global and local challenges and opportunities for taiwan working... · 2019-10-18 · wong ting...
TRANSCRIPT
Lau Chor Tak Institute of Global Economics and Finance
The Chinese University of Hong Kong 13/F, Cheng Yu Tung Building, 12 Chak Cheung Street, Shatin, Hong Kong
Global and Local Challenges and Opportunities for Taiwan
by
Lawrence J. Lau
Working Paper No. 74
October 2019
Acknowledgements
The Lau Chor Tak Institute of Global Economics and Finance is grateful to the following individuals
and organizations for their generous donations and sponsorship (in alphabetical order):
Donors
Johnson Cha Agile Group Holdings Limited
Vincent H.C. Cheng Asia Financial Holdings Ltd
Jonathan K.S. Choi Bank of China (Hong Kong) Limited
Fred Hu Zuliu BCT Financial Limited
Miky Kambara China Concept Consulting Ltd
Tak Ho Kong First Eastern Investment Group
Lau Chor Tak and Lau Chan So Har Four Seas Group
Lawrence J. Lau Hang Lung Properties Limited
Chien Lee Henderson Land Development Co. Ltd.
Milton K.H. Leong Hong Kong Exchanges and Clearing Limited
Antony Leung Hony Capital Limited
Wei Bo Li Industrial and Commercial Bank of China (Asia) Limited
Francis Lui Lai Sun Development Co., Ltd.
Robert Ng Lau Chor Tak Foundation Limited
Simon Suen Man Wah Holdings Limited
Wong Ting Chung Sing Tao News Corporation Ltd.
Lincoln Yung Sun Hung Kai Properties Ltd.
Allan Zeman Tai Sang Bank Limited
The Bank of East Asia, Limited
The Hongkong and Shanghai Banking Corporation Limited
The Lanson Foundation
Wing Lung Bank Limited
Programme Supporters
C.K. Chow Bangkok Bank Public Co Ltd
Alvin Chua Bank of China (Hong Kong) Limited
Fang Fang Bank of China Limited - Phnom Penh Branch
Eddy Fong Bei Shan Tang Foundation
Victor K. Fung China Development Bank
Wei Bo Li China Soft Capital
K.L. Wong HOPU Investment Management Co Ltd
Industrial and Commercial Bank of China - Phnom Penh Branch
King Link Holding Limited
Sun Wah Group
The Santander-K Foundation
UnionPay International
1
Global and Local Challenges and Opportunities for
Taiwan§
Lawrence J. Lau1
October 2019
Abstract: There are both global and local challenges for Taiwan during the next several
decades. Taiwan must think, plan, and act long-term. It must adopt a rational and sustainable
strategy that takes into account changes in the world (for example, the rise of the Mainland),
focuses on its own long-term best interests, and transcends short-term domestic political
differences. There are also opportunities for Taiwan. Taiwan must decide where it wants to
be, and where it expects to be, in say 2035 or 2050. It must decide what can be achieved and
what cannot, and act accordingly. It is best to focus on developing the economy and promoting
peace.
§ © 2019 Lau Chor Tak Institute of Global Economics and Finance, The Chinese University of Hong Kong 1 The author is the Ralph and Claire Landau Professor of Economics, The Chinese University of Hong Kong and
the Kwoh-Ting Li Professor in Economic Development, Emeritus, Stanford University. This paper was prepared
for presentation at the International Conference, “From the Western-Centric to Post-Western World: In Search of
the Emerging Global Order in the 21st Century,” Taipei, June 2-3, 2018. It will be published as a chapter in Yun-
Han Chu and Yongnian Zheng, eds., Contending Views on the Decline of Western-Centric World and the
Emerging Global Order in the 21st Century, Abingdon, United Kingdom: Routledge, 2020. The author wishes to
thank Yun-han Chu, Ayesha Macpherson Lau, Jia-Dong Shea, Chung-Shu Wu and Yanyan Xiong for their helpful
comments and suggestions but retains sole responsibility for all remaining errors. The opinions expressed herein
are those of the authors and do not necessarily reflect the views of the Institute.
