Sunday, December 13, 2009

Taiwan: A Thaw in Taiwan-China Relations

After six decades of hostility, mistrust, and animosity, Taiwan and China, once bitter foes and arch enemies, are reaching out to each other. The global economic recession has created unusual friendships, changed old ones, and created a dynamically different world. In an announcement that could have far reaching implications on Asian trade and investment, Taiwan’s Ministry of Economic Affairs has decided that it would open up Taiwan’s borders to allow for Chinese investments.

The Cabinet approval for the move marks a personal triumph for Taiwan’s President Ma Ying-jeou who has been aggressively campaigning for closer ties with China. The two sides had separated during China’s civil war in 1949, although China claims that Taiwan remains a part of its territory. At best, relations between these two nations have been fractious and uneasy. As the world grapples with the unrest of the financial meltdown and worsening relations between South Korea and the nuclear-armed North, signs of a growing friendship between China and Taiwan will only mean good news.

Under the new rules, Chinese investment will be allowed in a total of 100 categories in Taiwan’s service, industry, and infrastructure sectors, including textiles, cell phones, cars, auto parts, and building of airport facilities, resorts, and commercial ports. Service sector categories include retail, restaurants, farming and medical products.

The move will help correct a considerable imbalance in cross-strait relations. Taiwanese companies have invested in the Chinese economy since 1991, helping push the country on a trajectory to becoming the world’s fastest growing major economy. Now, it is hoping that China can return the favor. Taiwan desperately needs the boost – its economy contracted by a record 10.24% in the first quarter, and the jobless rate rose to a high of 5.84% in May.

Yet, Taiwan is still playing it safe. In an effort to avoid criticism that the government is jeopardizing Taiwan’s sovereignty, no Chinese investment is allowed in Taiwan’s core markets. Consequently, its semiconductor, solar panel making, communications, and flat panel technology industries are not open to China. No Chinese company with a ‘military interest’ will be entertained either, the Ministry warned.

Not all agree that these safeguards are adequate. The opposition Democratic Progressive Party (DPP) sharply criticized the change as a “threat to national security”. The DPP claimed that Chinese investment might hurt domestic companies and intensify competition. But in a battered economy, investors and manufacturers alike are welcoming all the crumbs they get. Since a travel ban to Taiwan was lifted a year ago, almost 350,000 Chinese tourists have made a trip to the island, providing a much needed impetus to the tourism sector.

Ultimately, both China and Taiwan stand to benefit, but they are not alone in reaping the rewards. In this closely integrated world, a strong and stable China and Taiwan may help the global economy emerge from the abyss of the recession. It appears that crisis may indeed lead to opportunity.


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