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STRATFOR.com
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Taiwan Chooses Security Over Prosperity
November 9, 2001
Summary
Taiwan recently relaxed trade restrictions against China, but the government maintained strict controls on high-tech and infrastructure construction firms that want to invest on the mainland. Keeping electronics companies in Taiwan will protect the island's key industries. That security, however, will become increasingly irrelevant as Taiwanese companies lose out to competitors using lower-cost Asian labor.
Analysis
On Nov. 7, Taiwan relaxed restrictions on trade with China -- a move that should please Taiwanese companies eager for a bigger piece of the Chinese market. The decision came amid an economic slump and fears that the island could be marginalized as China forms a free-trade zone with the Association of Southeast Asian Nations.
The new policy maintains strict controls on technology companies -- the core of the Taiwanese economy -- that hope to set up manufacturing operations in China. Taipei's reasons have as much to do with minimizing dependency on China as with protecting local jobs. Keeping electronics firms in Taiwan will protect the island's key industries but ultimately will hurt its economy. Tech firms will be denied access to low-cost labor and may face greater obstacles to expanding into China, rendering them vulnerable to foreign competitors and hamstringing Taiwan's economic recovery.
A weakened, if not collapsing, Taiwanese economy would shift the balance of power away from Taipei and toward Beijing. That shift would force the United States to carefully evaluate its support for Taiwan.
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Dan
Taiwan Chooses Security Over Prosperity . . .