2
1. Introduction
I am an economist. This paper is written from an economist’s point of view, focussing
on the challenges and opportunities faced by the economy of Taiwan. There are both global
and local challenges for Taiwan during the next several decades. Taiwan must think, plan, and
act long-term. It must adopt a rational and sustainable strategy that takes into account changes
in the world (for example, the rise of the Mainland), focus on its own long-term best interests,
and transcend short-term domestic political differences.
Long-term thinking is important because what one does today can have lasting, and
often irreversible, impacts on the future. Moreover, developments are also often path-
dependent. Climate change (global warming) is one such example. If we do not do something
about it today, we shall regret it sometime in the future; but by the time we regret it, there is
nothing that we can do to change the (bad) outcome.
There are also opportunities for Taiwan. In order to assess these opportunities, it is
useful to consider the likely global developments during the next several decades. What will
the world look like then? Taiwan must decide where it wants to be, and where it expects to be,
in say 2035 or 2050, and act accordingly.
2. The Evolving World
We begin by considering where the world economy will be by the middle of this
Century. The world has changed dramatically since 1970. The Soviet Union and the Eastern
European Communist bloc are no more. The United States has become the sole hegemonic
power. The cell phone has supplanted the fixed-line telephone and the internet is now
ubiquitous. During this same period, the economic centre of gravity of the world has been
shifting from North America and Western Europe to East Asia and within East Asia from Japan
to Mainland China.
The “Washington consensus” has not worked out well for developing economies. The
“Big Bang” shock therapy has failed miserably, as witnessed by the experiences of the former
Soviet Union and Eastern European Communist countries. The “Washington consensus” also
faces a challenge posed by the “Beijing consensus”.
3
The centre of gravity of the global economy has been shifting (see Charts 1 and 2). In
1970, the United States and Western Europe together accounted for almost 60 percent of world
GDP. By comparison, East Asia (defined as the 10 Association of Southeast Asian Nations
(ASEAN)—Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore,
Thailand and Vietnam—plus 3 (China including Hong Kong, Macau and Taiwan, Japan and
the Republic of Korea)) accounted for only approximately 10 percent of world GDP. (Hong
Kong, Republic of Korea, Singapore and Taiwan are also known collectively as the East Asian
“Newly Industrialised Economies (NIEs)”.) By 2017, the combined share of United States and
Western Europe in world GDP has declined to approximately 40% whereas the share of East
Asia has risen to almost 28%. The share of the U.S. has shrunk to 24% from over 36%. The
Japanese share of world GDP declined from a peak of almost 18% in the mid-1990s to 6% in
2017 while the Mainland Chinese share of world GDP rose from 3.1% in 1970 and less than
4% in 2000 to over 15.1% in 2017 (see Chart 3).
Chart 1: The Distribution of World GDP, 1970, US$
Brunei
0.0%
Cambodia
0.0%
Mainland China
3.1% Hong Kong
0.1%
Indonesia
0.3%
Japan
7.1%
S. Korea
0.3%Lao
0.00%Macau
0.0%Malaysia
0.1%
Myanmar
0.1%Philippines
0.2%Singapore
0.1%Thailand
0.2%Vietnam
0.1%
Taiwan, China
0.2%United States
36.4%
Euro Zone
21.7%
Other Economies
29.8%
1970
4
Chart 2: The Distribution of World GDP, 2017, US$
Chart 3: The Shares of East Asia, China, Japan and South Korea in World GDP, 1960-present
Brunei
0.0% Cambodia
0.0%
Mainland China
15.1%
Hong Kong
0.4%
Indonesia
1.2%
Japan
6.0% S. Korea
1.9%Lao
0.02%
Macau
0.1% Malaysia
0.4%
Myanmar
0.1%
Philippines
0.4%
Singapore
0.4%
Thailand
0.6%
Vietnam
0.3%
Taiwan, China
0.7%
United States
23.9%Euro Zone
15.7%
Other Economies
33.0%
2017
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
19
60
19
61
19
62
19
63
19
64
19
65
19
66
19
67
19
68
19
69
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Per
cen
t
East Asian Economies
Mainland China
Japan
South Korea
5
Long-Term Projections of the Mainland Chinese and the U.S. Economies
It is assumed that between now and 2050, the Mainland economy will continue to grow
around 6% per annum for a few years, and then slow down gradually to between 5% and 6%,
and that the U.S. economy will grow at an average rate of 3% per annum, approximately the
same as its long-term average rate of growth since 1950. It may be thought that the Mainland
economy will be unable to sustain an average annual rate of growth of between 5% and 6% for
such a long time and that the U.S. should be able to grow faster. However, our assumed rates
are based on the actually achieved rates of growth during the past two decades. In Chart 4, a
scatter diagram of the rate of growth of real GDP versus the real GDP per capita of four
economies—the Mainland, Japan, Taiwan and the U.S.—are presented. While it is clear that
the rate of growth of real GDP will decline with real GDP per capita, and the Mainland is no
exception, Japan, Taiwan and the U.S. all had higher rates of economic growth when their
economies had real GDP per capita in the range between US$10,000 and US$30,000 (in 2017
prices). This is precisely the range of projected real GDP per capita for the Mainland between
now and the early 2040s.
