GENERAL ANALYSIS OF THE ECONOMIC RELATIONS BETWEEN TAIWAN AND.doc

优秀文档，精彩无限！General Analysis of the Economic Relations between Taiwan and China- The Tradeoff between Economics and SecurityChen-yuan TungSchool of Advanced International StudiesJohns Hopkins University1308, N. Taft St., #8, Arlington, VA 22201E-mail: CTel: 703-5224051 *Paper for delivery at the 14th annual conference of the Association of Chinese Political Studies on CHINA ENTERING THE NEW MILLENNIUM in Washington, D.C. on November 6-7, 1999.Revised on 11/25/1999I. IntroductionCurrently, Taiwan and China, which are still in a state of hostility, both want to harvest the greatest benefit through economic exchange, but, at the same time also want to gain the upper hand in sovereign competition. Therefore, unequal benefit and externalities stemming from economic exchange become negotiating chips for both sides. Beijing uses economics as a bargaining chip in an attempt to win concession from Taipei on sovereignty (i.e., peaceful unification under “one country, two systems” model); Taipei, however, is willing to sacrifice economic advantage and interests for the sake of maintaining sovereign autonomy (security). However, Beijings assertive attitude and Taiwan businesses pursuit of their own economic interests makes Taipei anxious. Next to Beijing, Taipei seems passive and conservative.This paper tries to establish a model of general analysis of the economic relations between Taiwan and China, analyzing complicated economic interests, security considerations, and negotiating behavior between Taiwan and China from three dimensions: economics, security, and negotiation. From an economic perspective, due to the ongoing economic restructuring process in Taiwan, which is probably the most important one in 20 to 30 years, cross-Strait economic exchange will not only affect the distribution of economic interests (both from trade and investment) between Taiwan and China, but will also accelerate the restructuring of Taiwans internal economic system. So far, estimates of the effects of cross-Strait economic exchange remain highly controversial and uncertain among Taiwans academia and government.From a security perspective, Chinas military threat has always haunted Taiwanese. Relative to China, Taiwan is small both in political and military terms. Facing Chinas pressure to increase economic cooperation, Taiwan naturally feels insecure. More seriously, when Taipei cannot hold back the tide of economic exchange, Taiwan feels anxious and powerless. Finally, Taiwans government has adopted the so-called “no haste, be patient” policy in the hope that Taiwan will be able to control the situation of cross-Strait economic exchange and therefore reduce its psychological anxiety. According to Taiwans Economic Ministry, approved Taiwans FDI in China in 1996 was $1.2 billion and in 1997 it was $4.3 billion. From January to August 1998, it was $1.6billion, far exceeding the amount in 1996. According to Chinas statistics, the realized FDI by Taiwans entrepreneurs in 1996 was $3.5 billion, and $3.3 billion in 1997. From January to June 1998 it was $1.5 billion. Even though the decline of Taiwans FDI was very limited. Luo Qi argues that the cross-Strait economic exchange has been influenced mostly by Chinas macro economic situations and policies since 1979, instead of Beijings military exercises or Taipeis policy of “no haste, be patient”. Luo Qi, Economic Interests VS. Political Interventions: The Case of Economic Relations Between Mainland China and Taiwan (Singapore: World Scientific, 1998), EAI Occasional Paper No. 8. In addition, Taipei would like to utilize this policy to bargain with Beijing.Finally, this paper attempts to combine economic and security dimensions to construct a model for negotiation between Taiwan and China. Based on the analysis in the economic and security sections, the paper will further examine Taiwans strategy and the affects of the combination of these two forces on Taiwans overall national interests.II. Economic AnalysisLarge-scale economic exchange between Taiwan and China began in the late 1980s, and most trade was driven by Taiwans foreign direct investment (FDI) in China. Therefore, it is necessary to analyze the overall situation of Taiwans FDI and its possible impact on Taiwans economy.Not until 1987 did Taiwans government deregulate the control on foreign exchange, which led