Beijing's leverage over Taiwan

raymondusa

Taiwan is heavily dependent on China.  Some would even say Taiwan has an unhealthy reliance on China.  It is currently exporting about 37% of total exports to China, with USA a distant second at 15%.  Taiwan is only importing about 12% from China.

However, China is not dependent on Taiwan.  Here are the numbers for 2004, as 2005 is not available yet.  China exported to US 21%, Japan 12.4%, South Korea 5%, Germany 4% of total exports.  Another words, exports to Taiwan were so small that it didn’t even show up in the export distributions.  Import for 2004 was Japan 17%, Taiwan 12%, South Korea 11%, US 8%, Germany 5.4% of total.

This makes sense because China is already the third largest economy (PPP) in the world.  What is huge trade to Taiwan is relatively small to a much larger economy like China.  The relative size difference is the reason China has leverage over Taiwan.
  
Upon closer examination, the 12% imports from Taiwan include both goods and services.  China does import from Taiwan, high tech and other services mainly via Hong Kong.  If you only count the goods, the import number is actually less than 12%.   China does benefit from high tech via Taiwan, but Taiwan is clearly not the best in high tech.  Japan and South Korea have a well deserved reputation for being the most high tech countries and China can do better with those two countries (trade, learn the new technologies, creating the manufacturing infrastructure to make the high tech products and services, etc.)  Therefore, China can certainly go elsewhere to get the high tech help, and offer as an incentive, access to its huge domestic market, and I think it’s a safe bet it will have no problems finding help around the world.  Looking at the trade distributions (both imports and exports) its clear that while China do benefit from high tech trade with Taiwan, it has other avenues to replace it if necessary.   Imagine a China import trade distribution like this:  Japan 18%, South Korea 13%, US 10%, Germany 8%, and Taiwan 6%.  If China wants to add India into the mix and import say 4%, then Taiwan can even get less than 6%.  Since some people are emphasizing high tech, it is smart for China to work with the best, and most high tech countries, namely Japan and South Korea.  

I am mindful that China is a manufacturing juggernaut, and I haven’t even mentioned manufacturing durable goods.  When you factor that into the mix, well you should be smart enough to get the picture!  

If that is not enough leverage for you, how about financial leverage.  China is on pace to have the largest currency reserve in the world.  If you count currency swaps, it is essentially equal to Japan and most likely overtake Japan this year.  What does that mean?  China has enough financial liquidity to move interest rates, and move markets as we saw last July.  Furthermore, it’s basic finance that those who have savings (China’s liquidity) have leverage over those who have large debts, as China is a world lender.  As Taiwan’s debts increase, it is more vulnerable to lost of financing!  

Lastly, China can also influence other countries not to do business with Taiwan should it threaten independence, because they can cut off access to China’s markets.  That is a large penalty that China can use to maintain the regional dynamics.  If you look at how the Taiwanese businesses reacted after CSB’s New Year’s speech, and the internal discord (four premier and counting), and the fact that the legislature is making CSB a lame duck, despite his efforts to counter it, the smart Taiwanese people clearly understand what is practically at stake!  All the political rhetoric and ideology doesn’t change that.  As I wrote before, practical reality trumps political ideology, as we are see more and more examples of just that!

[ Last edited by raymondusa at 2006-3-26 09:19 PM ]

raymondusa

All this talk about Taiwan independence and yet, when confronted by the numbers, and very real issues that reflect the political and economic dynamics of the region and the world, their silence tells me they don’t have an intelligent factual retort!  Talk is cheap!  Rhetoric is cheaper!  Political ideology is cheapest, especially when people have real responsibilities and must face the real world, with real issues, real practical problems, and make practical tradeoffs!

cuihaoying

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cuihaoying

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twchinese

raymond, i agree to the fact that taiwan's economy is growingly dependent on china, based on the export statistics. the argument i was making from the beginning is that china also needs the presence of these taiwanese companies for employment, management of labor, and technology transfer.

as you know, china produces more than 6 million university grads every year, and about a third of them are unemployed because there simply isn't enough companies in china to employ that many people. i'm sure you've seen how crowded those job fairs are in shengzhen and shanghai, and how many of them go home empty-handed. taiwan's net annual investment in china may seem little compared to the US, EU and Japan, but it is substantial and Taiwanese companies or Chinese companies owned by Tai-Shang do employ a huge number of people. Imagine the social chaos it would cause if all these people are suddenly laid off. Riots due to corruption and unemployment are frequent in many parts of China, even in the relatively wealthier south... these are all the signs of china's social problems, which you can't ignore. and for that very reason, china need these taiwanese companies to stay in china.

you also talked about how Japanese and Korean technologies are superior, which they are, in certain fields, and not others. for example, taiwan currently still is the world leader in the production of the smallest chips (90 nanometer technology). by 2010 china's fabs will only be able to produce 10% of the chips for its domestic market so you know where the rest of them have to come from... again it's true that the taiwan economy is dependent on china's demand, but then which one of the 4 dragons isn't? another technology is the tft flat panel, which taiwan's chimei and korea's samsung actually share (exchange) many of the key patents... the only difference is korea's samsung is much better known. and if you want to talk about tech transfer from japan, you can dream on... the japs are extra-cautious when transfering bottleneck technologies to chinese companies. the best way for china to catch up to the knowledge-based competition is to attract more Hai-Gui's, like those Qinhua and Beida engineers who got their PhDs in the US. China's Dopod is the best example of what chinese people can achieve when they actually choose to come home and not become white people's lab rats.

raymondusa

twchinese:

That was a reasonably fair posting.  I think it is pretty clear that Taiwan needs China to survive economically.  When I write about soft power, and cutting trade, that is really a last resort situation where China is out of diplomatic options.  It’s something to do reactively and reluctantly as a last resort, and is still better than using hard power, or military options.  

Unlike others that talk political ideology, I rather focus on what can realistically give us peace in the region so everyone can prosper together.  Taiwan should realize the interlopers are using it as a proxy to undermine China, and truly don’t care about democratizing Taiwan (just look at the interlopers' hypocritical foreign policies around the world in undermining and overthrowing democratically elected governments).  

The recent voting in Taiwan showed me Taiwanese are smart practical people, as they created executive and legislative gridlock, to maintain status quo for now.  I cannot argue with the wisdom and timing of such actions, since I too, feel that is best for now.

iluv2fish

"and not become white people's lab rats."

..or computer rats, or medical rats or...you get the point.

You must ask yourself why, with all that is good in China....no one wants to go there. Now I
do not mean "no one" but many people, for some reason (you are smart and can figure this
out), ...do not want to like under the Chinese system.

I understand you are good and honest people. You Chinese are hard working and family
people. I think the reason you are having a brain drain is not because of the Chinese people
but because your Chinese government.

Figure out why. Ask around...do some research and maybe just maybe, if you are nice...
Taiwan may help you find the answer.