Commentary | 24 May 2016

Taiwan seeks ‘independence’ in politics, trade

This article was originally published in The Australian.

  • Peter Cai

This article was originally published in The Australian.

  • Peter Cai

Executive Summary

Taiwan’s new president has vowed to reduce the country’s economic dependence on China, focusing on forging better trade relations with the US, Japan and southeast Asian countries.

Tsai Ing-wen, who was sworn in last Friday, said the new government’s top policy priority was to rejuvenate Taiwan’s stagnant economy. The government sees joining regional free trade agreements such as the Transpacific Partnership as the key to getting out of its current slump.

“We will also promote a new southbound policy in order to elevate the scope of our external economy, and to bid farewell to our past overreliance on a single market,” Dr Tsai said during her inauguration ceremony.

Taiwan is one of the most China-dependent economies in the world. More than 40 per cent of its exports go to mainland China. The island country is also one of the largest foreign investors in China.

In the months leading up to the new president’s inauguration, the Chinese authorities exerted economic pressures on Taiwan through reducing demands for key agricultural export products such as pineapples and turtle eggs.

The number of Chinese tourists visiting Taiwan also dropped considerably. The island’s tour operators have been voicing their concerns openly to the new government. Last year, more than four million tourists from China visited Taiwan.

Rong-I Wu, chairman of Taiwan Brain Trust, an influential and pro-government think tank, says one of the key reasons behind Taiwan’s recent sluggish economic performance is the slowdown in mainland China.

“Taiwan’s economy is too reliant on China. More than 40 per cent of our market is in China. The reduced Chinese demand has an adverse impact on our economy. The goal of Beijing’s industrial policy is also aimed at substituting Taiwanese imports with domestically produced goods,” Dr Wu, a former vice premier, told The Australian.

“Overreliance on one single market is very dangerous. We want to strengthen our relations with other developed economies and we want to diversify our risk,” he said.

Like Malcolm Turnbull, Taiwan’s new President also wants to focus on innovation. “We will prioritise our plans to promote five major innovative industries, with the goal of reshaping Taiwan’s global competitiveness,” she said.

However, Dr Wu, a former chairman of Taiwan stock and futures exchanges, said developing an innovation-led economy would not be easy. “Many countries are talking about innovation. In the past, we had relatively strong economic growth and our business sector didn’t think innovation was that important,” he said.

“But we are facing real economic headwind now. The new government must allocate more of its budget on things such as innovation, education, training, research and development.” Taiwan was one of the so-called four Asian tiger economies (along with Singapore, South Korea and Hong Kong). However, in recent decades, its economic performance has been lagging behind its Asian competitors, especially South Korea and Singapore.

Under the previous Ma Ying-Jeou administration, it regarded developing economic ties with China as its most important economic as well as political priority. The cross-straits relations strengthened considerably under the former president, who had a historic meeting with Chinese President Xi Jinping last year.

However, the new pro-independence government under Dr Tsai wants to move away from the China-centric policy. She wants to distance relations from Beijing. The Chinese government regards Taiwan as a breakaway province and insists on a policy of eventual reunification.

The Taiwanese government refused to accept Beijing’s tenet of “One China” while acknowledging the political necessity of not upsetting its powerful neighbour.

Dr Tsai has adopted a strategy of saying she respects the status quo without committing to the 1992 Consensus, which says there is one China, and both the mainland and Taiwan can interpret it in whatever way suits their needs.

 

Peter Cai is a research fellow at Lowy Institute for International Policy