Strait Talker

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It's the Economy, Stupid
The most urgent matter concerns Taiwan's faltering economy. One of the original high-powered Asian tigers, Taiwan's economy at first glance seems no less vibrant today. GDP growth clocked in at 5.7% in 2007 while unemployment stood at only 3.9%. Yet dig deeper, and some disconcerting trends reveal themselves. The economy isn't generating a higher standard of living for the regular citizen. The average family income grew a total of only 1% between 2000 and 2006. Nor is it creating enough well-paying jobs. Unemployment among university graduates is the highest among any education category. While most of Asia has roared ahead in recent years, Taiwan has been falling behind. South Korea's main stock market index has surged 140% since the beginning of 2000; Taiwan's hasn't budged. In 2000, Taiwan's GDP per capita was higher than South Korea's; today, the two tigers have traded places. "All of the economies [in Asia] are developing and getting closer, but Taiwan is getting left out," complains Chang Pen-tsao, chairman of the Taiwan Chamber of Commerce in Taipei. "Taiwan has been isolated politically, and if we become weaker economically, then we have nothing."

The business community believes the problems stem from Taiwan's stunted economic relationship with China. In some ways, business ties are already quite strong. Taiwan firms have opened factories in China in pursuit of lower costs than can be found on their more developed home island and, according to government statistics, have invested some $65 billion on the mainland since 1991. (Other estimates run to $100 billion or more.) Some one million Taiwan citizens live in China — a hefty chunk of the country's population of 23 million. However, Taiwan businesspeople still face a myriad of confusing restrictions. For example, Taipei restricts the amount a Taiwan firm can invest in China. Banks are banned from operating there altogether. The objective is to ensure Taiwan's wealth doesn't drain out of the island and into its hostile neighbor; in practice, business leaders say, these measures have cut off opportunities for growth and hampered them when competing with firms from South Korea and elsewhere. Wayne Lee, the secretary general of the Kaohsiung Chamber of Industry, simply labels Taiwan's restrictions "stupid." "There's a big piece of meat there," he says, "and we won't take a bite."

Ma couldn't agree more. He wants to begin direct transportation and trade links across the strait, open Taiwan to Chinese tourists and investors, and reduce restrictions on Taiwan companies operating in China. Taiwan, Ma believes, can't ignore the powerful forces of globalization by continuing to keep its distance from China. "There is an economic reality people have to accept," Ma says. "If we keep the current situation, that will hurt our competitiveness, hurt our efficiency. If you ignore the global trend you will eventually become a loser."

Ma's opponent, 61-year-old DPP candidate Frank Hsieh, agrees — to a point. At times, Hsieh, a highly respected democracy activist and former Premier, can sound almost Ma-like in his policy toward China. Like Ma, Hsieh favors increased economic ties such as direct transportation links; if he wins the presidency, relations with China would improve from where they stand today. But he isn't willing to go as far as Ma; Hsieh and the DPP believe it is in Taiwan's interests to avoid negotiations with Beijing in which their country isn't treated as an equal partner.

Take, for example, the issue of direct passenger flights to China. Currently, Taiwan businesspeople must travel to China via a third city, usually Hong Kong, which wastes time and money. Taiwan's disputed political status has presented a hurdle to starting direct flights. Beijing would prefer to call them "domestic," an unacceptable slight to Taiwan. Ma argues that the two sides can work around this problem by using some simple turn of phrase that both parties accept — such as "cross-strait flights." Hsieh is more wary. In a February debate between the candidates, Hsieh favored an expansion of charter flights only. The difficulty of negotiating and characterizing regularly scheduled flights, he said, would get in the way of any further steps. "We have to stand for the interests of Taiwan," Hsieh said.