Improved Cross-Strait Relations: Key to Getting Taiwan Economy Out of Predicament

In the first year of the new century, Taiwan's economy has been getting worse everyday, its trend of decline has become increasingly conspicuous in the Asian region. According to latest statistics from Taiwan "Administrative Yuan", Taiwan's GDP growth rate in the second quarter of 2001 was -2.35 percent, and the figure for the whole year was estimated to be -0.37 percent, marking the first negative growth in Taiwan economic statistics since 1952.

IMF forecast made at the end of September showed that Taiwan's GDP in the whole year of 2001 would be even lower to -1.0 percent, the lowest annual growth rate in various Asian countries (regions). Other economic data also indicate that the Taiwanese economy is stepping into a predicament. Housing price in the Island has been continually falling for 12 years, lowering by 20-50 percent, the stock market had sunken from the highest 10888 points in 2000 to around 3500 points in late September, a 70 percent fall. This has brought a drastic reduction in the Taiwan people's stock assets and adversely affected the Island's investment and consumption, its influence on Taiwan's long-term economic development must not be underestimated.

In addition, Taiwan's unemployment rate has continued to rise for 11 months. The unemployment rate rose to 5.17 percent in August, leaving nearly 500,000 people jobless in Taiwan, this, plus recessive unemployed population, puts the number of the unemployed at 750,000, an all-time high. The bad debt problems in the Island's financial institutions has become increasingly noticeable, with the proportion rising to a dangerous degree of 13-15 percent; a first negative growth of -3.9 percent has also appeared in financial revenue over the past decade. Internal and external objective situation regarding Taiwan's economy is quite grim.

Taiwan is an economic entity heavily dependent on foreign trade, with its export accounting for 47 percent of Taiwan's GDP. Since the beginning of 2001, Taiwan's four main trade partners, with the exception of the Chinese mainland, the economic situation in the three others-the United States, Japan and EU, is worse than anticipated. Furthermore, The semi-conductor industry, which has kept Taiwan's economy at a fairly high rate of development in recent years, witnessed a considerable decline in export between January and August, a 15.3 percent drop from the same period of the previous year. Due to sluggish exportation, the industrial production index also sank by 8.26 percent from the same period last year.

In August and September, Taiwan was hit by a worst typhoon occurred once every 100 years, causing heavy losses, thus adding to Taiwan's suffering of a depressed economy.

Not long ago, in order to shake off its economic difficulties, the Taiwan authorities held an "economic development meeting" and reached a common view on 322 items. Among which, the one regarded as most important was relaxing the tie of "no haste, be patient" policy and reached consensus on relaxing control on 36 items relating to cross-Strait economic and trade relations, due to Taiwan authorities' obstructions, however, no consensus was formed on accepting the "one-China principle and the 1992 Consensus", and failure to reach consensus on this key item will cause the consensus on the 36 items concerning cross-Strait economic and trade relations to be carried out with a great discount. So people have every reason to doubt whether the Taiwan authorities have the ability to implement this already discounted consensus.

It is well known that the ever-closer cross-Strait economic relations in recent years have played an active role in stabilizing and developing Taiwan's economy. Famous Taiwan economists recently made an in-depth analysis of the contribution made by the cross-Strait economic exchanges to Taiwan's economy, pointing out that Taiwan business people's investment in the mainland has opened up the second spring for the undertakings of Taiwan business people, expanded Taiwan's exports and export surplus, increased its foreign exchange balance and job opportunities and accelerated Taiwan's economic growth, Taiwan business people have performed meritorious deeds in promoting Taiwan's economic development over the past 10 years. Related data show that in the first half of 2001, cross-Strait economic and trade volume hit US$14.4 billion, of which some US$10 billion was Taiwan's favorable balance of trade, making cross-Strait trade the only bright point in Taiwan's external trade.

