3. The asymmetry of the economical connection between China
3.6 Conclusion
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PRC’s total FDI, as of 2008. As for the sectors Taiwanese businessmen invest in, two main ones can be listed: manufacturing – 80-90 percent of the total and mostly heading to the computer electronics area - and services – 8-12 percent, with the prior constantly decreasing, while the latter increases. (See Figure 2.4) As an interesting but highly important conclusion that can be make for these changes is that satisfying consumption in China is gaining importance, as the emphasis on exportation – or from Taiwan’s point of view reexportation – decreases. (Rosen-Wang 2011)
Before 2002, investments from China were restricted, and only started severally increasing from 2008 on, with Ma Ying-jeou and the KMT winning the elections and with the general growth of China’s FDI outflow. As in the services sector, the number of limitations here has been reduces and as in other branches, Hong Kong and other regions served as connection points between the island and the mainland. (Rosen-Wang 2011)
Portfolio investment, or in other words the debt that one country owns to another, was a restricted area for long between Taipei and Beijing. 2008 was the year when this sector shifted as well, and started a process of opening. (Rosen-Wang 2011)
A final area that has to be discussed under the economic connection between China and Taiwan is the flow of people. The category flow of people refers to both business and touristic trips. This, as all the other above described areas, was in influenced by limitations. Taiwanese were allowed earlier into the PRC, from the 1980s. The ROC opened later and slower. Most of the above discussed lifting of limitations required the opening of civil travelling. This coherence can also be detected in the process of Taiwan’s economic growth, which strengthened after the restrictions in traveling between the island and the mainland were reduced. The exact numbers are summarized in a graph. (See Figure 2.5) The significant year is 2008 here as well, when transportation through the Taiwan Strait was normalized. (Rosen-Wang 2011)
3.6 Conclusion
Concluding this chapter, first the future of both economies should be discussed, followed by the conclusions given to the theoretical basis.
The above described growth of the Chinese economy was somewhat halted by the financial crisis, which started in 2008. The government responded by drawing up and
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executing a plan that enabled the economy of the state to continue running smoothly.
One of the focus points of the program was insuring and supporting the investments.
This contributed to the industry staying strong while the crisis lasts. As a result, the growth was secured and began expending the next year. Despite this success, the economy has become even more unbalanced, as an outcome of the implemented plan.
An attempt to rebalance is in process, as it has been described above. Growth rates have been decreasing in China, which call for these structural changes. One of the reasons behind the inevitable change is the price of labor which has gone up, so foreign firms no longer have the cause to move their productions to China, seeking inexpensive workforce. (Chuang 201417, Naughton 2010)
According to some predictions, the growth of the mainland’s economy has not reached the tip of its advancement yet. Further growth and strengthening is foreseen.
(Rosen-Wang 2011) In other opinion, China’s economy is overheating, which, in the near future, will cause the performance of this sector’s to decrease, maybe even drastically. This latter view is shared by Womack as well, who predicts that economic growth will fall back. As a reason, he lists the visible decrease of demand abroad. As for a possible solution or at least a way to subdue the negative effects of this phenomenon: to increase domestic consumption. However, aligned with the Twelfth Five-Year Plan, other ways are also examined that can contribute to easing of the problem, including paying more attention to the social and welfare challenges that the PRC faces. (Womack 2013)
These changes would affect China and its position in the international community, but it would also have an effect on the relations – mostly economical natured ones – that connect the PRC to other states. The Taiwan-China relationship would shift as well and with it the new asymmetrical builtup may also change, creating a new situation and environment. It, however, must be noted that these are merely predictions. As so, none of them have a stable basis, so no certain predictions can be made. Additionally, a reason why precise prognosis cannot be made is the possible shifting in the political sector of both parties. In Taiwan’s democratic system different parties can be elected to govern, which may result in changing of policies and attitudes, among other towards China and its economy as well. The PRC cannot be labeled as a
17: Information gathered during the interview with Yih Chyi Chuang was included in this paragraph.
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As described in the introduction subchapter, Taiwan’s growth of the GDP was also high, especially in 2010 but has been constantly dropping ever since. It has reached one of its lowest recently with 3 percent. The reasons explaining the decrease can be divided into domestic and external, international ones. Slow demand can be listed under the prior, which, as seen, also affects China’s economy. The latter is more complex, with Taiwan’s slowing of exports and the global financial crisis. Beyond these, the economic integration of the East Asian area has been ongoing without the ROC taking part in it, which also leaves the island in a disadvantageous position.
