The Debate

Taiwan Is Not Overly Dependent on China

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The Debate

Taiwan Is Not Overly Dependent on China

A Taiwan government official responds to a recent Diplomat article.

Taiwan Is Not Overly Dependent on China
Credit: Taipei via Sean Pavone /

The following is intended to clarify inaccurate assertions in Ricky Yeh’s article for The Diplomat, “Over-Dependence on China Will Doom Taiwan.”

First, regarding the statement “The Ma administration’s policies conveniently neglect the consequences of ‘locking’ Taiwan’s economy with the very source of the main security threat facing Taiwan:”

Enterprises from around the world have been attracted to conduct business and invest in mainland China since it opened its economy to foreign companies and began its economic reforms. Naturally, Taiwanese companies are among these enterprises. Mainland China is now Taiwan’s biggest export market and investment destination.  However, Taiwan is not an exception in this regard. Take the 12 members of the Trans-Pacific Partnership (TPP) for example. Mainland China is the top trading partner for six TPP member states and the second-largest trading partner for another five members.

Still, the government of the Republic of China (ROC) never neglects the importance of national security when developing trade and economic ties with mainland China. In consideration of the special political relations between the two sides of the Taiwan Strait, the ROC government screens investment projects from mainland enterprises on a case-by-case basis. This is in addition to formulating laws to regulate their business activities in the country in order to safeguard Taiwan’s economic environment and national security. Furthermore, the ROC government imposes restrictions on or denies investment applications filed by mainland enterprises that may be politically, socially or culturally sensitive or impact on national security.

To prevent Taiwan from becoming economically over-dependent on mainland China, which would endanger national security, the ROC government is actively seeking to participate in regional and global economic integration, increase the added value ratio of industrial sectors and upgrade the international competitiveness of Taiwanese enterprises.

Secondly, with regard to the assertion that the Taiwanese economy has been sluggish since mainland China became Taiwan’s major trading partner, the Economic Cooperation Framework Agreement (ECFA) signed between the ROC and mainland China in September 2010 has not only institutionalized cross-strait economic relations, it has also created a stable, predictable cross-strait business environment. This has allowed Taiwanese companies to reduce their production costs, and secured Taiwan’s position in the global industrial chain. According to ROC customs statistics, the export value of goods listed in ECFA’s Early Harvest Program in the first half of 2014 totaled $10.369 billion, up 4.59 percent from a year earlier. Accordingly, it is estimated that Taiwanese businesses have saved $386 million in tariffs during this period and $1.808 billion in tariffs from 2011 to June 2014. In addition, the export growth rate of each item included in the Early Harvest program is higher than the overall growth rate of mainland China-bound exports. Statistics clearly indicate that ECFA has boosted Taiwan’s exports to mainland China.

The ROC government and mainland China have signed the Cross-Strait Trade in Services Agreement. As Taiwan’s service sector accounts for 70 percent of gross domestic product, the domestic market for services has reached a saturation point. Meanwhile, the service sector in mainland China is expanding rapidly, and so it is important for Taiwanese companies in the service sector to gain wider access to this market in order to enhance their competitiveness. According to comprehensive assessments conducted by academic institutions, once the Cross-Strait Trade in Services Agreement takes full effect, the value of Taiwanese service exports to mainland China will grow by 37.2 percent, which equates to an increase of approximately $400 million in the total output value of Taiwan’s service sector.

Third, what of Yeh’s assertions about China’s ability to change laws and policies in an opaque fashion, and that unexpected new trade and investment policies from Beijing could severely harm Taiwan’s economy?

Cross-strait agreements help enhance the transparency of mainland China’s laws and policies. The system of agreements also enables the government to help Taiwanese businesses solve problems or address unfair treatment in mainland China. The Cross-Strait Bilateral Investment Protection and Promotion Agreement entered into force on February 1, 2013. This agreement, which reflects similar international mechanisms for investment protection, takes into consideration the unique cross-strait situation and Taiwanese businesses’ concerns and needs in addition to specifying legal enforcement measures. Moreover, by building on existing legal frameworks, the agreement was designed to create diverse dispute settlement channels in a pragmatic way in order to provide effective mechanisms for resolving disputes.

For the time being, a cross-strait ECFA dispute settlement agreement, which will reflect similar international procedures, is being negotiated and several rounds of discussions have already been conducted. Initial consensus has been reached on the agreement in such areas as its range of application, how it will be negotiated, the mediation procedures that it will establish and the manner in which it will be implemented. It is hoped that the signing of the agreement will take place in the near future.

Lastly, with reference to the argument that Taiwan’s reliance on mainland China sours its relations with Japan and the United States:

Developing cross-strait ties and enhancing relations with Japan and the United States are not mutually exclusive endeavors. Since the Ma administration took office, it has resumed talks with the United States on the Trade and Investment Framework Agreement, and inked investment and e-commerce cooperation agreements with Japan.  The American Chamber of Commerce and the European Chamber of Commerce – international business associations that have been operating in Taiwan for many years – both encourage cross-strait economic cooperation and believe such cooperation aids Taiwan’s economic development.

Japan and the United States do not want to see strained cross-strait relations, which could turn the Taiwan Strait into the powder keg of Asia. Promoting cross-strait cooperation aids the economic development of both sides while easing tensions.  Cross-strait cooperation is not counter to the interest of Japan and the United States.

Gary Sheu is Director of Press & Information Dept. of the Taipei Economic and Cultural Representative Office in Japan.