The influence of economic factors inside and outside the Island are the important reasons for the emergence of problems in the Taiwan economy, but the root cause lies in the political factor. Over the past year or more since the new leader of the Taiwan authorities took office, he has thus far refused to accept the "92 Consensus" and pushed through a separatist line of "covert independence" as the core, thus causing high tension in cross-Strait relations and social turbulence on the Island, and making it impossible to create a favorable social environment for economic operation.

Since Taiwan's economic problems arose from the political level, solutions should be sought from the political angle. How to face up to the one-China principle and the "92 Consensus" is the key to stabilizing Taiwan's political situation, stabilizing cross-Strait relations, bringing about closer cross-Strait economic and trade ties and proceeding to push Taiwan's economy out of difficulties, and guaranteeing the long-term development of the Taiwanese economy.

Firstly, upholding the one-China principle is the objective requirement for cross-Strait economic development. Adhering to the one-China principle, strengthening cross-Strait economic ties and bringing about close economic mutual complementariness are a "win-win" smooth way. Viewed from the situation in the Chinese mainland, the economic strength has shot up at an average annual GDP growth rate of nearly 10 percent, this means that the huge potential of the Chinese market embracing a population of over 1 billion has begun to emerge and bring enormous opportunities for the Asia-Pacific and East Asian economies in their economic restructuring and reorganization. In a report it published the World Bank estimated that by 2020, China would possibly double its share in world trade, becoming the second largest trader in the world just behind the United States, China's GDP in the next decade is expected to hit US$3,000 billion, making it an economic power in the world. Although there were more than 50,000 Taiwan-invested projects in the mainland and its actual amount of investment exceeded US$25 billion, whereas in the same period, the number of Hong Kong-funded projects in the mainland had exceeded 172,000 enterprises, with actual investment amount reaching US$112.2 billion, accounting for 57.4 percent of total foreign investment. Compared with Hong Kong, Taiwan has its unique style in terms of economic strength, industrial structure and mutual complementariness with the Chinese mainland economy. Taiwan businessmen still have tremendous potential for investment to be made in the mainland, particularly in manufacturing industry and infrastructure construction. Strengthened cross-Strait economic ties not only helps maintain the sustained cross-Strait economic development and ease cross-Strait relations, but will also help lift East Asian economies out of the slump.

Secondly, the economic significance of adherence to the one-China principle lies in giving the investors a clear anticipation of future cross-Strait economic ties, this is the most fundamental prerequisite for protecting the investors' interests, whereas shaking future cross-Strait economic ties off and working out in its stead a so-called "opening type" will harm the interests of Taiwan business people, affect cross-Strait economic ties and development, and proceed to influence the wellbeing of the people between the two sides of the Taiwan Straits. Returning to the one-China principle and accepting the "92 Consensus" can stabilize cross-Strait relations in a normal state. A stability of cross-Strait relationship can provide a stable and secure platform for the development of cross-Strait economic and trade relations and will help peaceful reunification of the country.

Thirdly, the economic implication of the one-China principle also lies in its expression of the present and a foreseeable period after the realization of peaceful reunification of China and the return of Taiwan to the embrace of the motherland, there still exist two different economic systems in China, one is the socialist market economic system in the mainland, the other is the capitalist economic system in Taiwan, Hong Kong and Macao. Through more extensive competition and cooperation, the two sides should forge closer ties, achieve a "win-win" result and push each other's economies to a new stage, thus making them an important force for stability and development in the East-Asian and world economy.

It can be envisaged that in the early 21st century, particularly after China's entry into the WTO, China will still be one of the regions with the fastest and most dynamic economic development in the world economy. Further cross-Strait cooperation will hasten the realization of this possibility and will provide Taiwan with a favorable opportunity. Whether or not Taiwan can further deepen its economic ties with the Chinese mainland will yield important influence on Taiwan's economy.

The above is slightly extracted from the article written by Cao Xiaoheng, a staff member of the Taiwan Economic Research Institute under Nankai University.

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