Hosted by the Foundation of Pacific Basin Financial

1
The Taiwanese Economy and Cross-strait Relations

The 19th Annual Conference on Pacific Basin
Finance, Economics, Accounting,and Management

• Hosted by the Foundation of Pacific Basin
  Financial
• Research and Development

Rong-I Wu Chairman Taiwan Brain Trust
July 9, 2011
2
The Taiwanese Economy and Cross-strait Relations

• Introduction
• Changes in the Taiwanese Economy since the 1980s

Table 1 Major Economic Indicators for Taiwan
(1980-2010)
    1980-1989 1990-1999 2000-2010
GDP growth rate GDP growth rate 7.70 6.35 4.10
Private consumption growth rate Private consumption growth rate 7.71 7.29 2.49
Government expenditure growth rate Government expenditure growth rate 7.32 4.14 1.09
Fixed capital formation growth rate Fixed capital formation growth rate 8.09 7.56 0.70
Exports growth rate Exports growth rate 11.62 7.54 8.48
Imports growth rate Imports growth rate 10.73 8.27 4.94
Exports to China growth rate Exports to China growth rate   16.21 14.32
Investment in China (annual average in US1 million) Investment in China (annual average in US1 million)   1,611 7,530
Unemployment rate Unemployment rate 2.069 2.042 4.483
Real wages growth rate Manufacturing industry 6.79 3.91 0.20
Real wages growth rate Service industry 6.66 3.40 -0.40
Average per capita income Amount (US) 3,734 10,781 13,959
Average per capita income Growth rate 15.22 4.95 2.90
Source DGBAS, Executive Yuan Ministry of
Finance statistics Investment Commission, MOEA
3
The Taiwanese Economy and Cross-strait Relations
III. Changes in the Governments Policy of
Economic Opening Toward China
1.On July 15, 1987, the government lifted the
Martial Law for Taiwan Province that
had been imposed for 38 years. The same year
the government opened up direct imports
of selected agricultural raw materials from
China, which kicked off some sporadic
trade (such as ingredients for traditional
Chinese medicine). 2.In 1988 China
promulgated a law that encouraged Taiwanese
entrepreneurs to invest in China.
Subsequently the Taiwanese government permitted
Taiwanese businessmen to conduct
indirect trade and investment with China, but
cross-strait economic and trade
relations were still tightly controlled.
3.During an orientation phase between 1990 and
1996 the government essentially
maintained its original strict control over
cross-strait trade contacts.
4
The Taiwanese Economy and Cross-strait Relations
4.During the 1996-2000 period then President
Lee Teng-hui adopted a no haste, be
patient policy that still maintained strict
restrictions. 5.Under the active opening,
effective management policy during the 2001-2008
period the original restrictions were
greatly relaxed. In 2006 the policy changed
to active management, effective opening, with
the goal of strengthening the management
of cross-strait trade liberalization, but the
effects of the new policy were limited.
6.In May 2008 the stage of massive opening
under the Ma government began.
5
The Taiwanese Economy and Cross-strait Relations

