3. The asymmetry of the economical connection between China
3.5 Economic connection between China and Taiwan
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Besides capital, these investments took other shapes as well. The arrival of different, new techniques, researches and training provided for local workers are examples of this. Most of the capital originated from the Netherlands, the United Kingdom, the US, Singapore, Japan and flow into sectors such as electronics and financial services.
(Copper 2013)
However the present amount of inflowing FDI cannot be compared to the amount of it in the past decades. On the other hand, the capital invested by Taiwanese businessmen abroad is constantly on a rise. As a comparison, in 2012, the amount of inflowing investments was US$59 billion, heading mostly to the banking and insurance sector. The capital flowing out of Taiwan was considerably higher, US$226 billion. The majority, 80 percent, of it was received by China, more specifically the electronics and information technology branches of the PRC’s economy. The majority of the Taiwanese investments was and is still heading to specifically two areas on the mainland: Jiangsu and Zhejiang provinces, known as the Yangtze River Delta and Guangdong province or also known as Pearl River Delta. (Copper 2013, Kwok 2011, CIA World Factbook 2014)
The sector of investments proves to be another branch were asymmetry can be concluded. No further explanation is needed beyond the numbers that have been listed above, representing the in- and outflowing investments of China and of Taiwan.
3.5 Economic connection between China and Taiwan
After comparing the different economical sectors and their sizes, some attention has to be given to the economical connection between the two territories. This is particularly important since Taiwanese firms majorly contributed to the economic development of the PRC and to its building and strengthening the role of “the world’s factory”. (Rosen-Wang 2011)
The economic relations of China and Taiwan have gone through great changes in the past. Strict regulations and limitations constrained the connections, which were slowly lifted. Some constrains still remain, especially in the Taiwanese side. It is from the 1980s that the flow of goods from the island to the mainland began rising, but the visa verse flow was halted for several more years. In the investment sector, Taiwanese investments heading to China – through Hong Kong – have been playing a major role
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were held up. (Rosen-Wang 2011, Sutter 2010)However, in 2003, the PRC became Taiwan’s most important trading partner - and still is today - where most of Taiwan’s export is heading. More than 40% of Taiwan’s export was headed to China and Hong Kong in 2012 – which dropped just below 40 percent in February 2014. Electrical machinery, optical equipment and chemicals lead the list of exported products for the island to the mainland, including a large number of processing goods. (See Figure 2.1) Nevertheless, imports from China have been on a constant rise – 13.5 as of February 2014 (See Figure 2.3), which very close to China’s export percentages to other states like Japan or the US - but still cannot be compared to the size of the Taiwanese export to the PRC, as the data collected by the National Statistics Bureau, ROC (Taiwan) and the Bureau of Foreign Trade, ROC Taiwan Strait, as intermediate products are shipped to China, where they go through final assembly and are reexported to a third country. As mentioned above, the growth in the Chinese exports to Taiwan were limited until 2001 and the PRC’s joining to the World Trade Organization (WTO). Since then this growth was multiplied. (See Figure 2.3) The existing difference between Taiwan’s import and China’s export, that is noticeable in the table, is due to Hong Kong and the significant role that it still plays in the connection between Taipei and Beijing, despite the fact that it has lost some of its importance. (Rosen-Wang 2011)
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increasingly large over time, the ratio of Taiwan-China cross-strait exports has come down since the advent of nontrivial Chinese exports to Taiwan beginning around the time of the two economies’ WTO accession in December 2001.” (Rosen-Wang 2011, 10) However it is rather Taipei that is worried about this surplus and not Beijing.China’s world economic superpower status allows it to not to be uneasy about deficits.
It is rather Taiwan who worries about the situation, as elevated number of products are shipped off to China for final assembly and reexportation. (Rosen-Wang 2011)
Economic policy reforms in the past years have shifted the connection of this sector to the state that it presently is in. Both Taipei and Beijing joining the WTO has also moved this process along. Still limitations exist, holding back the flow of goods from the mainland to Taiwan. Another area that saw loosening of restrictions and so helped the tightening of relations was the transportation sector. Hong Kong played an important part here as well until the situation was normalized in 2009. Through more and more restrictions are withdrawn, there are still a number of limitations that has to be overcome. In addition, it is not just the flow of goods that is restricted by these regulation, but also almost every other branch of the economy, including investments, services and the flow of people. It, however, must be noted that Beijing also keeps some it its restrictions. (Rosen-Wang 2011)
2010 and the signing of the Cross-Straits Economic Cooperation Framework Agreement or ECFA has been a big step taken in the deregulation process. This agreement targets not just the trade and service sectors, but also the financial and banking connection between Beijing and Taipei and the investments flowing from one side of the Taiwan Strait to the other. Tariffs were reduced and market entry was made easier in the case of goods. Beyond these, the agreement aimed to strengthen and broaden the economic cooperation between China and Taiwan, listing the areas in which this tighter connection is to be reached. Yet another additional point that has to be mentioned is the institutionalization process that was established in the ECFA in the form of a Cross-Straits Economic Cooperation Committee. (Chuang 201415, ECFA 2010)
Trade of services is an important branch of the economy, especially for Taiwan – were around 70 percent of the GDP is produced by the service sector -, where along
15: Information gathered during the interview with Yih Chyi Chuang was included in this paragraph.
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with other developed countries, the tertiary sector of the economy, or in other words the sector of services, has overtaken the agricultural primary and industrial secondary sectors. As a result, the trade of services offered by the island is highly relevant for consumption and the Chinese leaders plans to build a consumption based economy. It is this potential consumption market that Taiwanese firms plan to satisfy. (Chuang 201416, Rosen-Wang 2011)
There are no exact data on the flow of services across the Taiwan Strait, but studying the restrictions limiting this sector, it can be concluded that the amount of the ROC’s import for the mainland could not be a great number in the past. Presently as these restrictions are slowly withdrawn, the amount is growing fast. It is mostly non-financial services that Taiwanese offer in China, as service imports to the PRC are less restricted. Still there are limitations to one of the most profitable and promising sector of financial services. Interestingly the imported services in China not only aim Chinese as their potential customers, but also the Taiwanese and their businesses which operate on the other side of the Taiwan Strait. As part of recent developments, several limitations have been erased, especially ones concerning finances, but future developments are to follow. (Rosen-Wang 2011)
Flow of investments has been and still is an eminent connection between Taiwan and China, with funds heading to the mainland since the 1980s. This process speeded up with Taiwanese companies moving across the Taiwan Strait, seeking cheaper labor.
Governmental approval was needed if firms wished to invest in the PRC. Several companies skip this process, which somewhat contorts the statistics and figures of this area. According to the calculations of Rosen-Wang, in the past years 60-80 percent of the total of Taiwanese investments went to China, as investing in the ROC went through a diversification process, with funds flowing to other states as well, dropping the previous 80-90 percent to the number mentioned above. These numbers make Taiwan China’s greatest foreign investor, representing around 15-17 percent of the
16: Information gathered during the interview with Yih Chyi Chuang was included in this paragraph.
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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)