By Xiaoyue Hao
On March 3, the Taiwan authority ordered the Chinese e-commerce company Alibaba to withdraw from the island in six months. Why would the government want to kick out a global tech giant that has served thousands of small- and medium-sized enterprises and around 140,000 registered users across the island nation? According to Taiwan’s Ministry of Economic Affairs, Alibaba failed to deliver documents to prove the precise national origins of its shareholding structure.
Why does strict compliance with such regulations for Chinese businesses matter so much to Taiwan? The island’s continued awkward relations with Beijing are the fruition of leftover animosity from the Chinese Civil War, in which Taiwan won its hard-fought political autonomy from mainland China. The strict anti-Chinese stance still undertaken by multiple strata of the Taiwanese government, which still largely considers the mainland a political enemy, has dominated Taipei ever since from diplomatic matters to economic policies.
Nevertheless, Taiwan’s geopolitical hangups from the mid-20th century are now hurting the island's prospects of long-term prosperity in the 21st century. The Taiwanese economy relies heavily on international trade, with mainland China being its biggest trading partner. According to CIA statistics from 2013, exports comprise 73.1 percent of Taiwan’s GDP, with 64.5 percent used for imports. China accounts for the largest share of exports and the second largest share of imports, 27.1 percent and 16.1 percent respectively. These ratios have been growing since 1990.
Yet surprisingly, Taiwan has not shown any real passion for establishing free trade relations with its greatest trading partner. The hallmark Cross-Straits Economic Cooperation Framework Agreement (ECFA), a Free Trade Agreements (FTA) deal between Taiwan and the mainland, has yet to be ratified by Taiwan’s legislature. The delay in ratifying the ECFA has not only obstructed Taiwanese trade with the mainland, but has also shaken the confidence of foreign investors in Taiwan.
Of course, this is not the first time Taiwan has said no to China, even through more implicit legislative action. As a variety of countries began elbowing their way into China’s developing market over the last few decades, Taiwan instead pushed China away through increased and tedious financial regulations. With Foreign Direct Investment (FDI) in mainland China under strict scrutiny and restrictions, Taiwanese enterprises began registering overseas so as to invest in the mainland. Taipei did not permit FDI inflow from the mainland until 2009 and announced almost the strictest definition of what counted as “mainland capital”—any corporation with over 30 percent shares held by or in real control of any mainland legal person.
When Taiwan pondered whether to grow closer with or keep their distance from Beijing, others made their moves. South Korea signed the FTA with China nearly two months ago, to which Taiwan reacted immediately. Soon after, the Taiwanese Security Council submitted a report to parliament suggesting that the ECFA should be ratified soon because the China-Korea FTA would severely jeopardize Taiwanese industry. According to one estimate from Taiwan’s economic ministry, a quarter of Taiwan’s exports to the mainland could in fact be at stake.
Hardliners may believe that maintaining economic independence from mainland China is essential to maintaining the island political independence. Yet no matter how unwilling, Taiwan must face up to the fact that the island’s fortunes will sink or swim with those of mainland China. On the other hand, insisting on rejecting all-things Beijing-related, idealists risk overlooking a much worse scenario than they could imagine: If the scale of economic power keeps tipping to the side of the mainland, so will the scale of political power. Unless economic gap between Taiwan and mainland China starts to close, it will be even more difficult for Taipei to resist the political influence of Beijing.
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Xiaoyue Hao is a master's candidate in International Politics and International Business at New York University. Her research focuses on surveying markets in the developing world, as well as the political and business environments of East Asia, among other regions.
[Photos courtest of Wikimedia Commons]