In the international market, Taiwan has lost much of its share of the traditional labor-intensive products market to China and the SEACs. Nevertheless, Taiwan’s current exports, generally speaking, have different factor intensities than China’s exports.
Regarding competition in the United States market, Taiwan’s exports of computer and information products basically compete with those of the SEACs (especially Malaysia) and South Korea. As for Japan’s market, the competition between Taiwan and China is among different levels and industries.38
Competition between Taiwan’s labor-intensive exports and China’s exports which are manufactured by foreign-funded labor-intensive industries is unavoidable. Some of this competition is between Taiwan-funded enterprises in China and enterprises still operating in Taiwan,39 This kind of competition, however, would facilitate Taiwan moving to more technology-intensive and capital-intensive industries.
Taiwan’s export structure has changed dramatically since Taiwan began investing heavily abroad in 1987. In the past, labor-intensive consumer goods were manufactured by small-medium enterprises and were then exported to developed countries such as the United States, Japan, and Europe. Now, it is very common for small-medium enterprises to establish overseas bases to produce labor-intensive consumer goods, with the inputs of intermediate and capital goods coming from Taiwan’s large enterprises. The final products
38Taiwan’s Mainland Affairs Council, Analysis on Cross-Strait Economic Situation, October 1997, pp. 114 to 139.
39 Ibid, p. 140.
are still exported to the United States, Japan, and Europe.
For example, according to the author’s estimate, in 1996 Taiwan-funded entrepreneurs in China exported $27.8 billion worth of goods to the United States, Japan, and Europe, about $7.2 billion to $11.2 billion of which was exported to the U.S. market alone. This would mean that Taiwan enterprises accounted for 14% to 22% of China’s exports to the United States.40 Therefore, Taiwan’s shrinking market share in developed countries is because of the change in Taiwan’s role in the international division of labor in which Taiwan no longer produces most of competing labor-intensive goods, not because Taiwan’s exports are less competitive.41
Some Taiwan enterprises argue that the Taiwan government’s restrictions on the “three direct links”42 and its policy of “no haste, be patient”43 lessen their competitiveness.
Therefore, Taiwan’s own government might be one of the important reasons for making Taiwan’s enterprises compete at a disadvantage in the international market.44
X. Conclusion
According to China’s statistics, as of June 1999 Taiwan’s cumulative realized FDI in
40 Chen-yuan Tung, “General Analysis of the Economic Relations between Taiwan and China---- The Tradeoff between Economics and Security,” Paper for delivery at the 14th annual conference of the Association of Chinese Political Studies on China Entering the New Millennium in Washington, D.C. on November 6-7, 1999, pp. 38, 41. Chen-yuan Tung, “Trilateral Economic Relations among Taiwan, China, and the United States”, Asian Affairs: An American Review, Vol. 25, No. 4, Winter 1999, pp. 220-235.
41 Ya-Huei Yang et. al., “The Adjustment and Upgrading,” p. 15.
42 Refer to direct links in mail, transportation and trading between Taiwan and China.
43 Refer to a policy of constrained economic exchange between Taiwan and China adopted by Taiwan since 1996, especially limiting some categories and scale of Taiwan’s investment in China.
44 As early as December 1993, Economics Minister P. K. Chiang, with support of the minister of transportation and communication, publicly advocated establishing direct shipping links between Taiwanese and Chinese ports on the grounds that it would reduce transportation costs and make Taiwan’s industries more competitive. Ralph N. Clough, Cooperation or Conflict in the Taiwan Strait ? (Lanham,
China was $22.5 billion. According to Taiwan’s Mainland Affairs Council’s estimate, trade between Taiwan and China reached $24 billion in 1998. Many concerns arise from the complex process of Taiwan’s globalized economic development, and are exacerbated by the political confrontation between Taiwan and China. However, these concerns are not realized so far. This article argues that Taiwan’s investment in China is a part of the global division of labor and provides an interim assessment of its impact on Taiwan’s economic development. It concludes that Taiwan’s investment in China has a net positive contribution to Taiwan’s economic development.
This article analyzes seven major concerns voiced in Taiwan about cross-Strait economic exchange using empirical evidence. Cross-Strait economic exchange driven by Taiwan’s FDI did contribute positively to Taiwan's balance of payments and did not crowd out domestic investment. From 1991 to 1997 Taiwan’s FDI in China contributed $4.6 billion net foreign exchange on average every year for Taiwan’s balance of payments.
When Taiwan’s entrepreneurs conducted outward investment, except for a few small-medium enterprises that reduced or closed domestic production and thus reduced domestic investment, the majority of enterprises expanded both the FDI and domestic investment simultaneously.
In addition, Taiwan’s FDI in China helped domestic industrial upgrading and did not lead to industrial hollowing-out. The expanded demand for intermediate and capital goods by the small-medium enterprises which invested overseas (including in China) led to the expanded output of these goods produced by Taiwan’s large enterprises. This new international (inter-firm) labor-division had considerable benefits for Taiwan’s industrial
Maryland: Rowman & Littlefield Publishers, Inc., 1999), p. 41.
upgrading. Furthermore, intra-firm division of labor exists: Taiwan’s MNCs produce superior or more value-added goods while their subsidiaries in China manufacture labor-intensive products. The more efficient reallocation of resources in Taiwan trigged by the outward investment also contributed to Taiwan’s industrial upgrading. As for FDI of capital- and technology-intensive industries, Taiwan’s investment style in similar to the FDI experience of developed countries. This expansionary FDI contribute positively to Taiwan’s economic development, especially to industrial upgrading. Finally, Taiwan’s industries are still strongly competitive, and there is no so-called “hollowing-out.”
Taiwan’s FDI in China did not increase unemployment and worsen wage inequality from the mid-1980s to the mid-1990s. From 1987 to 1994, when the migration of labor-intensive industries was at its peak, Taiwan’s average unemployment rate was 1%
lower than it was from 1982 to 1986 or from 1995 to 1998. Further, the ratio of wage inequality in Taiwan fell from 0.84 in 1987 to 0.56 in 1995 and 0.62 in 1996.
Finally, China and Taiwan did not compete head-to-head in the international market because they basically produced different types of products. There was some competition between Taiwan-funded enterprises in China and enterprises in Taiwan. At the same time, Taiwan’s shifting position in the global labor-division explains why Taiwan’s market share in developed countries is shrinking.
Appendix
1952-1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Total Chinaa n.a. n.a. n.a. n.a. n.a. 174 247 3168 962 1093 1229 4334 11208 SEACsb 62 15 53 277 520 707 300 364 297 294 422 411 3722 The US 163 70 123 509 429 298 193 529 144 248 271 547 3524
Europe 4 2 12 2 96 60 46 256 22 60 12 59 630
Japan 1 3 2 0 2 3 5 63 23 8 7 32 151
Others 42 15 29 143 505 588 343 449 1131 747 1453 1845 7287 Total 272 103 219 931 1552 1830 1134 4829 2579 2450 3394 7228 26522 Note: a: excluding Hong Kong
b: including Philippines, Indonesia, Thailand, Malaysia, and Vietnam.
Source: Investment Commission, Ministry of Economic Affairs (ROC), Statistics on Overseas Chinese &
Foreign Investment, Outward Investment, Outward Technical Cooperation, Indirect Mainland Investment, Guide of Mainland Industry Technology, May 97 and October 98.