world makes Taipei’s and Washington’s
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economical system in Taiwan, putting its position at risk and suggesting a change that would not benefit the US and its economy. (Bergsten et al. 2008, Womack 2010)Additionally, some may view the fact that the US provides Taiwan with a different export control regime status than it does China, as proof that Washington has tight connections to Taipei. However, steps to differentiate the island and mainland were only necessarily taken were a formality required in the implementation process of the arms sales between the US and Taiwan. It does not provide Taipei with further advantages. (Rosen-Wang 2011)
Besides trade and export-import data, the investments from the US flowing to Taiwan can be studied, alongside the amount of foreign direct investment headed to the United States from the ROC. As of 2011, the most recent date set published by the US Department of Commerce Bureau of Economic Analysis, Taiwan received US$15.8 billion, most of which was invested in the wholesale trade, finance branches and chemicals and computers and electronic products industrial branches of the economy. The US’s manufacturing, wholesale trade and depository institutions receive most of the investments from the ROC, totally adding up to US$5.1 billion. This data set is based on a historical-cost basis. (Bureau of Economic Analysis 2012)
The economic natured relationship between Taipei and Washington is going through changes. With the volume on trade between the two sides of the Taiwan Strait is increasing, trade between Taiwan and the US is decreasing. As discussed in the economical sector of the current thesis, the massive movement to the mainland of Taiwanese companies results in the products being exported from China and not Taiwan, changing the data and the nature of the connection as well. It must be added that if the economic connects of Taiwan, China and a fourth, different country was studied here, the result would presumably be the same. It is also true the other ways around. More and more American and other state’s companies are moving their production or at least the final assembly of the products to China, increasing the amount of Chinese exports this way. (Chuang 201426, Rosen-Wang 2011)
Despite this decrease, the economic connection between Taipei and Washington can still be described as important. As noted above, investments represent a major
26: Information gathered during the interview with Yih Chyi Chuang was included in this paragraph.
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companies is also high. This IT centered relation can also be considered a supply chain, where Taiwanese companies as subcontractors satisfy demand for the US in this sector of the economy. It is particularly the original design manufacturers, or ODMs for short, from the ROC that export their products to the US, as presently the island is one of the leading territories in area of ODMs. (Chuang 201427)Looking at the same set of data and the same figures as in the Taiwan-US section above, the economic relations of China and the US can be studied as well. The data suggests that the economic connection between these two states is a very strong one.
Referring to the figures provided by the United States Census Bureau, in early 2014, China was the US’s third largest trade partner, with eight percent of the US’s export heading to the PRC and what is more important, the US importing most of its goods from China, with Chinese imports making up more than eighteen percent of the total imports heading towards the United States. (See Figure 4.4 - 4.6) However it is not just the US’s economy that relies heavily on China. Behind Hong Kong, the US is where most of the PRC’s export is headed. In the import sector, the United States somewhat lags behind, with three states located close to China - South Korea, Japan and Taiwan – preceding it. (CIA World Factbook, Peoples’ Republic of China 2014;
United States Census Bureau 2014)
Looking at the data of investments that flow between the US and China, we find the surprising factor of the US receiving less amount of investments for the PRC as it does from Taiwan. This of course changes if amount arriving from Hong Kong is added.
Without Hong Kong, the number is US$3.8 billion, but adding the city’s investment, this quickly grows to US$8.6 billion, which is more than one and a half times the amount inflowing from Taiwan. In China, most of it is used up in wholesale trade, depository institutions and other, unspecified industries. In Hong Kong, unspecified manufacturing industries and wholesale trade is supported. The FDI flowing from the US to the PRC reached the amount of more than US$106 billion, with China taking half, US$54.2 billion and Hong Kong US$52.5 billion. As it can be expected, in China it is the manufacturing industry as a whole that takes in most of the investments, especially the chemicals, computer and electronics and transportation equipment industries, besides the nonbanking, holding companies and wholesale trade. In Hong
27: Information gathered during the interview with Yih Chyi Chuang was included in this paragraph.