to a rapid increase in outward investment. (See Figure 1.) In the beginning, Taiwans FDI focused on the United States. But as Taiwans labor-intensive industries began to lose their comparative advantage, Taiwan firms began investing in Southeast Asian countries (SEACs) Including the Philippines, Indonesia, Thailand, Malaysia, and Vietnam. According to the Taiwanese Economic Ministrys Investment Commission, Taiwans FDI into the SEACs was 15% of Taiwans total FDI in 1987 and was 39% of total FDI at its highest point in 1991, far exceeding 16% for the United States in 1991. By the end of 1997, Taiwans accumulative FDI in the SEACs was $3.7 billion, 14% of Taiwans total FDI, exceeding $3.5 billion for the United States.Although Taiwans entrepreneurs began to invest in China in the late 1980s, Taiwans Investment Commission did not compute formal statistics until 1991. In 1991, Taiwans FDI into China was $0.17 billion according to Taiwans official figures. In 1993, it increased to nearly $3.2 billion, which was 66% of Taiwans total FDI for that year. By the end of 1997, Taiwans cumulative FDI in China was $11.2 billion, 42% of Taiwans total FDI. In a short 7 years, China became the place with the most accumulated Taiwanese FDI. Its worth noting that Taiwans FDI in both China and the SEACs amounted to 56% of the total FDI. Altogether, the United States, China, and the SEACs, accounted for 70% of Taiwans total FDI. Therefore, Taiwans FDI significantly focused in these three areas. Overall, Taiwans FDI in the late 1980s and early 1990s involved mainly small-medium labor-intensive enterprises looking for overseas manufacturing bases, most of them focusing on the SEACs and China. Wen-Chen Kuo, “The Review and Future Prospect of Taiwans Outward Investment”, Economic Outlook, No. 54, 11/5/1997, pp. 57-59.Taiwans enormous FDI outflows since 1987, however, did not provoke a significant domestic debate in Taiwan over industrial upgrading and economic development. In 1997, Taiwans FDI was $7.2 billion, bringing the cumulative total to $26.5 billion. By that year Taiwan accounted for 1.7% of cumulative world FDI. Taiwan became a big FDI home country and one of the few “developing countries” to invest outward. Nevertheless, few international studies analyzing Taiwans FDI experience were done. United Nations, Transnational Corporations from Developing Countries: Impact on Their Home Countries (New York: United Nations, 1993). United Nations, World Investment Report 1995: Transnational Corporations and Competitiveness (New York: United Nations, 1995), pp. 324-327. Until the early 1990s, because Taiwans FDI in China increased very rapidly and domestic economic restructuring generated a lot of uncertainty, various analyses of Taiwans FDI, especially in China, emerged swiftly. However, the economic effects of Taiwans FDI are still debated by Taiwans economists.Before the 1980s, the majority of FDI was conducted by developed countries. Thererfore, most international literature focuses on the effects on the developed countries (sources of FDI) and on the developing countries (recipients of FDI). As a matter of fact, the current distrust or hesitancy in Taiwan mirrors that seen in the Western countries in the 1950s, 1960s, and 1970s. For example, in the 1950s and 1960s, Europe restricted FDI because of the belief that FDI would replace domestic investment and generate an imbalance of payments. In the 1960s, there was also a vigorous debate in the United States over whether multinational enterprises would generate an imbalance of payments. In the 1970s, the focus in the United States shifted to the FDIs impacts on domestic employment. J. H. Dunning, “The Political Economy of International Production”, in Theodore H. Moran (ed.), Governments and Transnational Corporations, United Nations Library on Transnational Corporations, Vol. 7, (New York: Routledge, 1993), pp. 313-314. Nevertheless, according to several UN studies, the overall impact of FDI on developed countries balance of payments, industrial upgrading and restructuring, employment, and exports, were more positive than negative. United Nations, Transnational Corporations from Developing Countries: Impact on Their Home Countries (New York: United Nations, 1993), pp. 57-80. United Nations, World Investment Report 1995: Transnational Corporations and Competitiveness (New York: United Nations, 1995), pp. 147-148, 220-225, 