ECFA – Economic Cooperation Framework AgreementBUSI 3001 SBLCWeek 7(9), Spring 2010

Charles Mo & CompanyApril 19, 2010

ECFA

Why both sides need ECFA History and background of the modern China in Beijing

and Taipei Taiwan’s economy after the 50’s China’s economy after 70’s Relationship between cross-Taiwan-straight during

Deng’s era Jiang’s era Hu’s approach

Potential ECFA economic impact on Taiwan BJ and Taipei set stage for ECFA Three agreements signed under ECFA Future potential for the two sides

China’s modern history

In 1950, the Nationalistic Party (KMT) led by Chiang Kai-shek was driven off the mainland by the Communist Party to the island of Taiwan with two million soldiers and civil servants.

Chiang fled to Taiwan and hung on to two island clusters near the province of Xiamen, Kinmen and Matsu.

Why?

The two sides shut off all communications and were at war until 1978 when the artillery shelling stopped to Kimen islands.

Why? February 21, 1972

In 1978, China’s second generation leaders led by Deng Xiao Ping embarked on market reform and economic development

"One country, two systems" is an idea originally proposed by Deng Xiaoping

In 1996, US dispatched two aircraft carriers after Chinese missile tests over the island.

What happened and why? What was the result of this action?

In 1998, Hu Jing Tao became the president and during his rein,

Chen Shui Bian was arrested for corruption in 2008 Ma Yin Jeou was elected president of Taiwan in 2008 ECFA discussion was resumed in May 2008

Rapprochement between the two sides May 2008: China and Taiwan resumed trade talks, first of the ECFA

four meeting began. June 2008: Taiwan and China reach agreements for direct flights and

Chinese tourists’ visits to Taiwan July: First Chinese tourist group lands in Taiwan April 2009: Both sides sign agreements for regular passenger and

cargo flights, financial cooperation and mutual assistance in cracking down on crimes.

April: Taiwan introduces a cross-Straight industrial exchange project to promote cooperation in 15 industries

June: Taiwan opens 100 industries to Chinese investments June: resumed ECFA talks following a suspension of some 10 years June: China sends the first procurement delegation to Taiwan November: The two sides sign memorandum of understanding for

financial investment

Founding father of the current China

Market reform and economic boom Negotiated return of Hong Kong and Macau

During his time, Hong Kong and Macau returned to China

Possible signing of landmark ECFP

Taiwan’s economy Technology industry Taiwan firms make world’s many Personal Computers and

related products Taiwan is part of the global high tech value chain Both sides have staked personal prestige on this pact China is Taiwan’s largest export destination

1/3 Taiwan export destined to China Bilateral trade amounting to US$130 b in 2008

Taiwan opens tourism to China

Tourists from China arrive in Taiwan from a cruise ship this year amid loosened restrictions on visitors from the mainland

China and Taiwan are launching key talks toward a trade pact that would mark the biggest step forward in a détente that is reshaping East Asia’s economics and politics.

The talks are expected to result in the signing of 2011 free trade deal between the onetime enemies

This new pact includes opening: Business, travel, and political contacts.

If successful Bind Taiwan to its giant neighbor Erase decades old barriers in Taiwan to investments

from China

Jiang’s era

Pressure for reunification Taiwan’s new democratic party pushing for independence Missile tests in the Taiwan Straight China had 1500 missiles pointing at Taiwan

Hu’s approach Abandoned the sort of fiery threats toward Taiwan Instead signing a series of free-trade deals with its Asian

neighbors including one with Taiwan’s major competitors When the pacts take effect next year, Taiwan’s exports to

China will become much more expensive. Forbid its regional partners from making similar deals with

Taiwan

ECFA Potetial Economic impact on Taiwan

1.65-1.72% to Taiwan’s gross domestic product Create 263,000 jobs Taiwan has in the past prevented multinationals

from integrating Taiwan into their global operations, driving many to Shanghai

Limits on banking and investment in China set back in companies

Taiwan government study

Beijing, Taipei set stage for landmark pact

Rapid improvement in relations with China since Taiwanese President Ma Ying Jeou took office.

