On Saturday 7 November 2015 China’s president Xi Jinping and Taiwan’s president Ma Ying-Jeou met in Singapore. This meeting was historical as for the first time since 1945 leaders of the Chinese Communist Party (CCP) and the Kuomintang (KMT) get together. While Xi and Ma are prone to the idea of rapprochement between China and Taiwan, there are concerns the majority of the Taiwanese population considers when it comes to the reuniting with China.

While diplomatic and political struggles have been going on between China and Taiwan domestically as well as internationally (particularly through the one-China policy and diplomatic contest to win allies) since the split between the nationalists and the communists in 1945, there has been a deepening of economic and political relations on both sides these past few years, including trade and investments and even more so through people-to-people relations.

Even though President Ma of Taiwan has not made an official visit to China, the historic visit (the second of its kind since 1949) of the Chinese National Party’s, or Kuomintang (KMT)’s, chairman Eric Chu to Beijing in May highlighted the closer cooperation between China and Taiwan and contributed to deepening political and economic ties. Those ties were already established and developed during Hu Jintao’s presidency. Therefore, Eric Chu’s visit marks a continuation of the strengthening of party-to-party relations between the KMT and the Chinese Communist Party (CCP) as well as the easing of tensions between Beijing and Taipei through economic partnership.

Taiwan’s trade and investment in China

Taiwan has developed strong economic ties with mainland China through trade and investments. Taiwan-China trade volume amounted for US$ 124 billion in 2013. Having benefitted from technology and skills transfers through foreign investments, particularly in the technology and ICT sectors, Taiwan has managed to set up major companies in those sectors, companies with high-added value operations and products. Most of those companies set up subsidiaries in mainland China and today constitute major suppliers for global multinational companies, particularly in the ICT sector, which outsource their production to China. They contribute to job creation, skills and technology transfer in China. Since China’s opening up, Taiwanese companies have been the pioneer foreign investors. Taiwanese companies’ investments in China moved from labor-intensive industries to technology- and capital-intensive industries. In 2013, Taiwan’s investments in China were worth US$ 133.7 billion and accounted for 62% of Taiwan’s total outward foreign investments. Taiwanese companies benefited from tax incentives to invest in China, and even after the 2008 tax law, which saw a tax increase for foreign investors in China, investments in high-tech electronic industries still enjoyed a 15% tax rate. While in the past, tax incentives attracted foreign companies to invest in particular Chinese cities (mainly coastal cities), the 2008 tax law was more focused on fostering investments in Northern China and in specific sectors. Tax incentives became industry- and enterprise-specific rather than only location-specific. Such tax incentives fostered Taiwanese companies to invest in the high-tech electronic industry.

Besides the technology sector, the food industry, with its agro-processing industries and supermarket chains, has also been a sector with a Taiwanese investor presence.

Tourism has attracted a large number of Chinese tourists to Taiwanese tourist spots. While China has modernised to a considerable degree over the past two decades and transformed some of its tourist attractions into modern architecture and buildings, Taiwan has kept the authentic and traditional design of most of its tourist spots, reflecting Taiwan’s respect for traditional culture.

The 2001 lifting of the trade ban between China and Taiwan contributed to direct trade. While even after 2001, there were tariff-barriers imposed on Chinese imports to Taiwan, today China is Taiwan’s largest export market, with exports volume reaching 40% (including exports through Hong Kong) of Taiwan’s total exports volume. Taiwanese exports to China enjoy tariff cuts.

For a long period of time, China and Taiwan’s economic relations have been compromised due to political-security reasons. However, the 2008 election of Ma Ying-Jeou as president in Taiwan fostered closer economic ties between China and Taiwan and contributed to high-level exchanges between Chinese and Taiwanese officials. By fostering closer economic relations with China, Taiwan enhances its trade ties with other countries in the region and its participation in regional economic cooperation.

The policy of opening up has enabled Taiwan to receive 2 million Chinese tourists from the mainland a year. The signing of the Cross Strait Economic Cooperation Agreement contributed to easing travel restrictions for tourism and study. Student and staff exchanges through universities and academic institutions bring together Taiwanese and Chinese students and researchers to explore topics of common interest.

Even though economic ties are deepening, there are concerns from Taiwanese in the KMT as well as the Democratic Progressive Party (DPP) about China’s political influence on Taiwan. The Sunflower movement which occurred in spring 2014 was a protest by Taiwanese students (later supported by Taiwanese activists and NGOs) for more democracy and in support of Taiwan’s sovereignty. Such protests had an influence on the local elections, elections won by the DPP.

