The Kuomintang’s (KMT) landslide victory over the Democratic Progressive Party (DPP) in local elections marked a dramatic reversal of the 2016 presidential election, when DPP candidate Tsai Ing-wen won by a huge margin over her KMT opponent Eric Chu. Seen as a referendum on Tsai’s policies, the recent elections were fought over bread and butter issues even though many of the woes are due to globalising forces that no government can hold back.
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Voters punished the DPP for a lacklustre economy linked to tensions with the mainland barely two years after they rejected KMT president Ma Ying-jeou’s China-friendly policies. The fickle swings put the spotlight once again on cross-strait relations. Taipei should come to terms with Beijing for two fundamental reasons.
Firstly, the island’s fortunes are closely linked to those of the mainland. Taiwanese businesses attracted by common language, low land and labour costs, and a vast market, started investing in China from the 1990s. Some 70 per cent of Taiwanese outbound foreign direct investment goes to the mainland, and one to two million Taiwanese businessmen and their families live in China, even as Beijing offers further incentives to lure more over.
China accounts for over 40 per cent of Taiwan’s exports, of which 80 per cent are intermediary goods that are assembled in China before being sold domestically or exported. In order to diversify away from the mainland, President Tsai Ing-wen promulgated the New Southbound Policy in 2016 to boost trade and investment ties with the Association of Southeast Asian Nations, but relocating manufacturing to Southeast Asia is easier said than done.
As it has no diplomatic ties with Asean states, Taipei is unable to secure free-trade agreements with them, which means Taiwanese components are subject to sometimes hefty tariffs by the bloc. Taiwan’s most important preferential trade pact remains the Economic Cooperation Framework Agreement signed with the mainland in 2010.
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But even more problematic is the fact that Southeast Asia simply cannot match Chinese manufacturing prowess. China boasts a comprehensive supply chain able to turn blueprints into prototypes often in a matter of days. Ninety per cent of the world's electronics are made at least in part in Shenzhen and, despite rising wages, it is still more efficient to manufacture in China, according to Masami Miyashita of the Japanese External Trade Organisation.
Women in Kampong Speu, Cambodia, work on the production line at Complete Honour Footwear Industrial, a factory owned by a Taiwanese company, in July. Taiwan is trying to delink its economy from the mainland by focusing on Southeast Asia but progress has been slow. Photo: Reuters
