Economic Integration Across the Taiwan Strait: Global Perspectives

Economic Integration Across the Taiwan Strait Global Perspectives

Author:     Peter C. Y. Chow

ISBN:          978-981-4383-55-4

Publisher: 9780857939722

Year:          2013

Price:         $135

Reviewed by Winifred Chang, Ph.D. in the Department of History, University of California, Los Angeles, USA.

Economic Integration Across the Taiwan Strait is a collection of 10 substantive chapters that seek to cover economic integration between Taiwan and China (in some cases, Hong Kong) from different theoretical and practical perspectives. By gathering together disparate sectors such as the high-tech, banking, and FINANCE, the book provides good coverage of economic integration in terms of policy and non-state actors. Furthermore, Taiwan-China economic relations are also placed in the context of a post-WTO world in which globalization has significantly affected the economies of both countries.

In “Cross-Strait linkages: historical perspective and empirical evidence,” Richard Burdekin, Yijing Shen, and Hsin-hui Whited provide an overview of the history of China-Taiwan relations in the contemporary era. With the liberalization of China and Taiwan in the 80s, there has been increasing trade between the two, and China has become Taiwan’s largest export market by 2002. In spite of previous political policy attempts to hold back Taiwanese enterprises from doing business with China, Taiwanese enterprises have found loopholes by undertaking INVESTMENTS in holding companies in tax havens, making them invisible in official accounting. As a result, economic integration in the form of “Greater China,” including Taiwan, China, Hong Kong, and to a lesser extent Macau, has been consolidating even though policy directives have only been more relaxed in the last few years.

In “A comparison between the CEPA and ECFA,” Yun-Wing Sung discusses how China handled CEPA with Hong Kong and ECFA with Taiwan. Asymmetric integration in both of these relationships was evident due to the massive disparity between the scales of the economies involved. The substance of both CEPA and ECFA involved many concessions from China to its small neighbors, and ultimately Sung states, “the Mainland was also motivated to make concessions as the ECFA would link Taiwan more closely to the Mainland, diluting the strong pro-independence sentiment in Taiwan.” (p. 37) Thus, Sung acknowledges that Cross-Strait economic integration is not just that – there were many political considerations involved, with the ultimate goal being reunification.

In “Assessing the impacts of the integration of the ICT INVESTMENTS of Taiwan and China upon economic growth in Taiwan,” Winston Lin uses statistical models based on economic theory (theory of production) to assess the information and communication technology sector in Taiwan. He comes to the conclusion that integration, in the form of ICT investments of Taiwan and China, has had negative impact on productivity growth in Taiwan in every year between 1992 and 2001, the time period in the study.

In “Trends for future integration of commercial banking between Taiwan and China after the ECFA,” Hong-Jen Lin conducts efficiency analysis and strategic analysis on the banking markets in Taiwan and China. Lin finds that while Taiwan has relatively small banks, they could expect to PROFIT by lending to small- and mid-cap enterprises in China, which has traditionally relied on underground finance, also known as “shadow banks,” or family money because Chinese banks tend to favor lending to state-owned enterprises. Ultimately, however, after integration, banks will need to provide high-quality services and maintain good relationships with customers in order to succeed.

In “Development and international diversification benefits of equity markets in China, Hong Kong, and Taiwan,” Wan-Jiun Chiou, Chun-Pin Hsu, and Chin-Wen Huang evaluate free trade agreements among the three sides and measure their benefit. While there has been rapidly increasing economic integration and cooperation in this region, it has had mixed results in terms of international trade. The authors also note the important role of economic integration in Beijing’s designs on Taiwan for unification, and that as a result, China will attempt to bar international involvement in settling commercial disputes by designating them as domestic. Through empirical analysis, the authors discover that greater diversification outside of the Greater Chinese market, in areas such as Europe and North American, would be of greater benefit to INVESTORS.

