China has always played an important role in the Taiwanese economy due to our geographic position and the similarities in language and culture. Even though China has been Taiwan’s biggest trading partner in recent decades, the Taiwanese economy’s high dependence on China is a tremendous risk for Taipei. Thus, Taiwan should not rely on China economically.

Taiwan’s economy relies on the Chinese market

There are lots of Taiwanese corporations that do business in China, known as “Taishang”, which is a risk since the Chinese government could close down businesses to stop the Taishang from taking actions that contradict Chinese national interests. Take the HonHai group for example: the revenue of the group reached 4.7 trillion NT dollars in 2017, while its subsidiary in China, Foxconn’s revenue was 1.67 trillion.

This makes the group vulnerable to the Chinese government since it relies heavily on the Chinese market. Even though Terry Gou, former chairman of HonHai, has claimed that the Chinese government needs Foxconn more than Foxconn needs China, this claim is unrealistic. Foxconn’s revenue is a large portion of HonHai’s revenue while Foxconn’s revenue means almost nothing to the Chinese economy.

This implies that the economic cost of closing down factories and limiting sales of Taiwanese corporations is relatively low for Beijing, and the example of HonHai can be applied to all Taiwanese corporations that are doing business in China.

ECFA

Apart from the Taishang in China, industries such as agriculture, petrochemicals, and textiles in Taiwan also rely on the Chinese market. These industries benefit from the Cross-Straits Economic Cooperation Framework Agreement (ECFA), which was signed in Chongqing by governments from both sides of the strait during the Ma Yingjeou administration in 2010.

This agreement allows these industries to enjoy tariff cuts from the Chinese government, which makes their products more competitive. However, the agreement is supposed to end in September this year. The termination of this agreement would be devastating to these industries since they will lose competitiveness due to the tariffs China will impose. Therefore, Taiwanese industries and corporations should not rely so much on the Chinese market since China could hurt Taiwan easily through our high economic reliance on it.

The tourism sector proves diversification can help

Despite the fact that the tourism industry is important to the Taiwanese economy, the tourism industry relies heavily on Chinese tourists. According to the Tourism Bureau, Taiwan received around ten million tourists in 2015, and 40 percent were Chinese tourists. This indicates that Taiwan’s tourism industry deeply relies on the Chinese market.

However, the Chinese government can take measures to limit or prohibit its citizens from traveling to Taiwan. For instance, tourists from China have fallen from 40 percent of all visitors to 22.8 percent between 2015 and 2019. The drop in Chinese tourists started in 2016, after the Tsai Ing-wen administration won the presidential election, and then fell further after August 2018 when the Chinese government suspended independent travel to Taiwan.

The Tsai administration announced the New Southbound Policy (NSP) in 2016 in order to address Taiwan’s dependence on China’s economy. The NSP has successfully enhanced the number of Southeast Asian tourists, which has lowered the economic impact of the loss of Chinese tourists. The proportion of Vietnamese and Philippine tourists has grown to 28 and 44 percent of total arrivals, helping to make up for losses in terms of Chinese visitors. Apart from Southeast Asian tourists, the number of Japanese tourists reached two million for the first time in 2019.

Taiwan needs to diversify exports

Foreign trade is the decisive sector in the Taiwanese economy. According to the Department of Statistics, in the Ministry of Economic Affairs, the share of Taiwan’s GDP sourced from exports in 2017 was 55.4 percent, while China’s was 18.5 percent, and Japan’s, the European Union’s and the United States were between 7.5 to 15 percent. This illustrates that the Taiwanese economy’s reliance on exports is high and would have a difficult time simply relying on its domestic market.

While exports play an important role in our economy, Taiwan’s reliance on exports to China is immense. As stated in reports from the Bureau of Foreign Trade, in 2018, Taiwan exported 137.9 billion US dollars worth of goods to China and Hong Kong, which was 41.3 percent of Taiwan’s total exports. In addition, Taiwan had an 82.7 billion trade surplus with China, while without the Chinese market Taiwan would be in a net trade deficit overall.

This leaves Taiwan’s economy vulnerable to recession, or even depression, if the Chinese economy suffers or if the CCP decides to economically attack Taiwan.

Additionally, ECFA is the only trade agreement Taiwan has reached with other major countries, making Taiwan’s reliance on China even higher. Thus, the full execution of the NSP and signing free trade agreements with other major countries, especially the United States, which is the second largest trading partner with Taiwan, is the solution to addressing Taiwan’s trade vulnerabilities.

Keeping Taiwan safe

China has always wanted to annex Taiwan for multiple reasons. With the Taiwanese economy’s high reliance on China, the Chinese government could take economic measures to reach that goal through actions like cutting off business with Taiwan or starting economic wars. If China does launch economic attacks towards Taiwan, Taiwan would be crippled.

Therefore, the Taiwanese government must take steps to lower our reliance on China and diversify our trading partners to make sure that if Beijing launches attacks towards Taiwan, Taiwan will be safe. So far, the Taiwanese government has taken measures such as implementing the NSP to ensure Taiwan’s safety. The NSP has helped enhance all kinds of communication with Southeast Asian countries, including by giving visas to Southeast Asian citizens and investing in Southeast Asian countries, strengthening ties with these countries thus lowering our economic reliance on China.

It would be awful for Taiwan to be attacked economically by Beijing under current conditions since Taiwan’s sovereignty could be restricted in many ways by China. Should Taiwan’s destiny be at the mercy of a hostile state, Taiwan would no longer be an autonomous country.

Conclusion

Even though relying more on China economically would elevate economic growth in the short term, it would be an enormous risk and problem in the long term. Thus, Taiwan should lower its economic reliance on China.