Chart 4: Growth Rates vs. Levels of Real GDP per Capita:
Mainland, Japan, Taiwan and the U.S.
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 10 20 30 40 50 60
Per
cen
t
Real GDP per Capita, thousand USD, in 2017 prices
The Mainland USA Japan Taiwan, China
6
In addition, the Mainland still has a relatively low tangible capital per unit labour.
Moreover, there is still and will continue to be significant surplus labour in the Mainland
economy. The share of employment in the primary sector on the Mainland is slightly below
30% whereas the share of GDP originating from the primary sector is below 10%. For the
U.S., given its already very high level of real GDP per capita, it is unlikely that its economy
will be able to grow much faster than 3% per annum in the long run. Chart 4 also shows that
the U.S. has had a systematically higher rate of growth than Japan at the same level of real
GDP per capita, and this can be attributed to the higher innovative capacity of the U.S. By
comparison, the rate of growth of the Taiwan economy has under-performed those of the U.S.
and Japan at comparable levels of real GDP per capita.
The projections of the Mainland and the U.S. real GDPs and real GDPs per capita and
their rates of growth between now and 2050 are presented in Charts 5 and 6. Our projections
show that by 2032, Mainland real GDP will surpass U.S. real GDP (US$31.2 trillion versus
US$30.2 trillion), making the Mainland the largest economy in the world. However, in terms
of real GDP per capita, the Mainland will still lag behind significantly, with US$21,134
compared to US$84,543 for the U.S. By 2050, Mainland and U.S. real GDP will reach
US$82.5 trillion and US$51.4 trillion respectively, accounting for approximately 30% and 20%
of the world GDP, which is projected to be US$280 trillion. In terms of real GDP per capita,
the Mainland will reach US$52,870, still more than 10 percent below the current level of U.S
real GDP per capita, compared to US$134,071 for the U.S. It will not be until the end of the
21st Century that the Mainland real GDP per capita can catch up with the U.S. real GDP per
capita.
7
Chart 5: Actual and Projected Levels and Growth Rates of Mainland and U.S. Real GDP
(2017 trillion US$)
Chart 6: Actual and Projected Levels and Growth Rates of
Mainland and US Real GDP per Capita (thousand 2017US$)
-3
0
3
6
9
12
15
18
-20
-10
0
10
20
30
40
50
60
70
80
90
100
110
12019
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
20
42
20
44
20
46
20
48
20
50
Percen
tU
S$
tri
llio
ns,
20
17
p
rice
s
Rates of Growth of U.S. Real GDP (right scale)
Rates of Growth of Chinese Real GDP (right scale)
U.S. Real GDP, in 2017 prices
Chinese Real GDP, in 2017 prices
-4
-2
0
2
4
6
8
10
12
14
16
-40
-20
0
20
40
60
80
100
120
140
160
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
20
26
20
28
20
30
20
32
20
34
20
36
20
38
20
40
20
42
20
44
20
46
20
48
20
50
percen
tU
SD
th
ou
san
d, 2
01
7 p
rice
s
Rates of Growth of U.S. Real GDP per capita (right scale)
Rates of Growth of Chinese Real GDP per Capita (right
scale)U.S. Real GDP per Capita, in 2017 prices
Chinese Real GDP per capita, in 2017 prices
8
The distribution of world trade has also been shifting (see Charts 7 and 8). In 1970, the
United States and Western Europe together accounted for almost 47% of world trade in goods
and services. By comparison, East Asia accounted for 9.6% of world trade. By 2017, the share
of United States and Western Europe combined in world trade has declined to 37.1% whereas
the share of East Asia has risen to almost 28%. The Mainland Chinese share of world trade
rose from 0.6% in 1970 to 10.2% in 2017. The growth in Chinese international trade may be
attributed in part to the adoption of current-account convertibility of the Renminbi by China in
1994, accompanied by a significant devaluation of the Renminbi, and to Chinese accession to
the World Trade Organisation in 2001. Since 2015, Mainland China has also been the largest
trading partner of the U.S., surpassing Canada. The U.S. is also the largest trading partner of
Mainland China.
