Chapter IV. Findings: Trade, Convergence, and Hollowing Out
IV.1. Sources of industrial convergence and protectionism across the strait
Sources of industrial convergence and protectionism are two sides of the same coin.
Fujian, Guangdong, and Taiwan are all facing ever-increasing rates of industrial convergence due to their development. Protectionism on the mainland stems from the duplicated industry orientations among the provinces, which view each other as competition for resources and materials that are necessary for provincial economic development. Among the more technologically sophisticated industries we find the same scenario. Fujian and Guangdong are now reaching a level of industrial sophistication comparable with Taiwan of the 1980s. While still lagging far behind Taiwan’s current industrial sophistication they have made the industrial shift that brings their sectors much closer to those of Taiwan than their domestic neighbors.
Fujian and Guangdong now run the risk that Taiwanese economic actors will see them more as competition than as investment locations, and could engage in protectionist measures or create trade barrier effects against the Chinese economies.
Convergence: Fujian and Guangdong close the gap with Taiwan
There is ample evidence to highlight a rising rate of convergence between the economies of Taiwan, Fujian, and Guangdong. Figure 4 identifies the GDP power of the three economies. In 2000 Taiwan’s GDP was twice that of Guangdong and nearly six times greater than Fujian.
Guangdong itself was nearly three times more productive than neighboring Fujian. This was occurring at a time when Taiwanese FDI was flowing freely into China on the second wave of investment in the mainland. By 2005 Guangdong’s productivity had grown to essentially match Taiwan, with Fujian still behind. 2005 is a turning point in many ways. First, Guangdong would overtake Taiwan in productivity. Second, this point marks the turning point for Fujian’s slow, but steadily increasing growth rate. Third, and most importantly, this was the last year before Chen reigned in high-sophistication investments to the mainland. Chen’s switch to “active
‧
國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
management” of cross-strait trade does not seem to have had much of an effect on the GDP growth of Taiwan’s nearest neighbors. As the graph below indicates, 2005 appears to be the key year in which GDP growth changed its trajectory to greater rates. Even the line for Taiwan’s growth in GDP appears to have shifted upward at this point, though ever so slightly. Particularly interesting is when these growth rates are divided up amongst primary, secondary, and tertiary sectors.
Figure 4. GDP figures for Taiwan, Guangdong, and Fujian GDP Figures (Billion US$)
Year 2000 2005 2010 2015
Taiwan Guangdong
326.20 163.67
364.83 343.72
430.09 701.14
516.26 1,109.50
Fujian 57.36 99.88 224.56 395.87
Sources for Figures 4, 5, and Graph 1: Republic of China (Taiwan), Statistical Bureau, http://eng.stat.gov.tw/
Republic of China (Taiwan), National Development Council, Taiwan Statistical Data Book 2011, http://www.ndc.gov.tw/
People’s Republic of China, National Bureau of Statistics.
0.00 200.00 400.00 600.00 800.00 1000.00 1200.00
2000 2005 2010 2015
GDP Figures for Taiwan, Guangdong, and Fujian (Billion US$)
TAIWAN GUANGDONG FUJIAN
‧
國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
Figure 5. Breakdowns of industrial sectors to GDP, changes between 2000 and 2010
2000 2010
Taiwan
Primary Secondary Tertiary
6.36 Billion USD (1.9% total) 96.12 Billion USD (29.5% total) 212.51 Billion USD (65.1% total)
6.64 Billion USD (1.5% total) 131.87 Billion USD (30.7% total) 282.28 Billion USD (65.6% total) Guangdong
Primary Secondary Tertiary
15.03 Billion USD (9.2% total) 76.18 Billion USD (46.5% total) 72.46 Billion USD (44.3% total)
34.85 Billion USD (4.9% total) 350.69 Billion USD (50.0% total) 315.60 Billion USD (45.0% total) Fujian
Primary Secondary Tertiary
9.76 Billion USD (17.0% total) 24.81 Billion USD (43.3% total) 22.79 Billion USD (39.7% total)
20.78 Billion USD (9.3% total) 114.63 Billion USD (51.0% total) 89.15 Billion USD (39.7% total)
Primary Secondary Tertiary Primary Secondary Tertiary
Primary Secondary Tertiary Primary Secondary Tertiary
Primary Secondary Tertiary Primary Secondary Tertiary
‧
國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
In the decade between 2000 and 2010 we see that Taiwan’s industrial sectors have not changed their sizes my any large margin. Primary industry, defined by the Taiwanese government as agriculture, has shrunk, but has remained largely within the 1.5 to 2 per cent GDP bracket. Secondary industry, identified as production industry, has hovered at 30 per cent of GDP, while tertiary industry, identified as service sectors, has held itself at 65 per cent of GDP.
In terms of value of output, primary industry has largely remained the same while secondary and tertiary industry had not doubled in output. Secondary industry had grown by 73 per cent
while tertiary industry grew roughly 75 per cent.
