1 Greater China Development from the Perspective of Taiwan Chi Schive President Taiwan Academy of...

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Greater China Development from the Perspective of Taiwan

Chi Schive

PresidentTaiwan Academy of Banking and Finance

Adjunct ProfessorNational Taiwan University

April 6, 2001

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I. Mega trends in the late 20th century and beyond

II. Taiwan’s role in East Asian regional integration

III. Taiwan’s investment in mainland China

IV. Impacts of Taiwan’s investment in mainland China

V. Implications of WTO entry

VI. Concluding Remarks

Outline

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World Output and Goods Trade

3.5

2.22.9

6.9

5.3

8.7

2.02.4

3.0

World Output (Growth, %) Trade Growth/

Output Growth

World Goods Trade Volume (Growth, %)

84-88 89-93 94-98 84-88 89-93 94-98 84-88 89-93 94-98

I. Mega trends

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Regional Integration

30

35

40

45

50

55

60

65

1980 1985 1987 1989 1990 1991 1992 1993 1994 1995 1996 1997

NAFTA

East AsiaTaiwan (with East Asia)

EU

%Intra-regional exports as a percent total exports

I. Mega trends

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The Tonne Age Industrial revolution - 1950s

Steel, ships, textile, construction

The Kilo Age 1960s

Cars, consumer electronics, appliances

The Gram Age 1970s - 1980s Micro electronics, robotics

The Vacuum Age 1990s

Services, systems, media

Production Technology in History

Source: Slightly revised from Jean-Pierre Lehmann,“The Future of the Asia Pacific Economies: Dynamism of Trade and Investment” presented at APEC Economic Committee Symposium The Future of Asia Pacific Economies, December 6 1999, Tokyo.

I. Mega trends

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Lowering Real Inventory-to-Sales Ratios

Source: U.S. Department of Commerce (Bureau of Economic Analysis.)

Lowering Inventory-Sales Ratio

- the U.S. Case

I. Mega trends

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Japan

Taiwan U.S.

I: InvestmentM: Materials/IntermediatesQ: Finished product/commodityS: Strategic alliance

Before the mid-1980sLate 1980s and early 1990sAfter the mid-1990sASEAN

I&M

M

I&MQ

QS

Q

Q

Taiwan’s International Division of Laborfrom Triangle to Diamond

China

I&M

Q

S

II. Taiwan and regionalism

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Investment in Southeast Asia and China

Thailand Malaysia Philippines Indonesia Vietnam ChinaUp to1986

577.5 50.4 7.8 170.0 - 100

1987 300.0 47.3 9.0 7.9 - 4201988 842.0 307.3 109.9 913.0 - 5171989 871.0 815.0 148.7 158.0 - 9841990 761.0 2,383.0 140.7 618.0 107.0 1,3921995 1,803.9 565.5 181.6 567.4 1,215.1 5,7771996 2,785.2 310.3 7.4 534.6 534.3 5,141

1997 414.3 480.4 13.1 3,419.0 247.8 2,814

1998 253.6 263.4 5.4 165.5 252.8 3,118

1999 211.1 70.3 5.0 3,309.7 173.0 3,370

Rank 4 3 5 2 2 3

According to Host Country StatisticsUS$ million

Sources: Board of Investment, Thailand; Malaysian Industrial Development Authority, Malaysia; Board of Investment, the Philippines; Investment Coordinating Board, Indonesia; State Commission for Cooperation and Investment, Vietnam; Ministry of Foreign Trade and Economic Cooperation, mainland China .


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Production Sharing of Taiwan’s IT Industry

1995 1996 1997 1998 1999*

Total 100.0 100.0 100.0 100.0 100.0

Taiwan 72.0 67.9 62.6 57.0 52.7

China 14.0 16.8 22.8 29.0 33.2

Thailand 5.0 5.5 5.9 5.4 5.3

Malaysia 7.2 7.4 5.6 4.5 4.0

Other 1.8 2.4 3.1 4.1 4.8

%

* Estimates.Source: Market Intelligence Center, Institute for Information Industry.


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Increasing Oversea Production Share in Taiwan’s IT Industry

Source: The ITIS（ Industrial Technology Information Service） Plan, Institute for Information Industry , November 2000.

3.3

95.0

6.7

0

25

50

75

100 % 1999

2000


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Trends of Taiwan’s Investment in China

• Labor-intensive industries (food, beverage, rubbers, plastics) are losing importance to technology-intensive industries (electronics).

• Invested areas are extending from coastal provinces to inland.

• Size of investors are expanding from SMEs to large enterprises. About one-third of Taiwan’s publicly listed companies invest in China presently.

III. Taiwan’s investment in China

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Taiwan’s Investment in ChinaAccording to Taiwan According to China

No. ofCases

US$billion

US$1,000per case

As % of Taiwan’stotal outwardInvestment

No. ofCases

US$billion

(Contract)

US$billion

(Actual)1991 237 0.2 73 9.5 3,884* 3.5* 1.1*1992 264 0.2 94 21.8 6,430 5.5 1.11993** 9,329 3.2 90 40.7 10,948 10.0 3.11994 934 1.0 103 37.3 6,247 5.4 3.41995 490 1.1 223 44.61 4,778 5.8 3.21996 383 1.2 321 36.2 3,184 5.1 3.51997** 8,725 4.3 222 35.8 3,014 2.8 3.31998 1,284 2.0 237 31.6 2,970 3.0 2.91999 488 1.2 257 27.7 2,499 3.4 2.62000

（1-9）562 1.8 317 36.7 2,189 2.7 1.4

Total 22,696 16.3 72 34.26 46,143 47.3 25.6

* Cumulative amount up to 1991. **Registered amount increased remarkably in 1993 and 1997 due to belated reports of investments made in previous years.