Strategic and structural changes will have to be made to counterbalance these negative effects, otherwise this recession could be long-lasting. (Chuang 201418)
As for conclusions of the theoretical aspect, it can be said that the theory of asymmetric connections is able to describe the economic connection between Beijing and Taipei. One of the biggest economies faces a smaller economical power. The difference is not as big as the difference in the political power or the difference between the population and the territory – the PRC’s population being the biggest in the world, Taiwan’s the 52nd and Beijing controlling the country with 4th largest territory, while Taipei the 139th -, but still China can easily be placed into greater A’s position and Taiwan into smaller b’s. As described above this is true to all the subsectors of economy that was named in this thesis. One exception is the electronics and information technology industry. (CIA World Factbook, Peoples’ Republic of China 2014; CIA World Factbook, Taiwan, Republic of China 2014)
Still the connection between the territories seems to contradict the theory, as Taiwan’s export to China is bigger than Chinese import to Taiwan as is the flow of investment, services and people. However this is not due to the asymmetric relation, it can rather be explained by the political connection between Taiwan and mainland China and the regulations implied by Taipei.
The previously made predictions were proven. The economic difference between China and Taiwan is not as big as the difference between the population and the territory. Nevertheless, the asymmetry between the sectors of economy tended to show the same picture, with the PRC dominating over Taiwan, with the exception of the
18: Information gathered during the interview with Yih Chyi Chuang was included in this paragraph.
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information technology and electronics sector. In other word, in Taiwan certain branches of industries are strong and are performing well. However when China is concerned, whole sections of its economy is performing outstandingly, competing with which can prove to be a challenge.
The conclusion was given in the conducted interviews. According to Chuang, it can be stated that looking at the economical aspects of Cross Strait relations the connection between China and Taiwan is an asymmetric one, with the PRC taking the role of the greater A power. This can be concluded despite the GDP per capita level of the state, as it has been described in the introductory subchapter. (Chuang 201419)
Nevertheless there is one aspect of the Taipei-Beijing that stands out, that cannot be fully lined up with the theoretical framework. This is the interdependence between the two mentioned economies, which influences the PRC’s economy as well as it does the ROC’s. Examples of these could especially be seen in the trade subchapter. However as the data showed, Taiwan is becoming more and more dependent on the mainland.
The strengthening of this phenomenon does fall in line with the asymmetric concept.
The smaller b and its economy have no choice but to rely on the bigger, dominating A economy. With influence, the dependence will grow as well. This may easily be the future that Taiwan and its economy are facing and which will further emphasis the size difference between the two territories. It is China’s dependency on the smaller actor that does not seem to fit into the described theory’s framework.
It is this future that many fear, particularly in Taiwan. In this point of view, dependency on the mainland - which is constantly growing – has made the economy one-sided and leaves a lot of space for Beijing to influence Taiwan and the route its economy is taking. Yet another such fear is the spillover effect that these tight economic relations may have on other sectors, including the political one. Dependence may result in the PRC setting terms and involving itself in politics and other spheres, which previously were out of the Beijing government’s reach.
Another aspect that somewhat disproves the thought of aligning China with the powerful A and Taiwan with the smaller b is the difference in the technological level between the two parties, with the latter dominating. However the mainland is rapidly catching up and as a result, soon this will not be a source of differentiation. (Rosen-Wang 2011) Technological advancement may not necessarily fall under the areas that
19: Information gathered during the interview with Yih Chyi Chuang was included in this paragraph.
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are controlled and directed by the governments of the two actors. It can be seen as one of the sources of outside influences that this connection receives. In other words, it changes the economic connection between Taipei and Beijing, but none of leaders can influence it, it is beyond their control.
Another such outside factor it the World Trade Organization and the specific regulations that the parties have to follow since their joining. It can be argued that this is an external influence that the governments on both sides of the Taiwan Strait chose to involve in their relations, as they chose to join the organization, but it certainly has an effect on the current form and the future developments of the Cross-Strait economic connections, taking the decreasing number of restrictions in the trade between the two sides as an example.
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