The industrial sector make-up of Guangdong and Fujian, on the other hand, has changed dramatically between 2000 and 2010. We can see that in Guangdong the total percentage of primary industry GDP (identified as agriculture and raw materials) has shrunk by more than half, while secondary industry (including construction and product manufacturing) has increased by nearly 5 points to make up half of the overall GDP. Tertiary industry has largely remained unchanged. While Guangdong’s industry sector percentages have not seen much of a change over time, it’s important to recognize that primary industry has more than doubled in its total output, while secondary and tertiary industry have grown by more than 400 per cent in output.
Fujian has produced more impressive results over the same time, largely due to its relative position coming from behind. Primary industry more than doubled, but its presence within total GDP shrank from 17 to 9 per cent to make room for secondary industry to quadruple from nearly US$25 billion to 114 billion, shifting from 43 per cent to 51 per cent of industry.
Tertiary industry also grew impressively, growing by a factor of 3.8 from US$22.79 billion to 89 billion, but holding steady at roughly 39 per cent of total GDP output.
It is evident at this point that Taiwan is not only remaining stagnant, but its closest Chinese competitors are steadily outpacing Taiwan’s rates, and in the case of Guangdong, is already out-producing Taiwan’s economy. It is also apparent that regardless of output total the coastal provinces’ economies are reaching identical economic orientation. Their rate of convergence, particularly with Fujian coming form behind Guangdong, may indicate a race to reach a similar orientation of sector percentages in GDP with Taiwan.
‧
國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
Sources of protectionism
Sources of protectionism among these economies are varied but the end goal is the same:
growing the local economy and protecting native competitiveness and economic interests against external influences that could slow growth, reduce competitiveness, or create a hollowing out.
Despite achieving some of the highest rates of trade liberalization, market reforms, and internationalization of local economies, Fujian and Guangdong are now forced to defend their significant gains against Beijing’s domestic division of labor reshuffling. Fujian and Guangdong seek to ensure their positions as major destinations for varied foreign investments and do not wish to see FDI move elsewhere in China. They seek to protect their manufacturing capabilities through aggressive product diversification and outcompete their neighbors to ensure their success. Taiwan, their key investor, is not exempt from their competitive mindset. A stated goal of Fujian province is to outcompete Taiwan and surpass its GDP by the year 2020.129
Taiwanese protectionism stems from Taipei’s desire to limit effects that could hollow out the local economy, protect its role in high-sophistication international manufacturing, and to prevent its local economy from being inundated by the mainland Chinese economy. Taiwanese economic growth has stalled and its real wage growth has not improved. The island’s industries are hollowing out because its economic actors are not thinking of Taiwan and China as separate political bodies, and instead are following the principles of “region-to-region” hollowing out.
This has become a major cause for alarm in Taiwan. The movement of manufacturing to the mainland has been a significant contributing factor of economic sluggishness. The movement of Taiwan’s economic activity to the mainland has seen a complete transplant overseas of many of Taiwan’s once-prized niche production cycles. While still Taiwanese in name, this exported business lifecycle is incredibly isolated from Taiwan’s day to day economy, hurting real growth at home. Fewer materials from Taiwan are being used by firms in China, and reinvestment within the Taiwanese economy is shrinking.
Taiwanese manufacturing firms in China are importing less and less from Taiwan.
Reported imports of parts and goods had slid from 53.72 per cent of operating stock in 1996 to 47.06 per cent in 2002, to 39.31 per cent in 2006.130 Domestic investment levels in Taiwan also
129 Ding.
130 Tsai, p. 70.
‧
國
立 政 治 大 學
‧
N a
tio na
l C h engchi U ni ve rs it y
shrank during this period. Reported investments in the period between 1997 and 2000 averaged a rate of 25.17 per cent, while the period between 2001 and 2008 saw an average of 21.07.131
Taiwan plays a critical role for manufacturing high-value-added products in the global market, a role that China cannot yet fulfill. Taiwan is ever mindful that this will not always be so. Taiwanese manufacturing has developed indigenous R&D that has moved the industry up the technological ladder, providing the globe with high-quality and high-sophistication products.
Taiwan’s government has been very keen to keep this technological edge located on the island.
Taiwanese high-tech sectors are off-limits for mainland investors and are barred from moving to the PRC.132 Although China’s orientation is still largely based on growth and industrialization, with the focus still primarily on low-tech production and manufacturing, mainland firms are eager to gain access to Taiwan’s market for construction and production. Mainland operations in Taiwan would be poised to outcompete and flood Taiwan, and Taipei seeks to keep China’s competitiveness limited to the mainland in order to protect native Taiwanese firms and to foster new local enterprises. Taiwanese investment in China is a drop in the bucket, and the PRC has no reason to fear Taiwan flooding china’s markets or a reversal of the core-periphery model.
Taiwan on the other hand faces a dilemma. It could be inundated by mainland investment so it must be particular about what investments it permits from China. Huang finds that this cautiousness may hurt Taiwan’s international presence more as it makes Taiwan look “narrow minded” toward international investors.133 In 2004 Taiwanese investment was not a significant portion of China’s overall trade. Despite the emphasis China places on Taiwanese integration Taiwan did not place among its top five investors.134