Cross-Strait Economic and Trade Relations: A Virtuous Circle
China Times editorial (Taipei, Taiwan, ROC)
March 12, 2012
Summary: The presidential election was troubled and uncertain. Everything was put on on hold over the Chinese New Year. The pace slowed, even the pace of cross-Strait economic and trade exchanges and liberalization. Only in March did it finally pick up again. We hope the two sides can now relate to each other with increased good faith. We hope this will lead to increased cross-Strait economic prosperity. Greater openness and freer exchanges will lead to greater cross-Strait economic synergy.
Full Text below:
The presidential election was troubled and uncertain. Everything was put on on hold over the Chinese New Year. The pace slowed, even the pace of cross-Strait economic and trade exchanges and liberalization. Only in March did it finally pick up again. We hope the two sides can now relate to each other with increased good faith. We hope this will lead to increased cross-Strait economic prosperity. Greater openness and freer exchanges will lead to greater cross-Strait economic synergy.
The Mainland recently convened two conferences. Beijing's Minister of Commerce Chen Deming said, "This year the scope of ECFA early harvest tariff reductions will be expanded. More products from Taiwan, especially agricultural products, may be sold on the Mainland." He hopes that following ECFA, substantial progress can be made in trade in services and trade in goods. He also stressed the signing of the cross-Strait insurance agreement. "We are very happy to see more Mainland enterprises invest on Taiwan... and cross-Strait economic and trade relations make more progress. This is something we very much hope to see."
The FSC will enable banks from Taiwan to open branches on the Mainland ahead of schedule. It will enable banks from the Mainland to make limited investments in financial institutions on Taiwan. The Ministry of Economic Affairs is making plans for a third wave of Mainland investments. These include flat panels, semiconductors, and other "critical industries." The investment caps on Mainland capital will be raised. Assessments will soon be complete. An agreement will probably be announced this month.
This year the global economic situation remains volatile. In particular, the European economy has gone into recession. The U.S. economic recovery remains tentative and weak. The cross-Strait economic situation faces its own challenges. Mainland economic growth will slow this year. Can the Mainland really guarantee an 8% growth rate? Officials have voluntarily lowered the target to 7.5%. Mainland economic restructuring remains in its infancy. Asset bubbles are still being dealt with. Taiwan depends primarily on technology exports. The economies of Europe and the United States are weaker. This is exerting downward pressure on markets. South Korean companies are offering strong competition in DRAM, LCD, LED smart phones and other technology products. The financial sector on Taiwan has long been trapped within a narrow "Red Sea" market. It is under intense pressure to expand. The two sides must open up instead of guarding against everything under the sun. Opening up would enable closer cross-Strait economic and industry cooperation, and a more complementary division of labor. It would considerably enhance the quality of the cross-Strait economy and industry.
The LCD industry is a clear example. Taiwan's main competitor in the LCD industry is South Korea. Frankly, South Korea's Samsung, LG, and other manufacturers lead Taiwan brands in technology. They have stronger branding. At this stage they clearly have the upper hand. But companies from Taiwan are putting up a good fight with South Korean companies in the Mainland market. The main reason is cross-Strait cooperation. Mainland home appliance companies procured their flat panels from Taiwan. Mainland panel makers have gradually increased their own production capacity. But panel makers on Taiwan continue to hold the lead, both in technology and capacity. The two sides should cooperate, purchase each others' shares, invest in new factories, and adopt a more open attitude in general. Doing so would benefit both sides. Together they could resist South Korea. The 3/11 Earthquake reduced panel production on Japan. The South Korean media predicted that the future of the LCD industry would be a "contest between Greater China and South Korea."
The Ma administration took office in 2008. The cross-Strait economy became far more open than it was under Democratic Progressive Party rule. Nevertheless, the government was still fearful. This was true for most industries, including the financial sector. The government was overly cautious and restrictive regarding Mainland investments on Taiwan, and Taiwan investments on the Mainland. The result was one missed opportunity after another. For example, the Mainland authorities held open plant licenses for Taiwan companies. But the Ministry of Economic Affairs hemmed and hawed. As a result South Korea's Samsung and LG received approval first. The Ministry of Economic Affairs' policy of approving only obsolescent technology investments for the Mainland is totally wrong. It fails to take into account global competition and vendor concerns. It fails to take into account other countries' introduction of technology to the Mainland. Just what technology constitues core technology? Just what technology must be retained? Just what technology can we afford to let go of? Vendors know far better than the government. They have a greater sense of proportion. Improper government restrictions have stifled domestic competitiveness. Too often Taiwan companies have been forced to sit and watch as they lost market share. Examples include the petrochemical industry, automobile industry, semiconductor industry, LCD manufacturing industry, and financial industry. Ironically, the industries the government did not attach much importance to, such as the food industry, the furniture industry, affiliate marketing industry, were lucky enough to escape government restrictions. These bore fruit on the Mainland. Taiwan's small businesses aided the growth of the Mainland's big businesses.
We now look to the coming year. Cross-Strait relations affect cross-Strait insurance agreements and follow-up negotiations on the ECFA early harvest list. We hope these can be completed as soon as possible. They will enable deeper and more systematic cross-Strait economic relations, investments, industrial cooperation, and exchanges. They will enable more open-mindedness outside the system. We hope the two sides will be more open-minded about the technology industry, as well as traditional industries such as the petrochemical industry, naphtha cracking industry, and financial industry. Accelerate the magntitude and pace of liberalization. Allow the two sides to survive the global economic downturn together. Improve the health of the cross-Strait economic and industrial system.