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Kong, nonbanking, holding companies and wholesale trade are supported. This data is yet again set is based on a historical-cost basis. (Bureau of Economic Analysis 2012)
It can be mentioned here, relating to the flow of investments, that the above described numbers showing the connection between the PRC and the US are expected to change. The amount of FDI inflowing from the US is already big, but will grow in the future, however more importantly it is the large increase in the investments from China that the experts are expecting, as the Chinese government is also encouraging investments. The situation is somewhat different in Taiwan, where the flows of investment are linked to the Cross Strait relations and react to the changes in this connection. (Rosen-Wang 2011)
Another related issue that has to be examined here is the foreign portfolio investments or in other words debts that the US owns to Beijing and Taipei and vice versa. As it is nowadays well known, China owns the greatest amount of debt securities of the US Treasury, a massive US$1,277 billion, of which US$5 billion were short-term debts as of June 2013. The same figure for Taiwan is comparatively smaller, US$186 billion, with US$3 billion as short-term debts. The amounts of the US’s holdings of China’s (excluding Hong Kong and Macau) and Taiwan’s securities are US$119 billion for the prior (US$258 billion including Hong Kong) and US$87 billion for the latter. (US Department of Treasury 2013, 2014)
It must be added here, that it is not merely foreign portfolio investments that the US has a deficit in, but also in merchandise trade. It owns most if this debt to China but Taiwan as well, with the note that while the prior is increasing, the latter is constantly decreasing. (See Figure 4.7) (Rosen-Wang 2011)
After the listing of the numbers representing the bilateral economic connection between the three actors of the triangular relations, an example has to be given here that economically connects China, Taiwan and the US. The tight linkage formed and is forming between the three actors has to shown, as it is often forgotten or overlooked, while bilateral relations are emphasized. One of the most plausible examples is the Foxconn Technology Group or Hon Hai Precision Industry Co., Ltd.
Foxconn has taken advantage of the globalization in general and the globalization process that has been carried out in China, driven by the state. Export-led productions goals of the PRC were another policy and development of the mainland that the company could take advantage of. Foxconn is currently the biggest exporting firm of China. As a result, it is strong in the world market as well, producing or contributing
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The company was established in Taipei in 1974 and moved its production lines to the mainland in the end of the 1980s. The Chinese government, most importantly the local governments helped with the building up of the firm’s system on the mainland, establishing a system later labeled as the Foxconn model. The firm produces make-to-order items, in other words it does not manufacture products of its own, but produces items ordered by different firms and brands. (Pun-Chan 2010, 2012) The method of labor division is similar to the one described under the term ODMs or original design manufacturers in the economic chapter of the current thesis.
Foxconn produces a variety of products, from cheaper ones to high-end machines or machine parts. The manufactured items can be categories into separate groups, however together they can be labeled as “6C” products—computers (laptops, desktops, tablet personal computers including iPads), communications equipment (such as iPhones), consumer products (digital music players, cameras, game consoles, televisions), car parts (automotive electronics), content (e-book readers, for example Kindle) and health care products. (Pun-Chan 2010, 2012) The successfulness of Foxconn can also be explained by the diversity of the products that it manufactures, not concentrating on one specific type or set of items.
The above noted success is also represented in the revenue and the growth of it. As for 2010, the annual revenue of the firm reached an all-time high with approximately US$101.4 billion. The increase of the revenues has been strong since 2000, when successful globalization of the company began, but starting from 2004, this growth has multiplied. (See Figure 4.8) (Pun-Chan 2010, 2012) Some decreasing tendencies can be seen on 2008, which can be explained by the recession of the world economy and the fall in demand.
Despite the above mentioned move of the production lines to the mainland, the Research and Development (R&D) section of the company stayed in Taiwan. This makes the company important on both sides of the Taiwan Strait. The more than thirty factories owned by Foxconn, employing more than one million workers in the PRC alone, are mainly concentrated in three areas of China: the Shenzhen Special Economic Zone (SEZ), the Pearl River Delta and the Yangzi River Delta. (Pun-Chan 2010, 2012) It can be noted that the locations mentioned above are also the places
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where most Taiwanese investments were and are heading, as described in the chapter on the economical aspects of the Cross Strait relations.
