China Power

Backdoor Reunification?

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China Power

Backdoor Reunification?

Will a planned business regulation change in China accelerate the process of cross-strait unification?

From sometime this year, Taiwanese citizens as “natural persons or families” will be able to register certain types of small businesses in a number of Chinese cities and provinces as “individual industrial and commercial households,” China's Taiwan Affairs Office, the organ responsible for Taiwan-related policies, recently announced. As the move is most likely meant as a pilot project that will eventually be extended – to many Taiwanese facing negative growth in real wages and relatively high unemployment at home – it's an offer that could sooner rather than later become attractive enough to be considered.

Estimates on the number of taishang, as Taiwanese living on the other side of the Taiwan Strait are called, already range from 1 to 3 million. Official Taiwanese government statistics on them don't exist, but what political scientists agree on is that the taishang tend to favor the ruling Kuomintang (KMT), which envisions eventual unification, over the opposition anti-unification Democratic Progressive Party (DPP), mainly because the KMT's Beijing-friendly policy has been making their lives a lot easier. One major reason for the recent re-election of the KMT's Ma Ying-jeou, commentators say, was the hundreds of thousands taishang who returned to the island in a timely manner to cast their votes. The calculation is simple: the more Taiwanese that are living in China, the better for Beijing's quest to achieve unification.

Since 1988, Taiwanese have been allowed to travel and invest across the Taiwan Strait. It has mainly been entrepreneurs who moved to the mainland with U.S. dollars to invest, followed by their Taiwanese employees, spouses and children. The taishang played a crucial role in the Chinese economic miracle, but despite their contributions and rapidly institutionalizing cross-strait ties, they’ve been complaining that their interests in China aren't adequately protected. In the absence of suitable regulations, they have to go to third parties from which to set up China branches, form joint ventures with Chinese manufacturers, or are forced to register their business in the name of a Chinese proxy (the latter two, of course, being ripe for abuse). It’s likely a fair assumption that most Taiwanese have heard of a taishang who has been cheated out of a horrendous sum, had his or her property expropriated in violation of due process, or has been dragged into court on trumped-up charges by local governments.

In 2010, Taipei and Beijing signed the historic Economic Cooperation Framework Agreement (ECFA), which slashed tariffs on hundreds of goods in cross-strait trade. But the investment agreement the taishang have been longing for remains stuck in the pipeline, deadlocked over a number of issues, the most prominent of which is Beijing's opposition to Taipei’s demand for international arbitration at the International Chamber of Commerce, as it would imply Taiwanese statehood.

By granting the protection of Chinese law to Taiwanese small businesses initially limited to eateries and retail in the cities of Beijing, Shanghai, and Chongqing as well as Guangdong, Fujian, Jiangsu, Hubei and Sichuan Provinces, Beijing presents a pragmatic approach that if further advanced could somehow function as a way around the thorny issues coming along with a proper investment agreement. It also waters the mouths of wannabe taishang hoping to get a piece of the big China cake. Having a bite of that is particularly tempting as despite much-hyped cross-strait ties, livelihood pressures haven't eased in recent years for the Taiwanese lower and middle classes. While the island's elite is seen as feasting through the opening to China, the unemployment rate stood at 4.28 percent in November, significantly higher than those of export rivals Hong Kong, South Korea and Singapore, which have rates between 2 percent and 3.3 percent. The average house price remains at 9.2 times annual household income, unaffordable to many in a society where owning a house is a prerequisite to starting a family, and perhaps most importantly, real wage growth is negative.

Moving to China might not seem too bad an idea to many ordinary Taiwanese because of the knowledge that in China's coastal provinces, wages have risen much faster than in Taiwan, and are set to catch up with those on the island in a few years time. Also, a closer look at the islanders’ characteristics and history suggests that considerable numbers of them will be willing to make the move. Entrepreneurship has been deeply embedded in the Taiwanese gene ever since the major waves of immigration from the Chinese mainland during the late Ming Dynasty (ended in 1644) when poor Chinese young men, given a chance to cultivate their own plot of land in Taiwan, set up farms, stayed from the spring planting season to the harvest in fall and returned to Fujian Province in winter, earning handsomely by selling their produce there. Centuries later, Taiwan's entrepreneurial streak got additional input after the Chinese Civil War in 1949, when the retreating KMT troops brought with them Chinese businessmen and refugees fleeing Mao Zedong's communists. In the absence of an industrial base to provide opportunities, many among this wave of immigrants resorted to open small stores and eateries on the island.

In interviews, academics in Taipei varied on their assessments of whether Beijing's “individual industrial and commercial households” policy will succeed in luring them.

Hu Sheng-Cheng, an economist at Academia Sinica, Taiwan’s most renowned research institute, cautioned that although the Chinese State Council announced that there will be a new regulation, it has yet to provide details.

“The actual effect is difficult to assess but likely not big. Although the central government puts in place the law, it will not necessarily make a real difference as the major obstacle taishang face has always been local governments' many kinds of rules,” he argued.

Hu furthermore pointed at yet another turn-off.

“As the capital threshold to open a business in the catering or retail sector is low, the Taiwanese have to expect fierce competition. Also, as most Taiwanese entrepreneurs who recently moved to mainland China are supported by consortia or large enterprises, the best time may have already passed for individuals to set up something over there.”

But Hsu Yu-fang, a political commentator and associate professor at National Dong Hwa University's Department of Sinophone Literatures, believes that Beijing’s move will pay off, nonetheless. He sees the new rule as bound to tie the Taiwanese economy closer to the mainland.

“It’s very clear that the creation of dependence is the purpose. Apart from rolling out the red carpet for petty entrepreneurs, the Chinese government also energetically demands that Taiwan opens more to Chinese investment,” Hsu said.

He elaborated by painting a future scenario in which Chinese businesses control a large share of the Taiwanese economy while the Chinese economy in turn locks a lot of Taiwanese capital and talent.

“Then, Taiwanese people’s basic livelihood needs will rely decisively on China. It’s unimaginable that politics won't be affected,” Hsu added. 

Jens Kastner is a Taiwan-based freelance reporter.