Taiwan-China tension is the greatest security concern in East Asia

What may be accomplished in the week Dec 21, 2009 No formal trade talks Setting a frame work for the free-trade deal Set a time frame for trade talks An agreement is expected in the first half in 2010

A list of zero-tariff products Including financial, machinery, and petro chemical industries

Something will come out during the week of Dec. 21, 2009 Agreement on fishing-industry cooperation

Quality checks of agricultural products, Cooperation in inspection and certification Prevention of double taxation Ease visits by Chinese professionals Offer scholarships to Chinese students

On going talks Enabling Chinese banks to enter Taiwan Worry by the Taiwanese

Chinese banks market capitalization is often 10 times of the Taiwanese banks.

Control by Chinese banks Financial regulators will bar from buying stakes in Taiwanese

banks

Talking points/key issues in Taiwan-China trade negotiations

Tariffs on machinery, textile, and petrochemical – Taiwan seeks tariff-free sales in these industries

Ban on agricultural products – Taiwan vows not to open its market more than 800 Chinese agricultural products

Ban on industrial products – China urges Taiwan to open its market to some 1300 industrial Chinese products

Local currency service – Taiwan seeks right for Taiwanese banks to provide local currency

Chinese investments to Taiwan Investment Protection Agreement

Taiwan, China signed 3 agreements Tuesday, December 22, 2009 signed 3 agreements

Industrial standards Food quarantine Fishery cooperation

Effective in 90 days after the signing Taiwan would like to sign the trade pact with China and set in motion the

negotiations ASAP China’s position is that in light of the importance and complexity

involved, it is not wise to set a timetable for the signing of ECFA Expected to hurt makers of shoes, socks, towels, garments, automobile

parts, and petrochemical products

Industrial standards Taiwan and China will work together to establish joint

standards and specifications on products for which there are not international standards yet

Bureau of Standards, Metrology and Inspection under the Ministry of Economic Affairs

Exporters would have to ensure the products complied with these standards

Related companies may collect royalties if they register patents on them

Profit involved is huge given the size of the Chinese market Benefit Taiwan’s light-emitting diode, solar-cell and flat panel

makers because international standards aren’t available

Other discussions Trade talks will also settle which sectors will be included in the

list of the first industries to be allowed to sell their goods at lower or zero tariffs

Taiwan hopes to indlude Banking, Textile Auto parts Machinery

Increase cross straight flights during lunar year Taiwan and China currently operate 270 passenger flights a week

Future potential

US & UK China & TaiwanGDP $14 T; $2.6T $4.7 T; $0.395 T

Geography 9.83 m sq km; 243K sq km

5.03 m sq. km;161k sq km

population 309 m; 58.7 m 1.3 b; 23 m

Export $1.1 T; $351 b $1.2 T; $204 b

Two economiesChina Taiwan

GDP 2009 $4.3 t $357 b (CIA Worldfact,Jan10, 10)

Per Cap GDP 2009 $3,180 $16,590

GDP growth 2009 8.75% (4%)

Currency Yuan NT$

Birth rate 1 child policy 1.0 per woman

Exchange Rate 1US$=6.82 $1US=32.84

Trade surplus with US 2009

$233 b $12.7 b

FD Investments 2008 $111b $8.23 b

Unemployment 4% 6.4%

Export countries in the worldRank Country Exports Year

World $12,461,000,000,000 2009 est. European Union $1,525,000,000,000 2009 est.

1 PR China $1,202,000,000,000 2009 est. 2 Germany $1,121,000,000,000 2009 est. 3 United States $1,057,700,000,000 2009 est. 4 Japan $ 581,000,000,000 2009 est.5 Netherlands $ 499,000,000,000 2009 est. 6 France $ 475,000,000,000 2009 est. 7 Italy $ 405,000,000,000 2009 est. 8 Belgium $ 370,000,000,000 2009 est. 9 South Korea $ 364,000,000,000 2009 est. 10 United Kingdom $ 351,000,000,000 2009 est. — Hong Kong $ 330,000,000,000 2009 est. 11 Canada $ 316,000,000,000 2009 est. 12 Russia $ 304,000,000,000 2009 est. 13 Singapore $ 270,000,000,000 2009 est. 14 Mexico $ 230,000,000,000 2009 est. 15 Spain $ 218,000,000,000 2009 est.

16 Taiwan $ 204,000,000,000 2009 est