"CEAC Commentary" introduces news analyses andopinions in Japan on topics related to regional
cooperation and integration in East Asia, but they do
not represent the views of CEAC as an institution.

February 25, 2016

Can Taiwan Depart from Economic
Dependence on China?
By KODAMA Katsuya
The Democratic Progress Party (DPP) won the last presidential election ofTaiwan. The result of this draws much attention from analysts of international relations
and politics, and economists should also keep their eyes on cataclysmic changes causedby this election. According to a survey by the Yuanta-Polaris Research Institute ofTaiwan, Taiwan’s export to China accounted for about 16% of its GDP in 2014. This isquite a high ratio, following 19.18% of Malaysia. Among Asian nations, South Korea
with 14%, Singapore with 10.73%, and so forth, are highly dependent on export toChina. Meanwhile, Japan depends merely 2.48% on China. In view of the China risk, theJapanese government has made every effort to lower the dependence these days. This isone of the reasons why Japan has been actively involved in TPP negotiations.
Taiwan has boosted trade relations with China, and shifted manufacturingbases there, under President Ma Yingjeou. When the Chinese economy was growing
rapidly, the Taiwanese economy rose accordingly, with this economic policy. Today, theper capita GDP of Taiwan is over 20,000 dollars, which is already at the level ofindustrialized nations. This is a spillover effect of rapid development of the Chinese
economy. However, in view of economic slowdown in China, Taiwan’s high dependence
on this country has become a problem. The Taiwanese economy is also slowing down.
In addition, new DPP administration may lead to increasing political clashes. It has
become more likely that Sino-Taiwanese conflicts develop into intensified US-Chinese
geopolitical rivalries, which would force Taiwan to get involved. If the United States
took a hardliner policy to China, DPP-ruled Taiwan would have no choice but to follow
it. If it happens, Taiwanese companies in China will face critical harassment by theauthority. This will disrupt the Taiwanese economy.
Nevertheless, China is a huge market for Taiwan today. It is the largest trade
partner for Taiwan, and 40% of Taiwanese export China. Also, most of the Taiwanese
big businesses have manufacturing bases in China. Up to now, Taiwan failed to join any
framework of a Free Trade Agreement (FTA) in Asia. Nor, does Taiwan join TPP
negotiations. That is because it had to give the foremost priority to trade relations withChina. However, Taiwan needs to pursue an economic policy to diversify trade partners
for the future, instead of excessive reliance on China. On January 17, Chairman MitsuoOhashi of the Interchange Association Japan, which is a Japanese-Taiwanese mutualexchange organization, met DPP leader Tsai Ingwen. According to the Central News
Agency of Taiwan, Tsai pointed out importance of bilateral economic and traderelations, and expressed deep interests in the FTA. This is a vital step for the future.
Taiwan has to adopt a strategy to boost trade with the United States, Japan, andAsian nations, and to shift production bases to Vietnam, Thailand, and so forth,gradually. To begin with, Taiwan has to sign the Free Trade Agreement with as many
countries as possible. This does not mean that Taiwan is turning anti-Chinese, butmoving toward omnidirectional diplomacy and trade relations. The trade ties withChina have grown so important for Taiwan that it cannot dismiss that. However,Taiwan cannot stay excessively dependent on this country. Therefore, the relationshipwith Japan will be the key to lessen such dependence. For this objective, Taiwan needs
to expand broad based cultural and human interactions with Japan, beyond businessand diplomatic relations. Taiwan is a pro-Japanese nation. The number of Japanese
tourists to visit this country is expected to rise.
(This is an English translation of the article written by Dr. KODAMA Katsuya,President of Socially Responsible Investment, which originally appeared on thee-forum “Hyakka-Somei” of CEAC on January 28, 2015.)