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OP-ED: Taiwan’s Problem Is the Economy, Not China

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OP-ED: Taiwan’s Problem Is the Economy, Not China

Syaru Shirley

Wall Street Journal

When Taiwan’s first female president Tsai Ing-wen of the Democratic Progressive Party (DPP) took office on May 20, most observers focused on what she would say about Taiwan’s relations with China. Beijing has always maintained that unification with Taiwan is a core interest and repeatedly insisted that Tsai accept the “1992 consensus,” referring to discussions in 1992 when both sides acknowledged there is only “one China” of which both Taiwan and the mainland are parts. Taiwan’s former ruling party, the Kuomintang (KMT) has continued to accept the “1992 consensus” and, on that basis, worked closely with China to promote cross-Strait social and economic integration, portraying it as the key to solve many of Taiwan’s mounting economic problems. To the KMT, China was the key to sustaining Taiwan’s economic growth, serving as the most important market for Taiwanese exports, the leading destination for its outbound foreign direct investment and increasingly, a potential source of capital investment into Taiwan. In contrast, the DPP has refused to accept the “1992 consensus” because of its implied commitment to unification. Moreover, many Taiwanese see China as an up-scale competitor rather than a low-cost supplier. Indeed, Taiwan has begun to exhibit signs of a post-industrial economy falling into a “high income trap” with slower growth, widening inequality and an aging population, all of which harm the prospects for Taiwan’s younger generations. As in Hong Kong, opening up to China has produced an influx of Chinese tourists, stagnant wages and problems with food safety. This has led to growing public skepticism regarding the benefits of deeper economic integration with China. That skepticism is exacerbated by the perceived threat China presents to Taiwan’s hard-earned way of life, characterized not only by freedom and democracy, but also by diversity, equality and justice. Taiwanese identity has become consolidated so that only 3% believe they are exclusively “Chinese” and 82% support continued autonomy from China.

These trends led to President Tsai’s landslide election victory on a platform that prioritized structural economic changes over relations with China. Her success reflected the growing perception that China may be the problem rather than the solution. Is China still a driver for growth and a natural market for Taiwan’s goods and services? Or is China a competitor cannibalizing Taiwan’s market share in world trade, stealing Taiwan’s technology and draining Taiwan’s capital? These questions are all the more pertinent because China poses an existential threat to Taiwan, not only seeking the unification few Taiwanese support but also refusing to repudiate the use of force to achieve it.

Given such background, it was no surprise that in her inaugural speech, she focused on domestic issues: restructuring the economy, strengthening the social safety net, and promoting social fairness. In particular, she called for national meetings to achieve consensus on two priorities, pension and judicial reform. In the end, she did address relations with Beijing, but as one part of Taiwan’s interest in regional peace and global issues. Tsai’s approach underscored her belief that Taiwan needs above all to address its domestic problems, and China is only part of that bigger picture, rather than the center. 

After talking about needed domestic reforms, Tsai sought to develop a more balanced approach toward the rest of the world, including increasing cooperation with regional partners and contributing more to global issues where Taiwan has expertise. Tsai then mentioned Taiwan’s desire to be included in the second round of the Trans-Pacific Partnership, the China-led Regional Comprehensive Economic Partnership, as well as other free trade agreements. Tsai also highlighted a new “go south” policy promoting investment in ASEAN and India, and  “bidding farewell” to Taiwan’s “overreliance on a single market.” In a meeting with foreign delegates that I attended the next day, Tsai stressed the importance of moving forward on the Trade and Investment Framework Agreement with the U.S. 

Maintaining cross-Strait stability was mentioned in this global context, as part of Taiwan’s responsibility to safeguard regional peace. Tsai implied that pivoting from focusing on its bilateral relationship with China to strengthening multilateral and bilateral ties to the rest of the world would be the key to Taiwan becoming a vibrant and sustainable economic powerhouse again with political values aligned with market democracies.

In achieving these ambitious goals, Tsai has important challenges ahead. Domestically, it will be difficult to restructure a highly regulated economy that has not successfully transitioned from manufacturing to services. Internationally, Taiwan has not been able to join international organizations or sign many free trade agreements because of Beijing’s objections. While the DPP played an important role as an opposition party to the KMT, now that it has returned to power, it lacks insiders or supporters who understand the private sector. The new Premier, Lin Chuan, is known primarily as a regulator. It is worrying that Tsai stressed the need for industrial planning by the central administration in creating this new economic model. This is a throw back to Taiwan’s earlier economic miracle when it emerged as one of the four “dragons.” In order to stimulate and enable small medium enterprises to thrive, as Tsai mentioned, Taiwan needs to allow market forces to lead, rather than depend on the central government’s ability to groom specific industries, such as the five sectors Tsai highlighted in her speech. Furthermore, Tsai identified a long list of competing goals that will involve difficult trade-offs including her desire simultaneously to improve innovation, employment, equitable distribution, labor rights, social safety net, food safety and environmental sustainability. Widely believed to be fiscally conservative, her administration will face the issue of expanding social safety net while keeping a balanced budget.

With regard to China, Tsai asked the two sides to “set aside the baggage of history and engage in positive dialogue for the benefit of the people on both sides,” and extended an olive branch by referring to the Constitution of the Republic of China and the legislation governing cross-Strait relations, both of which suggest that Taiwan is in some sense part of a larger China. Two days later, however, Beijing‘s Taiwan Affairs Office threatened to suspend all channels of communication unless Tsai explicitly acknowledged the “1992 consensus,” which she thus far has failed to do.

As a leader of a small and free country, Tsai made it very clear that Taiwan’s fledging democratic values cannot be compromised. Her biggest challenge is to fulfill Taiwan’s role as a global stakeholder to maintain peace and stability while satisfying the aspirations of young people who, like their counterparts in other high income countries, face rising real estate prices, diminishing job prospects and an increasingly inequitable society. For Tsai, the focus is on Taiwan and the welfare of its people, rather than on China or cross-Strait relations. Taiwanese want their government to strengthen the foundations of their free and democratic society. Closer relations with China can contribute to that effort, or obstruct it. Deeper economic integration with China may appear inevitable, but many Taiwanese believe that the degree of integration is still a choice to be made, not just a fact to be accepted.

Ms. Lin teaches at the University of Virginia and the Chinese University of Hong Kong. She is the author of “Taiwan’s China Dilemma” (Stanford).

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