227-262. United Nations, World Investment Report 1994: Transnational Corporations, Employment and the Workplace (New York: United Nations, 1994), pp. 163-213. Dunning, John H., Multinational Enterprises and the Global Economy (Wokingham, England: Addison-Wesley Publishing Company, 1993), pp. 349-366, 385-414. Richard Florida, “Foreign Direct Investment and the Economy”, in Cynthia A. Beltz (ed.), The Foreign Investment Debate: Opening Markets Abroad or Closing Markets at Home? (Washington, D.C.: The AEI Press, 1995), pp.63-95. Morris, Jonathan, ed., Japan and the Global Economy: Issues and Trends in the 1990s (London: Routledge, 1991).The same debates surfaced in Taiwan, such as industrial upgrading (industrial “hollowing-out” effect and replacement of domestic investment), balance of payments (capital outflow), and employment. Especially, given the sovereign competition between Taiwan and China, the huge amount of Taiwans FDI going to China led many on Taiwan to fear that the islands economic strength would be hollowed out by China.Because the United Nations Department of Economic and Social Development believed that FDI from developing countries, especially in Asia, would be a trend that could not be ignored in the future, it produced a special report in 1993 of the impacts of the outward FDI from developing countries as home countries. Although the cited literature and examples in the report, including Taiwan, are very limited, generally speaking, the report concluded that outward FDI actually benefited the home countries balance of payments and industrial upgrading. In addition, the more open and dynamic the developing countries, the more outward FDI can help these countries restructure their economies and upgrade their technology. Regarding employment, the study emphasized that FDI-driven economic restructuring does not generate a “net loss” of domestic employment. However, these countries do have to pay significant costs of restructuring their labor force. For small, export-oriented countries like Taiwan, these adjustment costs of labor reallocation can be quite heavy. United Nations, Transnational Corporations from Developing Countries: Impact on Their Home Countries (New York: United Nations, 1993), pp. 57-88. Taiwan began to invest abroad in significant amounts in the mid-1980s, therefore the UN studies may not explain the specific experience of Taiwan. Furthermore, Taiwans well-known economists have very deep suspicions about the benefits of outward FDI. Charng Kao and Shi-Ying Wu, “The Impact of Cross-Strait Economic Relations on Taiwans Industrial Development”, and Tain-Jy Chen and I-Ping Chen, “Outward FDI impact on Taiwans Industrial Development”, in Ya-Huei Yang (ed.), Taiwans Industrial Development and Policy (Taipei: Chung-Hua Institution for Economic Research, 1995), pp. 391-462. Chin Chung, “Cross-Strait Resource complementary, but not necessary industrial mutual benefit”, Economic Outlook, No. 61, 1/5/1999, pp. 16-20. Therefore, there is a need to conduct a comprehensive review of the impact of Taiwans FDI in China on both Taiwans balance of payments and its industrial upgrading. As a matter of fact, these two issues are inter-related. Many scholars, politicians, and government officials believe that 1) because foreign countries, especially China, have a cheaper labor force and/or large consumer market, FDI has a crowding-out effect on domestic investment; 2) since enterprises can survive with minimum costs overseas, they do not have enough pressure to continue upgrading; 3) the huge outflow of Taiwans capital and the enterprises unwillingness to invest in Taiwan will lead to an inability to upgrade and industrial hollowing-out. Chi-Chun Hong, “Taiwans Role and Development Strategy in the New International Economic Order”, presented at a Democratic Progressive Party (DPP) seminar on industrial policy, .tw/domain/trade/chichunh.htm. I-Jen Chiou and Nai-Jen Wu, “Meeting the Challenges of the New Era: Constructing Equal, Broad, Sound, Reciprocal Bilateral Relationship between Taiwan and China”, presented at a DPP seminar of China policy, 2/4/1998. Tu-Fa Wang, “Taiwans Needed Attitude on Economic Exchange with China”, .tw/0zerngzheq/develop/Saturday/109310.htm. Kong-Lien Kao, The Current Situation and Development of Cross-Strait Economic Relations (Taipei: Mainland Affairs Council, 1994). Po-Chih Chen, “Taiwans Role in the Global Economic Network”, .tw/0zerngzheq/develop/Saturday/109311.htm. There are several questions that need to be clarified here: 1) is Taiwans investment in China leading to a crowding-out effect (i.e., what is the impact on balance of payments)? 