In the minds of many Taiwanese, even though cultural and economic ties are strengthening, Taipei should keep its political distance from Beijing. Closer economic ties between China and Taiwan means a growing engagement of China on the island through the establishment of Chinese multinational companies across sectors, companies which may then hold monopolies in Taiwan’s economic sectors. As well, many Taiwanese believe that the presence of Chinese companies will create jobs for mainlanders while increasing the unemployment level in Taiwan. While President Ma is currently relatively unpopular in Taiwan, the end of his term as president in 2016 may see the arrival of the DPP in power, a party which does not favour closer ties with Beijing. Such a political shift may jeopardise the efforts made by different actors during Ma’s presidency to build closer ties between Taiwan and China. While Saturday’s meeting showed greater and renewed interests among Chinese and Taiwanese leaders, in Taiwan protesters demonstrated again to condemn their government’s closer ties with China.

China’s investment in Taiwan

The 2010 Economic Cooperation Agreement between Taiwan and China showed both parties’ interests in economically engaging with each other. While Taiwan is among the major foreign investors in China, this new economic cooperation agreement on the Taiwanese side means receiving more Chinese investment.

While China’s Outward Foreign Direct Investment (OFDI) is mainly related to host countries’ resources, its interests in investing in Taiwan are different. The PRC is particularly driven by the need to acquire management as well as technology skills, as Taiwan has developed a strong business management sector and established innovative businesses in light manufacturing, biotechnology, ICT, etc. In addition to this, Taiwan is a major investor in Asia and has established trade relations with most of the major Asian markets. For China, investing in Taiwan also means exploiting Taiwan’s trade and investment linkages with other countries in order to later tap into those markets. Taiwan’s open business environment and proximity with China are other drivers for China to naturally invest in and trade with China.

For a long period of time, the Taiwanese market was closed to Chinese investors. Even now, not all sectors were open to China’s investment. While real estate constituted one of the open sectors, allowing Chinese investors to buy property in Taiwan, other sectors (manufacturing, services, infrastructure, etc.) were only opened later through the economic cooperation agreement, attracting more private Chinese investors than state-owned companies. The political risks of Taiwan-China relations do not favour huge Chinese investments in Taiwan, even though they could constitute opportunities, and the majority of Taiwanese do not support the idea that an economic cooperation agreement will be an opportunity for Taiwan to explore China’s market opportunities and to be a ‘gateway’ to China for foreign investors. According to those who are against economic cooperation, the implementation of the signed agreement will create competition and boost unemployment in Taiwan.

Even though the economic cooperation agreement stipulates greater trade and investment facilitation between Taiwan and China, the political distance between both parties due to the characteristics of their domestic politics — on the one hand, the political monopoly of the CCP in China; on the other, a more multi-party democratic system in Taiwan — involves high risks for closer economic relations and integration. While China aims to take advantage of the economic dimension of its relations with Taiwan, Taiwan remains cautious and would like to avoid controversies (political as well as economic) which may come with through deepening ties with China.

The future of Taiwan-China relations

While since 2008, Taiwan-China relations have noticed less tension, fears exist on both sides. On the Chinese side, there is doubt about Taiwan’s unification to mainland China and on the Taiwanese side, there are concerns related to being under control of an authoritarian regime and losing the democratic progress already achieved if reunification happens. Such situation jeopardises the rapprochement process between Taiwan and China. In the meantime, there is more to gain in economic terms for both China and Taiwan individually as well as regionally as both play an important role in regional economic integration in East Asia. Less tension between Taiwan and China means political and economic stability in the region which has been under turmoil recently with the issues related to south-China sea disputes which involved several countries of the region. Stability in the region has peace and security implications for foreign investors in the East Asian region in particular and Asia in general. Yet the United States which is an ally of both China and Taiwan aims at fostering peace and stability in the region. In the light of the current evolution of the situation, it seems that Taiwan is more focused on achieving economic gains rather than political ones even though there are voices in Taiwan which condemn the closer relations between the KMT and the CCP. On the other hand, China hopes to see the inclusion of Taiwan in Greater China. Like in their engagement with other countries, Taiwan and China could engage each other by fostering economic ties rather than conflicting over political interests; but it seems that domestic as well as international political and economic interests are intertwined and at times the former drive the latter. This drives suspicions among Taiwanese about China’s intentions due to China’s economic influence which may have implications on Taiwan’s politics and sovereignty.

Daouda Cisse
Daouda Cissé is a postdoctoral research fellow at the China Institute, University of Alberta, Edmonton, Canada. He works on China's domestic and overseas political economy with a particular focus on China-Africa relations. His research explores topics such as China's overseas trade and investments and Chinese companies' business strategies.

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