This Foreign Affairs article by George J. Gilboy focuses on trade between China and the U.S., but it has some good news for Taiwan. I remember reading many alarmist articles a few years ago, at the time that both Taiwan and China entered the WTO, about how China was catching up with Taiwan in the hi-tech sector, and how Taiwan simply wouldn’t be able to compete unless it managed to find some new miracle sector — like biotech. Well, it turns out that Taiwan isn’t doing so bad.
Taiwan still has a trade surplus with China:
Although [China] had a $124 billion trade surplus with the United States in 2003, it had significant trade deficits with many other countries: $15 billion with Japan, $23 billion with South Korea, $40 billion with Taiwan…
China’s growth is much more dependent on foreign companies than was Taiwan’s:
Foreign-funded enterprises (FFEs) accounted for 55 percent of China’s exports last year. In this respect, China diverges from the typical Asian success story. According to Huang Yasheng of the Massachusetts Institute of Technology, FFEs accounted for only 20 percent of Taiwan’s manufactured exports in the mid-1970s and only 25 percent of South Korea’s manufactured exports between 1974 and 1978.
China failed to invest in the kinds of basic R & D that allowed for the success of Taiwan and other East Asian countries:
One of the key reasons that state, collective, and private firms in China lag behind FFEs is that they have failed to invest in the type of long-term technological capabilities that their Japanese, South Korean, and Taiwanese predecessors built during the 1970s and 1980s.
And China shows no signs of changing its ways:
Most Chinese industrial firms focus on short-term gains and, despite increasing operational efficiency, sales revenues, and profits, have not increased their commitment to developing new technologies. Their total spending on R&D as a percentage of sales revenue has remained below one percent for more than a decade. R&D intensity (R&D expenditure as a percentage of value added) at China’s industrial firms is only about one percent, seven times less than the average in countries of the Organization for Economic Cooperation and Development (OECD).
Gilboy argues that even those partnerships which were supposed to bring technology into Chinese companies have largely failed, mostly because such partnerships can’t compete with China’s SOEs (State Owned Enterprises) or with foreign firms who have directly invested in the Chinese market.
In the end, Gilboy argues that China looks more like Brasil or India, other “emerging industrial powers,” than another “another Asian technological and economic ‘giant,’” like Japan, Korea and Taiwan. So, for now, Taiwan seems to still be gaining more than it looses by engaging with trade in China. However, it is important to note that such gains do not necessarily accrue equally to all sectors of Taiwan’s economy. Gilboy’s article claims that outsourcing and trade creates jobs for Americans, but he overlooks important questions about the nature of the new jobs that are created. Although I don’t know the figures, I believe such outsourcing to China has hurt many in Taiwan’s economy even more than in the US. There are only so many people that can survive driving taxi cabs or selling noodles and Taiwan needs to create new jobs for these people. Still, it is reassuring to know that Taiwan isn’t about to be put out of business by China, and may even continue to prosper from the relationship.