Taiwan is
laying the groundwork for a major charm offensive towards Southeast Asian
nations and India in an effort to gain a strong foothold in these fast-growing
economies and to diversify its economic relations away from China. China and Hong
Kong together absorb nearly 40 percent of Taiwan’s exports, with exports
accounting for 70 percent of the island’s GDP.
The Tsai
Ing-wen administration’s New Southbound Policy seeks to promote tourism,
industrial cooperation and a broad array of exchanges spanning the education,
culture and technology fields with the nations of ASEAN and South Asia. It is a
creative “people-focused” strategy aimed at knitting Taiwan into the economic
and social fabric of these dynamic regions in the absence of official diplomatic
ties. It also appears designed to mitigate Taiwan’s economic marginalization in
a rapidly integrating region, which is by and large the result of Chinese
opposition to Taiwan’s signing of bilateral and regional trade agreements.
Taiwan’s Southern Pivot, Version 3.0
As
indicated in its name, the New Southbound Policy is a novel approach to
redirect Taiwan’s trade-dependent economy to other parts of Asia from the
Chinese market. Beginning in 1994, then Taiwan president Lee Teng-hui
championed a “Go South” policy that urged Taiwan businesspeople to invest in
Southeast Asia. The 1997 Asian Financial Crisis and its fallout, however,
spooked Taiwan investors away from ASEAN towards China, the latter having begun
sweeping market reforms under the stewardship of Premier Zhu Rongji
(1998-2003).
Lee’s
successor Chen Shui-bian attempted to reintroduce Lee’s “Go South” policy in
2002, but this proved largely ineffective as Taiwan investors continued to
perceive the Mainland as a more attractive investment destination. Chen’s 2001
decision to lift longstanding restrictions on investment in China combined with
explosive Chinese growth throughout the first decade of this century served
only to accelerate cross-Strait commercial ties.
Whereas
these prior initiatives focused almost exclusively on trade investment figures,
the Tsai government claims its new Southern-directed strategy is multifaceted
in its additional emphasis on soft, people-to-people elements. It is also now
targeting South Asian nations, particularly India—the region’s economic
powerhouse that is pushing to become a global manufacturing hub under Prime
Minister Modi’s “Make in India” scheme. It also envisions ASEAN not merely as a
manufacturing base, but as an extension of Taiwan’s domestic market whereby
Taiwan products and services meet the consumption needs of region’s burgeoning
middle class.
Signaling
the importance President Tsai attaches to the New Southbound Policy, she named
former ROC Foreign Minister James Huang (2006–08)—a close confidante—to head a
task force inside the presidential office that will spearhead the initiative
and coordinate among Taiwan’s government ministries, relevant industries and
educational institutions. This New Southbound Policy Office, whose founding
guidelines were approved by Tsai on June 15, will ramp up its operations in in
the coming weeks, with Mr. Huang required to periodically brief Tsai on overall
strategy and project implementation.
Taiwan
has already unveiled a number of proposals that help to form the nuts and bolts
of the New Southbound Policy. It recently added Cambodia, Laos and Myanmar to
the list of Southeast Asian nations it currently offers streamlined visa
application procedures, and is even considering the inclusion of all ten ASEAN
nations into its visa-waiver program. The Taiwan Ministry of Education will
allocate funding for Taiwan youth to conduct internships in Southeast and South
Asia, as well as provide scholarships to citizens of ASEAN nations to study in
Taiwan. The establishment of a national-level think tank for ASEAN and South
Asia studies is also in the pipeline.
Tapping into an Ascendant ASEAN and India
Asia’s
shifting economic landscape undergirds the logic of the Tsai administration’s
Southern pivot. India outpaced China as the world’s fastest-growing large
economy in both 2014 and 2015, whereas ASEAN nations are poised to experience
robust growth in the coming decades thanks to their young populations and the
ongoing formation of a single regional market and production base, the ASEAN
Economic Community.
Meanwhile,
rising labor prices in China and the overall Chinese economic slowdown are
leading Taiwan corporations to consider alternative locales to build
manufacturing facilities. Most notably, Foxconn—one of Taiwan’s largest
companies and a key supplier to Apple—announced in August 2015 that it plans to
invest $5 billion in a manufacturing plant and a R&D center in the Indian
state of Maharashtra.
Taiwan’s
relatively paltry trade statistics with India and Indonesia—the latter alone
accounting for nearly 40 percent of ASEAN’s economic output—demonstrate great
potential for growth. In 2015, Taiwan’s exports to India and Indonesia totaled
approximately $2.9 billion and $3 billion, respectively. By comparison,
Taiwan’s economic archrival South Korea exported $12.2 billion in goods to
India and $7.8 billion in goods to Indonesia.
