Current CrossStrait Economic and Trade Relations

1
Current Cross-Strait Economic and Trade Relations

David W.F. Huang Mainland Affairs Council,
Executive Yuan June 9, 2006
2
Overview

• I. Cross-Strait Economic and Trade Trends
• II. Taiwans Economic and Trade
• Liberalization Measures toward China
• III. Direction of Cross-Strait Economic
• and Trade Promotion
• V. Conclusion

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I. Cross-Strait Economic and Trade Trends
4
Cross-Strait Trade
71.70billion (16.3)
61.64billion (33.1)
In hundred million US dollars
46.32billion (23.8)
37.41billion (24.9)
37.41billion (24.9)
In 2004, the total amount of cross-strait trade
increased by 33.1 to US61.64 billion. In
2005, the total amount of cross-strait trade
increased by 16.3 to US71.70 billion.
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Taiwans Trade Dependence on China

In 2005, China consumed 27.3 of Taiwans
exports (37.8 incl. H.K.).
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Taiwans Investment in China
6.94billion (51.1)
6.01billion (-13.4)
4.59billion (19.1)
In million US dollars
3.86billion (38.6)
In 2005, accumulated approved investment from
Taiwan to China totaled US6.01 billion,
down13.4 from the same period in 2004. As of
Dec. 2005, Taiwans accumulated approved
investment in China totaled US47.26 billion.
7
Taiwans Investment in China as a Proportion of
Taiwans GDP
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Taiwans Investment in China by Industry
9
Taiwans Global Investment by Region
1991Dec. 2005
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Inbound Investment to China by Country
(Negotiated Amount)
1991Dec. 2005
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Asian Countries commodity differentiation from
Chinas commodity sold in the US Market

• 1990 1995
  2000 2003
• Japan 96.8 91.5
  83.8 78.1
• S. Korea 75.2 71.6
  62.7 59.1
• Taiwan 72.5 59.8
  50.5 31.2
• Singapore 85.3 80.8
  65.2 59.9
• Indonesia 51.5 40.3
  32.0 33.2
• Malaysia 62.6 63.2
  52.7 35.0
• Philippine 58.1 54.4
  54.1 39.3
• Thailand 63.6 52.5
  44.3 30.2
• SourceEconomist, 26 March, 2005

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The Impact of China-Bound Investment on Household
Income Inequality in Taiwan
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The Impact of China-Bound Investment on
Unemployment Rate in Taiwan
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Taiwan Economys Tilt toward China

• Increasing reliance on China market reinforces
  linkages between the economies of Taiwan and
  China, heightening economic risk.
• -In the first ten months of 2005, China absolbed
  27.3 of Taiwans exports or
• 37.6 including Hong Kong.
• -As of the end of November 2005, the total amount
  of Taiwans accumulated
• China-bound investments accounted for 53.1
  of Taiwans total outward
• investments and for over 80 of Taiwans
  outward investment in the
• manufacturing sector.
• The economys tilt toward China has led to heavy
  outflows of capital, technology and talent from
  Taiwan, raising concerns for Taiwans economic
  development.
• -Several semiconductor firms, including SMIC,
  Grace, and Hejian, have invested
• illegally in China.
• -There has been a heavy outflow of core
  agricultural technology, new crop strains
• and seedlings from Taiwan to China.
• Structural unemployment
• -Exodus of industries have raised Taiwans
  unemployment rate to 45 in recent
• years.

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Elements of ChinasUnited-Front Tactics

• Using economic ties to promote unification and
  using businesses to hedge in the political
  authorities have been the consistent thought
  behind Chinas united-front tactics against
  Taiwan.
• Since China passed its anti-separation law,
  Beijings carrot-and-stick strategy against
  Taiwan has become even more pronounced. The
  strategy lies in hardening its hard-line tactics
  while softening its soft-line tactics.
• China has recently sought to cozy up to the
  opposition parties in Taiwan, and it has issued a
  series of proposals on cross-strait economic and
  trade liberalization, such as
• -Introduction of regular passenger charter
  flights (during holidays and festivals)
• -Expansion of Taiwans agricultural exports to
  China
• -Resumption of employing Chinas fishermen by
  Taiwan
• -Encouragement and promotion of cross-strait
  cooperation in the finance, insurance,
  transportation, and medical service industries
• -Enhancement of research and drafting of
  cross-strait IT industry standards
• -Signing of private sector agreements on the
  protection of Taiwanese investments in
• China
• -Lifting of restrictions on tourism travel from
  China to Taiwan

