China and Taiwan mix and match

Building Brics: Relations between the two countries have become positively toasty as tourists from the mainland flock to the island to spend their new-found wealth. This era of economic togetherness is providing the area with growing benefits.
Up to 2.8 million tourists from mainland China are expected to visit Taiwan this year as Beijing relaxes its travel restrictions. Maurice Tsai / Bloomberg News
Up to 2.8 million tourists from mainland China are expected to visit Taiwan this year as Beijing relaxes its travel restrictions. Maurice Tsai / Bloomberg News

Four years ago, 300,000 tourists from mainland China visited Taiwan, the island the Chinese authorities regard as a renegade province.

Many of those visitors took the lift up to the top of the Taipei 101 tower, once the world's tallest building, while others shopped until they dropped in the capital's luxury stores or enjoyed a culture-fest during a round-island tour.

"The physical presence of mainland tourists delivers a message to the Taiwan people that the economic relationship with the mainland is good for Taiwan," says Zhang Baohui, an associate professor of political science at Lingnan University in Hong Kong who specialises in Taiwan-China relations.

The Swiss bank UBS has predicted the figure this year will be 2.3 million arrivals, more than seven times as many as in 2008, when mainland holidaymakers were first allowed to go to the island after the China-friendly Ma Ying-jeou was elected the Taiwanese president.

There are few more vivid illustrations of how Taiwan and China are becoming ever more commercially interconnected than this large-scale human migration, albeit temporary, across the Taiwan Strait.

Tourist numbers are likely to increase further as it was announced recently residents of certain Chinese cities would be allowed to travel independently to Taiwan, not just in tour groups as is the case now.

Given Taiwan's economy, the world's 24th-largest last year, contracted 0.2 per cent from April to June this year, the growth in revenues from tourism is particularly welcome. Reports last month indicated services sectors such as retail, restaurants and hotels created almost half the 77,600 new jobs generated in the island in the first six months of the year and the tourism boom was no doubt a major factor.

These statistics could help sway the argument in favour of a further deepening of economic links in a country where concerns sovereignty could be compromised are never far away.

"When mainland tourists come to Taiwan, [Taiwanese people] see they have these people buying this, buying that, coming to restaurants, so the benefits of the economic relationship become more concrete," says Mr Zhang.

While the growth in tourism is highly visible, it represents just one among many ways in which commercial links between China and Taiwan are deepening.

Mr Ma, who heads the nationalist Kuomintang party, which ran much of mainland China for two decades before retreating to Taiwan in 1949 during the civil war with the communists, oversaw the signing of 16 trade agreements with the mainland during his four-year first term.

In January, he won another four-year mandate.

Last year, bilateral trade was reportedly more than US$100 billion (Dh367.31bn), although some estimates have suggested the figure is much higher. About 40 per cent of Taiwan's exports go to China and 70 per cent of these are components assembled into finished products in factories in the mainland owned by business from the island. This reflects the huge importance of Taiwanese investment in China's economic miracle.

"Mainland China plays a key role in Taiwan's growth; these two regions have been increasingly integrated," says Ren Xianfang, a senior analyst based in Beijing with IHS Global Insight.

"Trade with Taiwan has been a very good indicator for forecasting Chinese exports. That shows Taiwan plays a huge role in China's export sector."

That Taiwan's economy has been struggling this year is an indicator China's export sector is also "pretty weak". Although more than a dozen agreements have already been signed, there are further areas in which China and Taiwan are looking to strengthen cooperation, notably in investment protection.

Yet, for the island to really benefit economically from its warmer relations with China, it will have to secure free-trade agreements with countries other than just its supersized neighbour.

Until now, the way Beijing has isolated the island - Taipei has diplomatic relations with just 23 nations - has prevented this since the Chinese government does not recognise the island as a state.

As reward for the way Mr Ma has allowed the island to deepen economic ties with the mainland, China appears to be taking a relaxed view about Taiwan's efforts to secure free-trade agreements with Singapore and New Zealand.

"I have not heard of Beijing raising any objection to [the Singapore agreement]. I think it should be OK," says Mr Zhang. "I think Beijing has decided to give Taiwan room."

The former Taiwanese vice president Lien Chan says the Singaporean prime minister Lee Hsien Loong told him at the Asia-Pacific Economic Cooperation summit in Russia earlier this month the agreement, under discussion since 2010, was likely to be completed this year.

Mr Lien says he hopes China will let the island secure more such accords.

"We hope mainland China can give its blessings and assistance."

For Taiwan, it is vital this happens as its principal economic rival, South Korea, has found it much easier to make these deals.

Free-trade agreements signed by South Korea cover countries and regions including the European Union, the United States and the 10-member Association of South East Asian Nations bloc.

Perhaps of greatest concern to Taiwan is the proposed free-trade zone that would encompass China, South Korea and Japan.

This would erode the modest advantage Taiwan has over South Korea when it comes to exporting high-tech goods to China. For both Taiwan and South Korea these sectors are crucially important and the Taiwanese authorities have made it clear how seriously they take the proposals. Today, South Korea accounts for 9 per cent of China's imports and Taiwan 7 per cent.

"Once it's created, it will become the world's third-largest economic zone behind the US and the European Union," Chen Ming-shy, the deputy director of the foreign trade bureau, said this year.

"It will definitely affect our exports because China is our top export market. Japan supplies our high-tech manufacturing sectors and Korea is our main trade competitor."

He went on to warn how competition with South Korea was "already very severe" in sectors such as electronics and IT.

South Korea and Taiwan have strong microchip industries and for both countries, China itself is the key export market.

So, given the challenges the trilateral China, South Korea and Japan trade accord would pose, it is no wonder Taiwan is working to forge other free-trade deals - just as long as China does not object.

Published: September 17, 2012 04:00 AM


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