Greater China Development from the Perspective of Taiwan

1
Greater China Development from the Perspective of
Taiwan

• Chi Schive
• President
• Taiwan Academy of Banking and Finance
• Adjunct Professor
• National Taiwan University

April 6, 2001
2
Outline

• I. Mega trends in the late 20th century and
  beyond
• II. Taiwans role in East Asian regional
  integration
• III. Taiwans investment in mainland China
• IV. Impacts of Taiwans investment in mainland
  China
• V. Implications of WTO entry
• VI. Concluding Remarks

3
World Output and Goods Trade
I. Mega trends
World Goods Trade Volume (Growth, )
World Output (Growth, )
Trade Growth/ Output Growth
84-88 89-93 94-98
84-88 89-93 94-98
84-88 89-93 94-98
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Regional Integration
I. Mega trends
Intra-regional exports as a percent total exports

5
I. Mega trends
Production Technology in History
The Tonne Age Industrial revolution -
1950s Steel, ships, textile, construction The
Kilo Age 1960s Cars, consumer
electronics, appliances The Gram Age 1970s
- 1980s Micro electronics, robotics The
Vacuum Age 1990s Services, systems, media
Source Slightly revised from Jean-Pierre
Lehmann,The Future of the Asia Pacific
Economies Dynamism of Trade and Investment
presented at APEC Economic Committee Symposium
The Future of Asia Pacific Economies, December 6
1999, Tokyo.
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I. Mega trends
Lowering Real Inventory-to-Sales Ratios
Lowering Inventory-Sales Ratio - the U.S. Case
Source U.S. Department of Commerce (Bureau of
Economic Analysis.)
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II. Taiwan and regionalism
Taiwans International Division of Labor from
Triangle to Diamond
I Investment M Materials/Intermediates Q Finish
ed product/commodity S Strategic alliance
Japan
S
Q
IM
IM
Taiwan
U.S.
Q
Q
S
IM
Q
Before the mid-1980s Late 1980s and early
1990s After the mid-1990s
Q
M
ASEAN
China
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Investment in Southeast Asia and China
II. Taiwan and regionalism
According to Host Country Statistics
US million
Sources Board of Investment, Thailand Malaysian
Industrial Development Authority, Malaysia Board
of Investment, the Philippines Investment
Coordinating Board, Indonesia State Commission
for Cooperation and Investment, Vietnam Ministry
of Foreign Trade and Economic Cooperation,
mainland China .
9
Production Sharing of Taiwans IT Industry
II. Taiwan and regionalism

Estimates. Source Market Intelligence Center,
Institute for Information Industry.
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Increasing Oversea Production Share in Taiwans
IT Industry
II. Taiwan and regionalism
Source The ITIS(Industrial Technology
Information Service)Plan, Institute for
Information Industry , November 2000.
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Trends of Taiwans Investment in China
III. Taiwans investment in China

• Labor-intensive industries (food, beverage,
  rubbers, plastics) are losing importance to
  technology-intensive industries (electronics).
• Invested areas are extending from coastal
  provinces to inland.
• Size of investors are expanding from SMEs to
  large enterprises. About one-third of Taiwans
  publicly listed companies invest in China
  presently.

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Taiwans Investment in China
III. Taiwans investment in China
Cumulative amount up to 1991. Registered
amount increased remarkably in 1993 and 1997 due
to belated reports of investments made in
previous years. Sources Investment Commission,
Ministry of Economic Affairs, ROC Ministry of
Foreign Trade and Economic Cooperation, PRC.
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III. Taiwans investment in China
Industrial Composition of Taiwans Investment in
China
Electronic Electric Appliances
Precision Instruments,Food Beverage
Processing,Plastic Products,Basic Metals Products
Others
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000/
NOV
Source Investment Commission, Ministry of
Economic Affairs
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Scale of Taiwans Investment in China
III. Taiwans investment in China
USmillion
USmillion
No. of cases
Average
Total
Note The no haste, be patient policy argument
was announced in September 1996. Source
Investment Commission, Ministry of Economic
Affairs.
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The Impacts of Taiwans Investment in China
III. Impacts of Taiwans investment in China

• Trade
• Bilateral trade has been expanding at
  double-digit rate, except during the Asian
  financial crisis. China has become Taiwans very
  important export market only second to the U.S.,
  and sixth largest import supplier.
• Investment in China has caused expansion of
  Taiwans exports of machinery, parts, and raw
  materials to China. Whether negative impact will
  be produced from Chinas introduction of local
  content requirement in 1998 remains to be
  clarified.

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Exports to Mainland China
III. Impacts of Taiwans investment in China

Source Board of Foreign Trade, ROC.
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Imports from Mainland China
III. Impacts of Taiwans investment in China

Source Board of Foreign Trade.
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The Impacts of Taiwans Investment in China
III. Impacts of Taiwans investment in China

• Competing for overseas markets?
• Yes,
• Taiwans export share growth in the U.S., Japan
  and EU slowed down between 1996 and 1999. China,
  on the contrary, has been on the rise.
• No,
• a non-negligible portion of Chinas exports are
  due to Taiwan-based companies pursuing
  comparative advantage in China.

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The Impacts of Taiwans Investment in China
III. Impacts of Taiwans investment in China

• Competing for domestic capital?
• Yes,
• 1. provided capital supply is fixed/limited.
• 2. arrived capital in China represents a net
  outflow of capital in BOPs.
• No,
• 1. domestic capital can be enlarged with capital
  inflows.
• 2. direct investment generates favorable BOPs
  through inducing exports.

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The Impacts of Taiwans Investment in China
III. Impacts of Taiwans investment in China

• Hollowing-out effect?
• Yes,
• 1.outward investment substitutes domestic
  investment.
• 2. outward investment results in job loss.

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The Impacts of Taiwans Investment in China
III. Impacts of Taiwans investment in China

• Hollowing-out effect?
• No,
• 1. the exodus of industries reflects changes in
  comparative advantage (pull effect) and changes
  in local investment environment (push effect).
• 2. it is labor market rigidity, instead of FDI,
  that causes the job market shrinking.
• 3. outward investment in the 1980s and 1990s.
  helped industrial restructuring in Taiwan.
• 4. investment in the high-tech industry has been
  flourishing.

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The Impacts of Taiwans Investment in China
III. Impacts of Taiwans investment in China

• Growing economic dependence hampers national
  security?
• Yes,
• Taiwans economic stability will be affected by
  market fluctuations in China as well as by
  Chinas policies.
• No,
• 1. Taiwans economic dependence on China is
  reciprocal.
• 2. economic interdependence may enhance regional
  stability, rather than hamper it.

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V. WTO entry
Implications of WTO Entry

• More business opportunities in China
• Taiwans business sector has shown growing
  interests in investing in China because of an
  anticipation of larger and more opened local
  market.
• Companies see better opportunities in local
  market in finance, telecom, insurance, internet,
  and logistics.
• Companies attempting to keep international
  competitiveness sees better opportunities in
  agriculture and labor-intensive industries.

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Implications of WTO Entry
V. WTO entry

• Industry
• The opening to Chinas industrial imports into
  Taiwan will cause some, but manageable, impact on
  Taiwans industries.
• Services
• Since the service sector in both economies are
  not internationally competitive, both will be
  severely affected, while much more so for China.
  
• However, foreign investors are likely to form
  strategic alliance with partners from Taiwan when
  penetrating the market in China.

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Concluding Remarks
VI. Concluding Remarks

• For Government
• More economics, less politics.
• More invisible hand, less visible hand.
• For Scholars
• More solid analysis, less ideological conjecture.
• For Business Community
• Think globally, practice locally.