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Obstacles to Cross-Strait Negotiations

• Due to Chinas intentional boycotts, both sides
  have failed to engage in effective negotiations.
  This has caused some irregularities in many of
  Taiwans unilateral liberalization measures, such
  as illegal Taiwanese investment in China and
  illicit export of crop seedling and technology to
  China.
• After passing its "anti-separation law" in March
  2005, China has sought to promote cross-strait
  negotiations based on its united front tactics.
  For example, on the issue of Taiwan fruit
  exports, China has chosen the Taiwan Provincial
  Farmers Association as its counterpart for
  negotiations in an attempt to de-governmentalize
  cross-strait interactions.

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II. Taiwans Economic and Trade Liberalization
Measures toward China
18
Recent Major Economic and Trade Liberalization
Measures

• Implemented of the Mini-Three-Links in Kinmen
  and Matsu
• Expanded the function and scope of offshore
  shipping centers
• China bound investment policy shifted from "no
  haste, be patient" to proactive management with
  effective opening"
• Opened direct cross-strait trade transactions and
  expanded the scope of permitted imports from
  China
• Allowed direct cross-strait remittances and
  financial institutions to set up branches in
  China
• Allowed China to invest in Taiwans real estate
  market
• Relaxed restrictions on visits to Taiwan by
  Chinese people to engage in economic and trade
  activities
• Allowed Chinese tourists to visit Taiwan
• Measures for Freight Facilitation and Lunar New
  Year charter flights

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Cross-Strait Financial Policy

• Allowing direct cross-strait remittances
• -OBUs allowed to make direct remittances with
  financial institutions in China (Nov. 2001)
• -DBUs and Post Office allowed to handle direct
  remittances with financial institutions in China
  (Aug. 2002)
• Allowing financial service providers to open
  branches in China
• -Banks allowed to open representative offices in
  China (June 2001)
• -Insurers allowed to open representative offices
  in China insurers allowed to establish
  subsidiaries in China (Aug. 2002) and invest in
  shares (Apr. 2004)
• -Securities firms allowed to open representative
  offices and establish subsidiaries in China (Feb.
  2005)
• -Domestic financial holding companies and their
  overseas affiliates allowed to open
  representative offices in China (Mar. 2005)
• Ratio restrictions eased on offshore fund
  investment in Hong Kong H shares and Red Chip
  shares (Jan. 2005)
• Restrictions eased on the handling of remittances
  to China by domestic financial institutions (Mar.
  2005)
• RMB currency exchange introduced in Kinmen and
  Matsu on a trial basis (Oct. 2005)

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Lifting Restrictions on Imports and Investments
from China

• The Board of Foreign Trade, MOEA, conducts
  regular (semi-annual) and non-scheduled (once
  every two months) reviews of items permitted to
  be imported from China in accordance with the
  Regulations Governing Permission of Trade
  Between Taiwan Area and Mainland Area.
• As of Dec. 31, 2005, China-made products have
  been allowed to account for 79.3 of all items
  that could be imported to Taiwan.
• Investment to China is currently divided into
  general (permitted) and prohibited categories
  agreed by a special task force composed of
  industrial, official, and academic
  representatives.
• Currently, Taiwan allows investment in China in
  98.6 of all manufactured goods categories, 71.2
  of all agricultural products categories, and over
  80 of all services categories.

21
Policy on the Visit to Taiwan by Chinese People

• Lifting restrictions on visits to Taiwan by
  professionals and technological personnel from
  China
• -Technological personnel from China may apply to
  visit Taiwan for up to one year
• initially to engage in technology-related
  activities. The stay is extendable up to a
• maximum of six years.
• -Chinese professionals deployed by a
  multinational company may apply to reside
• in Taiwan for up to three years initially,
  with extensions permitted.
• -Measures have been taken to resolve difficulties
  faced by Chinese visitors in
• Taiwan prior to obtaining their work permit,
  such as buying a car, applying for a
• credit card, applying for health insurance,
  etc..
• -The government is reviewing relevant residency
  measures for mainland people who hold work visa
  to Taiwan.
• The Regulations Governing the Approval of People
  of the Mainland Area to Engage in Commercial
  Activities in Taiwan were promulgated, expanding
  the scope of commercial activities, qualified
  persons, and qualified inviting organizations for
  inviting Chinese people to engage in commercial
  activities in Taiwan.