These
opportunities notwithstanding, Taiwan’s Northeast Asian competitors have been
making inroads into ASEAN and India in recent years, lending urgency to the
implementation of the new policy. Since 2006, South Korea, Japan and China
successively signed free trade agreements with ASEAN; Seoul and Tokyo also
inked “economic partnership” agreements with New Delhi in 2009 and 2011,
respectively. Seoul in 2009 established the ASEAN-Korea Centre that has served
as the principal conduit for its economic and cultural engagement with
Southeast Asian nations. The countries of Southeast and South Asia are also
poised to play a prominent role in Beijing’s ambitious One Belt, One Road
initiative in the coming years. Hence, with Tokyo, Seoul and Beijing all
rushing into ASEAN and South Asia, Taipei is endeavoring to make a big push
over the next five years to make up for its “late start.”
Diversifying Away from China
Undoubtedly,
an interrelated goal of the New Southbound Policy is to reduce Taiwan’s
economic dependence on China. President Tsai in her May 20 inaugural speech
said the initiative is designed to “bid farewell to our past overreliance on a
single market."
Taiwan’s
concerns regarding overreliance on the Chinese market should be viewed from a
security and economic standpoint. Many on the island have long been uneasy
about the security externalities of increasing cross-Strait economic
interchange, fearing it will give Beijing undue leverage and restrict the
island’s freedom of action. Taiwan in 2015 also suffered economic costs for
placing a plurality of its eggs in the Chinese economic basket: exports to
China and Hong Kong plunged to $109.2 billion, down from $124.6 billion in
2014. China’s economic slowdown appears to be challenging the notion that Taiwan
can rely on the enormous Chinese market as a reliable source of export growth.
Tsai and
her Democratic Progressive Party blamed the policies of the previous KMT
administration—particularly its signing of the 2010 Economic Cooperation
Framework Agreement (ECFA) with Beijing—for contributing to Taiwan’s excessive
dependence on China, and it is within this context that they view the New
Southbound Policy as a necessary corrective. In reality, China and Hong Kong’s
share of Taiwan’s overall exports hovered around 40 percent throughout Ma
Ying-jeou’s presidency. In 2007—the final full-length year of the DPP
administration of Chen Shui-bian—Taiwan’s exports to China and Hong Kong
accounted for exactly 40 percent of its total exports. In addition, the Ma
government claimed the ECFA agreement enabled Taipei to sign landmark trade
pacts with New Zealand and Singapore in 2013 without opposition by Beijing.
Taiwan’s trade agreement with Singapore should by no means be downplayed: the
city-state—Southeast Asia’s entrepôt—was Taiwan’s fifth largest export market
in 2015 after Japan, with exports totaling $17.25 billion.
Without
question, the 2014 Sunflower Movement—triggered by a botched attempt to ratify
a cross-strait services trade agreement in Taiwan’s KMT-majority legislature—put
a stop to further cross-strait economic integration. This agreement together
with a goods trade pact under negotiation until the final months of the Ma
administration were to serve as the key underpinnings of a cross-strait free
trade area that the initial ECFA agreement called for. It is highly unlikely
that Tsai or the current DPP-majority legislature, already unsettled by
Taiwan’s overreliance on the mainland, would ever approve these ECFA follow-up
agreements leftover by the Ma administration. Unlike Ma, Tsai’s instinct is to
first approach the world through initiatives such as the Trans-Pacific
Partnership, and then consider further liberalization with China.
Beijing’s Attitude
Beijing
has greeted the New Southbound Policy with skepticism and a degree of
disparagement. In a May 25 press conference, Taiwan Affairs Office spokesman Ma
Xiaoguang likened it to “politically motivated” attempts by Lee Teng-hui and
Chen Shui-bian to pivot away from the lucrative Mainland market, which “ran counter
to economic principles” and had a “harmful effect on Taiwan’s economy.”
Apparently, Beijing believes (contradictorily) that its One Belt, One Road
initiative—which is designed to benefit its slowing economy and is motivated by
geopolitical ambitions—is grounded in the modern realities of Asia, but it is
illogical for Taiwan to aggressively seek out investment and business
opportunities in other parts of Asia.
Beijing’s
suspicious attitude should be viewed through the lens of its “peaceful
development” policy for cross-strait relations which, although avoiding a
timetable for reunification, seeks to create the right conditions for it.
Remarks by Chinese Foreign Minister Wang Yi in September 2013 best illustrate
Beijing’s thinking: “Gradual integration of the two sides through two-way
interactions and cooperation will lead to ultimate reunification. This is a
historical trend that no one can stop.” That the Tsai administration is
unlikely to pursue further integration with China and instead focus on developing
its relationships with Southeast and South Asian nations undermines Beijing’s
strategy.
Kyle
Churchman
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