IV. The Economic Reasons Behind Soaring Taiwanese
Investment in China 1.Changes
in the Economic Environment Favor Overseas
Investment 2. The Effects of the
Core-Periphery Model
6
The Taiwanese Economy and Cross-strait Relations
3.International Comparison of Foreign Direct
Investment (FDI)
Table 2 Cumulative Inward and Outward FDI as
Share of GDP Unit
  1990 1990 2000 2000 2009 2009
  Inflow Outflow Inflow Outflow Inflow Outflow
Worldwide 9.8 10.0 23.3 25.2 30.7 33.2
Developed nations 9.0 11.2 23.0 28.8 31.5 40.8
Developing nations 13.6 4.1 25.0 12.0 29.1 16.5
United States 9.3 12.6 28.5 27.6 21.9 30.2
Japan 0.3 6.7 1.1 6.0 3.9 14.6
South Korea 2.0 0.9 7.1 5.0 13.3 13.9
Taiwan 5.9 18.4 6.0 20.4 12.7 47.8
Source World Investment Report 2010, UNCTAD
7
The Taiwanese Economy and Cross-strait Relations
4. An Assessment of ECFA
8
The Taiwanese Economy and Cross-strait Relations
V. Taiwans Counter Strategy 1.we need to
transform economic and trade relations between
Taiwan and China into trade between
countries and adopt concrete investment and trade
policies to extricate ourselves from our
reliance on China. 2.Therefore our counter
policy must be dissolving the bilateral regional
trade relationship with China as the core
and Taiwan as the periphery. 3.In order to
prevent a negative impact from possible economic
instability or social unrest in China, we
should adopt risk diversification and prevention
measures. Accordingly we need to take
safeguards beforehand with regard to
spreading risk from an overconcentration of
exports and investment.
9
The Taiwanese Economy and Cross-strait Relations
VI. Concrete Policies   1.Principle of
autonomy Industry must not excessively rely on
the Chinese market alone. Our future
development direction must be using autonomy in
innovation and technology to reach the
goal of industrial autonomy. 2.Principle of
sustainable development ECFA only benefits
specific industries and causes
industrial hollowing out, rendering sustainable
development impossible.
10
The Taiwanese Economy and Cross-strait Relations
  3.Principle of normalizing cross-strait
relations We hope that China will be able
to understand that cross-strait relations can
only be normalized if it renounces the
threat of military force. In the past Taiwanese
investors have poured tens of billions of
U.S. dollars into the Chinese economy. They have
helped Chinas industrial development,
created a large number of jobs, transferred
business management skills and production
technology to China and even provided export
markets for Chinese products which allowed
China to earn a huge amount of foreign currency.
Taiwanese investors have made important
contributions to and have been a major force
behind the economic development that China
enjoys today. China should not bite the hand
that feeds it. Cross-strait confrontation is not
only detrimental to stable economic
development in Taiwan and China, but also
negatively affects peace in the Asia-Pacific
region.
11
The Taiwanese Economy and Cross-strait Relations
  4. WTO principle Since Taiwan and China
are both WTO members, cross-strait
trade normalization should be negotiated under
WTO rules. The two sides need also to
sit down to discuss whether ECFA complies with
WTO regulations. 5. Repatriating
earnings from overseas investment A high ratio
of Taiwanese companies invest overseas.
Not only does the government provide business
friendly tax benefits, other factors in the
domestic investment environment such as
talent, financing, and capital markets all
contribute in a positive way. Businesses
should therefore repatriate overseas income and
share it with the Taiwanese people, thus
fulfilling their social responsibility.
12
The Taiwanese Economy and Cross-strait Relations
VII. Conclusion
13
Figure 1. Growth Rate of Private consumption

3.65
Source DGBAS , Executive Yuan , TAIWAN
14
Figure 2. Growth Rate of Fixed Capital Formation

23.44
-11.01
Source DGBAS , Executive Yuan , TAIWAN
15
Figure 3. Taiwans Unemployment Rate and
Investment Amount in China
Value(UnitUS billion)
Source Council of Labor Affairs(CLA),Executive
Yuan Investment Commission,MOEA,TAIWAN
16
Figure 4. Taiwans Unemployment Rate and Number
of Unemployed Persons

1,000 people
577
5.21
Source CLA , Executive Yuan , TAIWAN
17
Figure 5. Taiwans Real Wages and Growth Rate
New Taiwan Dollar(NT)
Growth Rate
7.3
3.1
-8.4
Source Directorate-General of Budget ,
Accounting and Statistics(DGBAS),Executive Yuan
, TAIWAN
18
Figure 6. The value and of Taiwans Exports to
China
US billion

115
42
Source Bureau of Foreign Trade, MOEA,TAIWAN
19
Thank You !