In “Cross-border mergers and acquisitions by China in Taiwan 1997-2010,” Monica Yang assesses the composition and motivations for cross-border mergers and acquisitions (CBMAs). She finds that there have been increasing China/Hong Kong CBMAs in Taiwan, even though the Taiwanese government employed restrictive policies in this regard in the past. Even though since the KMT returned to power in 2008, CBMAs did not increase significantly. Although Chinese companies do not focus on Taiwan, they are likely to use their presence in Taiwan to acquire critical implicit assets from which they are barred by other developed nations with security concerns about China; these are the types of deals that the Taiwanese government should be prepared to manage in the future.

In “Strategic alliance between Japan and Taiwan on the Chinese market: an empirical analysis of the IT industry,” Chih-Ping Chen and Kai-Wen Hsieh analyze joint ventures of Taiwanese and Japanese firms in the Chinese information technology industry. In Taiwanese-Japanese joint ventures, significant benefits enjoyed by Taiwanese firms include technology transfers and opportunities for more orders from Japanese firms, thereby resulting in greater scale of production and PROFITABILITY. The authors conclude that Taiwanese and Japanese firms that formed strategic alliances for greater periods of time enabled them to outperform those operating independently or in short-term alliances.

In “Global production networks and the Kunshan ICT cluster: the role of Taiwanese MNCs,” Tain-Jy Chen and Ying-Hua Ku use the concept of global production to assess the evolution of the information and communications technology (ICT) cluster in Kunshan. They stated that one important factor in the rise of the Kunshan ICT cluster is the connection to Taiwanese multinational corporations (MNCs). This factor, along with Kunshan’s proximity to Shanghai and local institutions corresponding to national institutions enabled it to attract investments, which allowed it to evolve and keep up with the global ICT industry. Kunshan’s association with Hsinchu Science Park in Taiwan and Silicon Valley in California, as well as the presence of Japanese and KOREAN MNCs also helped the ICT cluster. Possible challenges are the lack of industrial policy and rising labor costs, which would become problematic if foreign investment declines.

In “Semiconductor interconnectivity across the Taiwan Strait: a case study approach,” Ming-chin Chu analyze the migration of Taiwanese semiconductor production to China by looking at several detailed firm-level case studies in categories of integrated circuit design and fabrication. Chu finds that in spite of policy restrictions, Taiwanese companies and individuals have used loopholes by establishing holdings companies in tax havens to INVEST in China and transferring productive capabilities to China. The author concludes that Taiwanese restrictions have been violated by several Taiwanese firms in their operations in China, which has not only damaged state authority but also enabled improvement of the strategic sector in China at Taiwan’s expense.

In “The emerging trade bloc across the Taiwan Strait in regional and global perspective,” Peter Chow placed Cross-Strait integration in larger contexts to offer recommendations for the future economic development of Taiwan. Chow traces the evolution from economic interactions to integration between Taiwan and China, analyzed the trade structures using the “hub-spoke” model of integration, and evaluates the place of Taiwan in potentially integrated East Asian economic hubs. Finally, Chow considers various scenarios for Taiwan’s future economic development, and concludes that rather than locking itself into the China-centric hub, Taiwan should work to sign agreements with other countries in attempt to become a “near-hub” or join other hubs as well. As China adjusts to globalization and vice versa, Taiwan should recognize that its own engagement with globalization will affect its political autonomy.

Ultimately, only a few of the chapters acknowledged the Cross-Strait and regional political ramifications of increased economic contact between Taiwan and China. After the Sunflower Student Movement, which opposed Kuomintang’s passage of the Cross-Strait Service Trade Agreement, took the drastic action of occupying the Legislative Yuan of Taiwan in March 2014, this book remains valuable in our understanding of the nuts and bolts of economic integration.

Suggested citation:

Winifred Chang (2014). Review of “Economic Integration Across the Taiwan Strait: Global Perspectives”, by Peter C. Y. Chow, East Asian Integration Studies, Vol. 7, no.30.