Trad­ing in dol­lars, pol­i­tics and irony Tai­wan prospers de­spite con­tin­u­ing re­sent­ment from the main­land

The Washington Times Weekly - - Editorials -

The more China tries to min­i­mize the suc­cess of Tai­wan – which is of­fi­cially the Repub­lic of China — the more im­por­tant Tai­wan be­comes in the in­ter­na­tional or­der. It is, says one diplo­mat, “one of the greater ironies of our time.”

The Com­mu­nists in Bei­jing re­gard Tai­wan as a rogue prov­ince, ir­ri­tated that it stands just off-shore as an elo­quent re­but­tal to the ar­gu­ment that only an au­to­cratic Chi­nese na­tion can be eco­nom­i­cally pros­per­ous. Tai­wan not only rep­re­sents what free­wheel­ing economies can do, but the proof it can be done in a Chi­nese so­ci­ety with a demo­cratic gov­ern­ment. Cap­i­tal­ism sur­vives in China, with the un­der­stand­ing that it just can’t be called cap­i­tal­ism. Words mat­ter, and cap­i­tal­ism is the c-word.

Tai­wan’s 25 mil­lion men, women and chil­dren make it only the 55th largest na­tion in the world, a tiny frag­ment of the Chi­nese main­land pop­u­la­tion of 1.4 bil­lion. Tai­wan’s dy­namic cap­i­tal­ism is driven by pri­vately owned in­dus­trial and man­u­fac­tur­ing com­pa­nies, many with ori­gins in the long Ja­panese oc­cu­pa­tion, which ended with the end of World War II. Elec­tron­ics, ma­chin­ery and petro­chem­i­cals have driven the mir­a­cle econ­omy. De­spite the po­lit­i­cal dif­fer­ences, in 2006 main­land China over­took the United States to be­come Tai­wan’s sec­ond­largest cus­tomer, be­hind only Ja­pan.

Since 2009, Tai­wan has grad­u­ally loos­ened rules gov­ern­ing main­land in­vest­ment in Tai­wan, get­ting in re­turn greater ac­cess to main­land mar­kets. In Au­gust 2012, the Tai­wan Cen­tral Bank signed a cur­rency agree­ment with its Chi­nese coun­ter­part which en­ables greater de­vel­op­ment of the Tai­wan econ­omy. China is not only now Tai­wan’s num­ber one des­ti­na­tion for for­eign di­rect in­vest­ment, but in Fe­bru­ary China in­tro­duced a pack­age of 31 in­cen­tives to at­tract Tai­wanese com­pa­nies to the main­land, of­fer­ing tax breaks and sub­si­dies for high-tech com­pa­nies, re­search grants for aca­demics. It promised to al­low Tai­wanese com­pa­nies to bid for gov­ern­ment in­fra­struc­ture projects, even those in­volved in China’s de­vel­op­ment plan in south­ern Asia and the Mid­dle East.

Tai­wanese Vice Premier Shih Junji cast it as an ef­fort to un­der­mine Tai­wan’s econ­omy. “China’s at­tempt to at­tract Tai­wan’s cap­i­tal and tal­ent, es­pe­cially high tech and young stu­dents, has clear po­lit­i­cal in­ten­tions,” he told a press con­fer­ence in­tro­duc­ing eight coun­ter­mea­sures de­signed to keep in­vestors and their money at home.

Bi­lat­eral trade be­tween China, in­clud­ing the main­land, Hong Kong and Ma­cao, and Tai­wan reached $181 bil­lion in 2017, up from $35 bil­lion in 1999. China is Tai­wan’s largest trad­ing part­ner, ac­count­ing for more than 30 per­cent of the is­land’s trade. More than 93,000 Tai­wanese com­pa­nies have in­vested in the main­land since 1988, though out­bound in­vest­ment to the main­land de­clined for its third con­sec­u­tive year in 2017. Re­cip­ro­cal main­land in­vest­ment in Tai­wan is ris­ing, but at a slower rate. China and Tai­wan have also agreed to al­low banks, in­sur­ers and other fi­nan­cial ser­vice providers to work in both.

Tai­wan’s closer eco­nomic links to the main­land pose unique chal­lenges, with po­lit­i­cal dif­fer­ences re­main­ing at a time when China’s eco­nomic growth is slow­ing. Com­merce with the main­land takes a higher pri­or­ity be­cause Tai­wan Pres­i­dent Tsai Ing-wen’s ad­min­is­tra­tion has made lit­tle progress on solv­ing do­mes­tic eco­nomic is­sues, in­clud­ing con­cerns about stag­nant wages, high hous­ing prices, youth un­em­ploy­ment, job se­cu­rity and re­tire­ment fi­nan­cial se­cu­rity. Mr. Tsai has made more progress boost­ing trade with south Asia, which may in­su­late Tai­wan’s econ­omy from a fall in main­land de­mand if China’s growth slows fur­ther in 2018.

U.S. arms sales to Tai­wan, to­tal­ing more than $25 bil­lion be­tween 2007 and 2018, have led to fric­tion be­tween the United States and China, with ac­com­pa­ny­ing bel­li­cose rhetoric from Bei­jing. Pres­i­dent Tsai spoke to Pres­i­dent-elect Trump in a tele­phone call be­fore Mr. Trump’s in­au­gu­ra­tion, the first such high­est-level con­tact be­tween the two sides since 1979, and an in­di­ca­tion Wash­ing­ton con­tin­ues to place high value on the re­la­tion­ship de­spite of­fi­cial U.S. ties to Bei­jing.

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