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Yih-Chyi Chuang - Cross-strait economic relations in retrospective and prospective

Since the lift of Martial Law in 1987, Taiwan started to contact with Mainland China after nearly forty years of separation ...

... across the Taiwan Strait mainly due to political conflict. In the mid 1980s, due to sharp appreciation of NTD, increase in labor cost, surge of environmental protection, and difficulty in land acquisition, Taiwan began to engage in foreign direct investment looking for low cost production in Southeast Asia. Then, the mitigation of political tension across strait in late 1980s facilitated Taiwan’s FDI in Mainland China mainly because of common language and similar culture background advantage aside from cheap labor. The existence of complementarities among various industries, ICT industry in particular, accelerated the trade-induced investment across the strait in the 1990s. The accumulated outward foreign investment from Taiwan to Mainland China amounted to 150 billions and generated more than ten times the volume of trade across strait. By the time Mainland China and Taiwan separately joining the WTO in the late 2001 and the early 2002, Mainland China had become the largest trading partner of Taiwan surpassing the US. Now Taiwan’s exports to Mainland China (including Hong Kong) is approximately 40% of its total exports.

However, as Mainland China developed its domestic economy and formed its own domestic supply chain China’s imports from Taiwan started to decline either by domestic Chinese firms or Taiwanese subsidiaries in China. From then on, the cross-strait economic relationship gradually shifted from vertical to horizontal division of labor and from cooperation-oriented to competition-oriented perspective. At the moment, both Taiwan and Mainland China had entered the development stage of requiring further upgrading of industrial structure toward service-oriented and innovation-driven rather than traditional resource-based or capital-driven growth trajectory. Taiwan is a small and open economy and Mainland China needs to be more actively participate in global market through its going-out strategy, there are thus rooms for both parties to cooperate for upgrading technology and serving the third markets, either via regional economic integration such as ECFA and RCEP or FTAAP and the One Belt and One Road initiatives. 

It should be noted that the status quo stability and peaceful development across the strait has a common political base of the so-called “The 1992 Consensus” admitted by CCP and KMT. However, after May 20, 2016 the new Taiwanese government led by pro-independent DPP is going to challenge the existing political base and thus may jeopardize the status quo cross-straits relations. It should be clear that the new DPP government will adopt the diplomatic strategy that leans toward the U.S. and Japan while departs from China. For example, Joining TPP as the top priority and downplaying RCEP. How will Taiwan balance its relationships with Mainland China and the U.S.? Despite the 1992 Consensus, how will new Taiwanese government led by Ms. Tsai Ing-wen meet Mainland China’s “One China Principle”? This should be the most critical challenge to the new Taiwanese leader, as it will definitely affect Taiwan’s global economic position and thus its future development. The result, of cause, relies on the wisdom of the leaders on both sides across the strait.

Vienna Center for Taiwan Studies

Department of East Asian Studies
University of Vienna
AAKH-Campus, Hof 2, Entrance 2.3
Spitalgasse 2
1090 Vienna Austria

Contact: Astrid Lipinsky
T: +43-1-4277-43844
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Lastupdate: 21.03.2015 - 00:36