22
Easing Restrictions on Visit to Taiwan from
Chinese People

• Since the trial implementation on Jan. 1, 2002,
  88,339 Chinese tourists have visited Taiwan as of
  the end of 2005.
• -Chinese citizens studying abroad or who have
  permanent residency status overseas (known as
  category 3 visitors) may visit Taiwan for
  tourism. (Jan. 2002)
• -Chinese citizens traveling overseas or making
  business trips overseas (category 2) may visit
  Taiwan en route for tourism. (May 2002)
• -Regulations requiring category 3 visitors from
  China to arrive and leave with a tour group are
  eased. (Feb. 2005)
• On June 13, 2005, Premier Frank Hsieh announced
  that allowing Chinese tourists to visit Taiwan
  for sightseeing will be a priority issue in
  cross-strait negotiations. In July 28, 2005, MAC
  authorized the Travel Agent Association of ROC,
  Taiwan to assist in handling liaisons and
  arrangements related to cross-strait
  negotiations.
• The government allows Chinas National Tourism
  Administration Director Shao Qiwei to lead a
  delegation to visit Taiwan. (Oct. 28Nov. 6,
  2005)

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Cross-Strait Transportation Policy

• Assessment of the Impact of Direct Cross-Strait
  Transportation provides a specific blueprint for
  direct cross-strait transportation and the
  Three-Links (Aug. 2003)
• Cross-Strait charter flight services offered
  during the Lunar New Year holidays in 2003, 2005
  and 2006. (The 2006 program is carried out from
  Jan. 20 to Feb. 13)
• Promotion of cargo charter flights (Jan. 10,
  2003, but China has not responded)
• Promotion of sea freight facilitation (May 7,
  2004)
• Taiwan airlines granted permission to fly over
  Chinas airspace (Aug. 15, 2005)
• Promotion of cargo and passenger charter flight
  negotiations
• -On June 13, 2005, Premier Frank Hsieh announced
  that cargo charter flights would be
• a priority issue for cross-strait
  negotiations. He also suggested that such talks
  follow
• the Macao model adopted for Lunar New Year
  charter flights earlier that year, which
• the Taipei Airlines Association was entrusted
  to assist with liaison and arrangements
• related to cross-strait negotiations.
• -On Aug. 3, 2005, Premier Frank Hsieh announced
  that negotiations on passenger and cargo charter
  flights may proceed simultaneously. He also notes
  that Taiwan is actively engaged in liaison and
  communication with China on this issue.

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III. Direction of Cross-Strait Economic and
TradePromotion
25

• Promoting a policy of proactive management and
  effective liberalization"
• Actively formulating accompanying measures for
  managing cross-strait economic and trade issues
• -Establishing objectives and mechanisms for
  managing economic and trade
• issues, including economic, agricultural,
  financial and personnel exchanges, as
• well as Mini-Three-Links, transportation
  and others and upgrading management
• capacity to create more room for further
  liberalization through proactive
• management.
• Promoting cross-strait economic and trade
  negotiations continually to enhance management
  efficiency
• -Establishing an effective management mechanism
  for cross-strait
• economic and trade issues through pragmatic
  negotiations, and
• implementing liberalization policies in a
  sequential and ordered way.
• Enhancing promotion of economic globalization
  and internationalization strategies
• -Enhancing the promotion of an overall economic
  development strategy
• based on deeply cultivating Taiwan while
  reaching out to the world and
• on the basis of globalization, liberalizing
  cross-strait economic and trade
• policies that can effectively reduce overall
  risk.

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Issues need to be negotiated
 
Personal security
 
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V. Conclusion
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• In response to the new situation created by
  Chinas passage of the "anti-separation law," the
  Taiwanese government will continue to work toward
  cross-strait peace and development, and promote
  cross-strait reconciliation, consultations,
  mutual benefit and coexistence. With regard to
  cross-strait interactions, the government will
  not only highlight the competitive advantages of
  Taiwan as a democratic and open society, but it
  will also make efforts to preserve the
  development of Taiwans national identity.
• Facing the increasingly hard-line and rigid
  position and nature of Chinas Taiwan policy,
  proactive management and effective
  liberalization" represents the new mindset and
  course of action for Taiwans future cross-strait
  economic and trade policies. The governments
  cross-strait economic and trade policies must
  consider the greatest benefits of Taiwan.
  Taiwans sustainable growth is our long-term
  commitment. In terms of long-term development of
  cross-strait relations, the government will still
  actively promote pragmatic negotiations with the
  hope of ushering in a new epoch of cross-strait
  negotiations and dialogue.

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• Thank You!