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Taiwan’s trade link with China set to grow

Financial Times

Taiwan’s trade link with China set to grow

By Robin Kwong and David Pilling in Taipei

7 March 2011

Taiwan is only “a quarter to a third” of the way through opening its economy to the Chinese mainland, President Ma Ying-jeou has said, indicating that he intends to expand greatly a free-trade deal that Taiwan’s opposition says has already gone too far.

Mr Ma told the Financial Times: “There is still much work to be done.”

He added – in a sop to those who fear deeper economic integration could lead to political concessions – that there was “no pressing need to deal with political issues”.

His words are likely to please international investors, who have benefited from Taiwan’s rapid economic and stock-market rebound from the global financial crisis.

The recovery is partly the result of closer integration with the mainland. Taiwan’s economy grew 10 per cent last year after shrinking 1.9 per cent in 2009.

However, Mr Ma’s remarks will not reassure Taiwan’s opposition, which argues that the self-governed island is too reliant on a China that claims Taiwan as a province. The mainland accounts for 40 per cent of Taiwan’s exports, while Taiwanese companies have invested at least $200bn in the mainland.

Mr Ma’s government has substantially liberalised trade and investment across the Taiwan Strait since he was elected three years ago on a platform of mending fences with the mainland.

Taipei and Beijing began cutting import tariffs this year on more than 700 categories of goods and services after signing a trade deal in June.

In a further step to open up Taiwan, mainland investors will be allowed to take stakes of up to 10 per cent in Taiwan’s technology companies.

Mr Ma said that, in addition to cutting tariffs on more items, the two sides needed to negotiate an investment-protection and dispute-settlement agreement.

Of the decision to go further with economic integration, he said: “We must courageously face the fact of mainland China’s rise and calmly respond.”

The president strongly hinted at other forms of economic co-operation with China, such as in the technology and green energy sectors, where he said there was “much room for bilateral co-operation”.

Given Taiwan’s technological prowess and the scale of the mainland market, any such action could have a big impact on emerging industrial sectors, such as solar technology.

The opposition Democratic Progressive party said dealing directly with China, rather than through the multilateral framework of the World Trade Organisation, left Taiwan exposed to Beijing’s “political ambitions” over the island.

The DPP said Beijing’s long-term aim was to make Taiwan so dependent on the mainland economically that unification became a fait accompli.

Mr Ma said Taiwan was on China’s doorstep, making economic interdependence “an objective reality that we cannot change”.

He was fully aware of the potential risks, he said. “But, after weighing the pros and cons, we feel that we should open up . . . step by step.”