Sources: Investment Commission, Ministry of Economic Affairs, ROC; Ministry of Foreign Trade and Economic Cooperation, PRC.


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Industrial Composition of Taiwan’s Investment in China

Source: Investment Commission, Ministry of Economic Affairs

0%

10%

20%

30%

40%

50%

60%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000/NOV

Electronic & Electric AppliancesPrecision Instruments,Food & Beverage Processing,Plastic Products,Basic Metals ProductsOthers


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Scale of Taiwan’s Investment in China

Note: The “no haste, be patient” policy argument was announced in September 1996.

Source: Investment Commission, Ministry of Economic Affairs.

US$million

237 264

934

733

490383

728

488641

1,262

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Amount

Average

Case 237 264 1,262 934 490 383 728 641 488 733

Amount 174 247 1,140 962 1,093 1,229 1,615 1,519 1,253 0

Average 0.7 0.9 0.9 1.0 2.2 3.2 2.2 2.4 2.6 3.1

1991 1992 1993 1994 1995 1996 1997 1998 199920001~11

US$million

No. of cases

Average

Total


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The Impacts of Taiwan’s Investment in China

Trade• Bilateral trade has been expanding at double-digit

rate, except during the Asian financial crisis. China has become Taiwan’s very important export market only second to the U.S., and sixth largest import supplier.

• Investment in China has caused expansion of Taiwan’s exports of machinery, parts, and raw materials to China. Whether negative impact will be produced from China’s introduction of local content requirement in 1998 remains to be clarified.

III. Impacts of Taiwan’s investment in China

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Exports to Mainland China

1998 1999

Share Share Growth

Electrical machinery and parts 18.9 23.7 45.1

Machinery tools and parts 14.1 14.3 16.7

Plastics 11.2 11.8 20.9

Iron and steel 5.6 5.7 17.8

Synthetic fibers 6.8 5.6 -6.3

%

Source: Board of Foreign Trade, ROC.


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Imports from Mainland China

1998 1999

Share Share Growth

Electrical machinery and parts 28.2 31.0 20.7

Machinery tools and parts 9.2 9.1 9.2

Iron and Steel 10.6 7.9 -17.9

Mineral fuels, mineral oils andrefined products

4.7 4.5 5.7

Zinc and products 2.8 3.3 29.6

%

Source: Board of Foreign Trade.


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Competing for overseas markets?

Yes,

Taiwan’s export share growth in the U.S., Japan and EU slowed down between 1996 and 1999. China, on the contrary, has been on the rise.

No,

a non-negligible portion of China’s exports are due to Taiwan-based companies pursuing comparative advantage in China.



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Competing for domestic capital?

Yes,

1. provided capital supply is fixed/limited.

2. arrived capital in China represents a net outflow of capital in BOPs.

No,

1. domestic capital can be enlarged with capital inflows.

2. direct investment generates favorable BOPs through inducing exports.



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Hollowing-out effect?

Yes,

1.outward investment substitutes domestic investment.

2. outward investment results in job loss.



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Hollowing-out effect?

No,

1. the exodus of industries reflects changes in comparative advantage (pull effect) and changes in local investment environment (push effect).

2. it is labor market rigidity, instead of FDI, that causes the job market shrinking.

3. outward investment in the 1980s and 1990s. helped industrial restructuring in Taiwan.

4. investment in the high-tech industry has been flourishing.



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Growing economic dependence hampers national security?

Yes,

Taiwan’s economic stability will be affected by market fluctuations in China as well as by China’s policies.

No,

1. Taiwan’s economic dependence on China is reciprocal.

2. economic interdependence may enhance regional stability, rather than hamper it.



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More business opportunities in China• Taiwan’s business sector has shown growing

interests in investing in China because of an anticipation of larger and more opened local market.

• Companies see better opportunities in local market in finance, telecom, insurance, internet, and logistics.

• Companies attempting to keep international competitiveness sees better opportunities in agriculture and labor-intensive industries.

Implications of WTO Entry

V. WTO entry

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Industry• The opening to China’s industrial imports into

Taiwan will cause some, but manageable, impact on Taiwan’s industries.

Services• Since the service sector in both economies are not

internationally competitive, both will be severely affected, while much more so for China.

• However, foreign investors are likely to form strategic alliance with partners from Taiwan when penetrating the market in China.

Implications of WTO EntryV. WTO entry

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For Government:• More economics, less politics.• More invisible hand, less visible hand.

For Scholars:• More solid analysis, less ideological conjecture.

For Business Community:• Think globally, practice locally.

Concluding RemarksVI. Concluding Remarks

1 Greater China Development from the Perspective of Taiwan Chi Schive President Taiwan Academy of...

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