- - Sunday, December 30, 2018


The more China tries to minimize the success of Taiwan which is officially the Republic of China — the more important Taiwan becomes in the international order. It is, says one diplomat, “one of the greater ironies of our time.”

The Communists in Beijing regard Taiwan as a rogue province, irritated that it stands just off-shore as an eloquent rebuttal to the argument that only an autocratic Chinese nation can be economically prosperous. Taiwan not only represents what freewheeling economies can do, but the proof it can be done in a Chinese society with a democratic government. Capitalism survives in China, with the understanding that it just can’t be called capitalism. Words matter, and capitalism is the c-word.

Taiwan’s 23 million men, women and children make it only the 55th-largest nation in the world, a tiny fragment of the Chinese mainland population of 1.4 billion. Taiwan’s dynamic capitalism is driven by privately owned industrial and manufacturing companies, many with origins in the long Japanese occupation, which ended with the end of World War II. Electronics, machinery and petrochemicals have driven the miracle economy. Despite the political differences, in 2006 mainland China overtook the United States to become Taiwan’s second-largest customer, behind only Japan.

Since 2009, Taiwan has gradually loosened rules governing mainland investment in Taiwan, getting in return greater access to mainland markets. In August 2012, the Taiwan Central Bank signed a currency agreement with its Chinese counterpart which enables greater development of the Taiwan economy. China is not only now Taiwan’s number one destination for foreign direct investment, but in February China introduced a package of 31 incentives to attract Taiwanese companies to the mainland, offering tax breaks and subsidies for high-tech companies, research grants for academics. It promised to allow Taiwanese companies to bid for government infrastructure projects, even those involved in China’s development plan in southern Asia and the Middle East.

Taiwanese Vice Premier Shih Jun-ji cast it as an effort to undermine Taiwan’s economy. “China’s attempt to attract Taiwan’s capital and talent, especially high tech and young students, has clear political intentions,” he told a press conference introducing eight countermeasures designed to keep investors and their money at home.

Bilateral trade between China, including the mainland, Hong Kong and Macao, and Taiwan reached $181 billion in 2017, up from $35 billion in 1999. China is Taiwan’s largest trading partner, accounting for more than 30 percent of the island’s trade. More than 93,000 Taiwanese companies have invested in the mainland since 1988, though outbound investment to the mainland declined for its third consecutive year in 2017. Reciprocal mainland investment in Taiwan is rising, but at a slower rate. China and Taiwan have also agreed to allow banks, insurers and other financial service providers to work in both.

Taiwan’s closer economic links to the mainland pose unique challenges, with political differences remaining at a time when China’s economic growth is slowing. Commerce with the mainland takes a higher priority because Taiwan President Tsai Ing-wen’s administration has made little progress on solving domestic economic issues, including concerns about stagnant wages, high housing prices, youth unemployment, job security and retirement financial security. Ms. Tsai has made more progress boosting trade with south Asia, which may insulate Taiwan’s economy from a fall in mainland demand if China’s growth slows further in 2018.

U.S. arms sales to Taiwan, totaling more than $25 billion between 2007 and 2018, have led to friction between the United States and China, with accompanying bellicose rhetoric from Beijing. President Tsai spoke to President-elect Trump in a telephone call before Mr. Trump’s inauguration, the first such highest-level contact between the two sides since 1979, and an indication Washington continues to place high value on the relationship despite official U.S. ties to Beijing.

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