2) is Taiwans investment in China contributing to enterprises unwillingness to invest domestically? 3) is Taiwans investment in China contributing to Taiwans inability or hesitancy to upgrade its industry? and 4) what is the relationship between industrial upgrading and industrial hollowing-out? Taiwans FDI in China is Helpful for Its Balance of PaymentsAccording to Chinas statistics, as of August 1998 Taiwans cumulative realized FDI in China was $19.8 billion. Compared to Taiwans $7.7 billion trade surplus and $83.5 billion of its foreign exchange reserves in 1997, this figure is significant.According to the UN formula, the direct effect of Taiwans FDI on its balance of payments can be estimated using the following formula United Nations, Transnational Corporations from Developing Countries: Impact on Their Home Countries. (New York: United Nations, 1993), p.59.:Balance of payments = (-outflow of FDI) + (FDI-driven exports) + (FDI income) In the above formula, the Chinese figure for Taiwans FDI in China would be more precise because Taiwans FDI has to register in Chinese authority and does not necessarily report to Taiwans authority. From 1991 to 1997, Taiwans FDI in China is $2.6 billion average every year. Regarding FDI income (including payments of royalties, fees and salaries to the patent and repatriation of dividends, equity interest and loan principal), Taiwan does not keep any official statistics. Therefore, the income of Taiwans FDI in China can be estimated by the income of Taiwans total FDI. For Taiwans total FDI, the income-investment ratio is 0.71 dollar/ per dollar of investment. (See Figure 2.) The amount of Taiwans FDI in China multiplied by this ratio would indicate that Taiwans income from its FDI in China is $1.9 billion average for every year from 1991 to 1997. (See Figure 3.) According to a 1995 investigation by Taiwans Economic Ministry, of 2066 enterprises with FDI, 56% of those which invested in China repatriated the profits of their affiliates back to Taiwan. Taiwans Economic Ministry, Investigation Report on the Diversification and Internationalization of Manufacturing Industry, 1995, p. 66. Therefore, the $1.9 billion figure is reasonable.As for FDI-driven exports, there are many different estimates. According to the Chung-Hua Institution for Economic Research, FDI-driven exports in 1990 accounted for 34% of Taiwans total transit-exports to China. Chung-Hua Institution for Economic Research, Cross-Strait Economic Yearbook: Cross-Strait Economic Relations, 1993, p. 176. According to the Economic Research Section of Taiwans Economic Ministry, the figure was 32.9% in 1990. Kong-Lien Kao, The Current Situation and Development of Cross-Strait Economic Relations (Taipei: Mainland Affairs Council, 1994), p. 26. According to Charng Kao, it was 32% in 1990. Charng Kao, Mainland Economic Reform and Cross-Strait Economic Relations (Taipei: Wu-Nan, 1994), pp. 164-166. According to S. Gao et al., it was 46% in 1991; according to Chin Chung et al., it was 41% in 1991. Chin Chung, “Double-Edged Trade Effects of Foreign Direct Investment and Firm-Specific Assets: Evidence From the Chinese Trio”, in Y.Y. Kuen (ed.), The Political Economy of Sino-American Relations (Hong Kong: Hong Kong University Press, 1997). p. 143. According to various investigations, 68% to 86% of the source of machinery and equipment of Taiwan-funded enterprises in China was purchased from Taiwan and 36% to 71% of raw materials, parts, and semi-finished products were purchased from Taiwan. Chin Chung, “Double-Edged Trade Effects of Foreign Direct Investment and Firm-Specific Assets: Evidence From the Chinese Trio”, in Y.Y. Kuen (ed.), The Political Economy of Sino-American Relations (Hong Kong: Hong Kong University Press, 1997). p. 147. Charng Kao and Chi-Tsung Huang, “The Analysis on the Relationship between Taiwans Investment in Mainland and Cross-Strait Trade”, in Kuang-Shen Liao (ed.), The Potential Danger and Opportunity in the Cross-Strait Economic Interaction (Hong Kong: Hong Kong University Press, 1995), p. 105. Taiwans Economic Ministry, The Investigation Report on the Outward Investment by Manufacturing Industry, 1