The above mentioned globalization of the company, starting in the beginning of the 2000s, is when the third state, the US became most relevant in Foxconn’s story. Pun Ngai and Jenny Chan use the phrase “made by Foxconn and sold by Wal-Mart” (Pun-Chan 2012, 387), referring to the well-known American retail cooperation, which, among others, is distributing and selling the products manufactured by Foxconn. The company produces items and parts for some of the most renowned brands in the world like Microsoft, Nokia, Dell, Hewlett-Packard, Apple, which gain most of the profit from the sales. Interestingly, Foxconn, with the exception of Apple, has economically outranked the companies that it is producing for, despite the fact that they are large, well-known brands. (Pun-Chan 2010, 2012)
With Foxconn’s story, a specific example of a linkage between the three studied economies was mentioned and described, a connection that can also be summarized as resulting in products made in China by Taiwanese sold in the US.
5.5 Conclusion
Concluding this chapter, it can be stated that the theoretical framework could successfully describe the triangular relations that exist between Taipei, Beijing and Washington and be applied to their political, military and economic connections. The only aspect of the relations that may not fit into the description of the concept, the occasional dread that the US and China feel of each other. The fear of a rising China and the US that may challenge this rise and the fear about a new world order do not seem aligned with the theory.
Despite these possible dreads that may not even be shared by many, according to Swaine, the connection between the PRC and the US are good. They have strong linkages in several areas, most importantly maybe in the economic sector. In the economic sphere, even a certain level of dependence has been building. In Beijing’s point of view, Washington and its economy is leaning more and more on China. This can be proved by the high amount of foreign portfolio investment that the PRC accounts for in the US, as discussed above. Besides economy, the proofs of good
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connections can be found in other areas as well, among others the war on terrorism or in other words counterterrorism. (Swaine 2010)
On the issue of Cross Strait relations, in the US and in other states as well some concern is shown to the process of Taiwan’s growing dependency on the mainland, especially on the economic sector. The question has already been asked by many, including Daniel H. Rosen - Zhi Wang and Nancy Tucker in her article published in 2002 “If Taiwan Chooses Unification, Should the United States care?”, if a possible unification between the island and the mainland would increase the level of the US’s security dilemma in Asia or, on the contrary, it would solve Washington’s troubles and questions related to the area. It seems to be certain that a sudden shift in the connection – meaning both an unexpected unification of the two sides or independence of Taiwan – would not just gravely influence the relations across the Taiwan Strait, but would also severely change the region and its buildup. As the US’s interests are growing in the Southeast Asia, this shift would also affects Washington, its attitude and its planed, future actions in the region. (Rosen-Wang 2011, Tucker 2002)
Another issue raised connected to the US’s point of view on the future of Cross Strait relations is the question of Washington giving up or abandoning Taiwan. Some think that the protection and alliance given to the ROC gains nothing for Washington, it is too expensive and stand in the way of strengthening the connections with Beijing, which currently would be highly beneficial. Daniel H. Rosen - Zhi Wang also address this question, especially the part on the funds that are devoted to aiding Taiwan in need. In their point of view, taking funds from this area will not save money. The funds would only be transferred for another cause, another security issue, that may have even been caused by the US abandoning the island. (Rosen-Wang 2011) The issue that is referred to here is connected to the symbolism that the Taipei-Washington relation carries, the insecurity that other, US-allied states or governments that have a close connection to Washington may feel if it gives up one of its allies. These countries may fear that if Taiwan was abandoned, given up to the rising China, which is dreaded by several states in the region, then this may happen to them as well, sometime in the future.
An argument that supports the opinion of giving Taiwan up is the question of the growing size of the People’s Liberation Army, the PRC’s army. According to some studies, the Chinese are is already strong enough or will be soon forceful enough to
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destroy the Taiwanese army before the US’s forces can come to its aid. (Kearn 2014) This development can be explained the modernization of the PLA, that was been discussed in the previous chapter on the military asymmetry. For this reason, it may seem unavailing for some that the support should be continued.
Finally the issue of predictions has to be raised. As it has been mentioned before, the changes in politics, leader and leaderships and their policies make it difficult to foresee the set of the connections. This was already true in Cross Strait relation’s case, but is even more so in the triangular connections between Taipei, Beijing and Washington. Here another state with a democratic system and elections enter the focus, complicating the prediction process. Changes in the government and the governing parties may mean different attitudes and policies regarding the area and issue. As the results of future elections cannot be surely foreseen, so cannot the steps and actions that the victorious party and the next government take be predicted.
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