9
Chart 7: The Distribution of International Trade in Goods and Services, 1970
Chart 8: The Distribution of International Trade in Goods and Services, 2017
Brunei
0.0%
Cambodia
0.0%
China
0.6%
Hong Kong
0.9%
Indonesia
0.3%
Japan
5.4%
S.Korea
0.4%
Lao PDR
0.0%
Macau
0.0%
Malaysia
0.4%
Philippines
0.4%
Singapore
0.7%
Thailand
0.3%
Vietnam
0.0%Taiwan, China
0.0%
United States
14.5%
Euro Zone
32.2%
Other Economies
43.9%
1970
Brunei
0.0%Cambodia
0.1%
China
10.2%
Hong Kong
2.8%
Indonesia
0.9%
Japan
3.4%
S. Korea
2.7% Lao PDR
0.0%
Macau
0.2%
Malaysia
0.9%
Philippines
0.5%Singapore
2.3%Thailand
1.2%
Vietnam
1.0%Taiwan, China
1.6%
United States
11.5%
Euro Zone
25.0%
Other Economies
35.7%
2017
10
During the past decade, the average annual rates of growth of the international trade of
the Mainland and the U.S. were respectively 8.6% and 3.2%. If these rates persist, which
appears likely given the rise of protectionism in the U.S., the Mainland is likely to surpass the
U.S. to become the largest trading country in the world by 2020. The Mainland and the U.S.
will each account for between 11% and 12% of world trade then. By 2050, the U.S. share of
world trade will be in the single digits. It is likely that the Mainland will maintain an
approximately 10% share of world trade on the strength of its large and growing domestic
demand for imports and its exports of new manufactured products.
Chart 9: Chinese and U.S. International Trade and Their Respective Rates of Growth
Since 1970 (US$)
The distribution of wealth in the world has also been shifting in the same way: from
North America and Western Europe to East Asia and South Asia. Data on the world
distribution of wealth are not readily available on a time-series basis. However, a reasonable
proxy is the distribution of the market capitalisation of the stock exchanges in the different
regions. This is presented in Chart 10, which shows that the East Asian and South Asian stock
exchanges combined surpassed the European stock exchanges in market capitalisation in 2007
and is within striking distance of the market capitalisation of the U.S. stock exchanges. In
2017, the number of known U.S. Dollar billionaires on the Mainland is reported to have
-20
-10
0
10
20
30
40
50
60
-2
-1
0
1
2
3
4
5
6
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
US
$ t
rill
ion
s
Rate of growth of total Chinese international trade, % (right scale)
Rate of growth of total U.S. international trade, % (right scale)
Total Chinese trade in goods and services (US$ trillions)
Total U.S. trade in goods and services (US$ trillions)
Percn
et
11
exceeded the number in the U.S., both more than 600. The number of unknown U.S. Dollar
billionaires on the Mainland is probably on the same order of magnitude as the number of
known ones. Total Asian wealth is likely to surpass total U.S. wealth within the next decade.
Chart 10: The Distribution of the Market Capitalisation of World Stock Exchanges
by Region, percent
There is and has always been quite a bit of concern in the Western press as to whether
the Mainland economy is stable enough to survive. The Mainland has a very low overall
dependence on exports. Exports as a percent of Mainland GDP has been declining over the
past decade and currently stands at 20%, compared to 12% for the U.S. (see Chart 11). Going
forward, the export share of the Mainland economy is likely to decline further, approaching the
same level as Japan and the U.S. Moreover, the Mainland has shown itself to be relatively
immune to external economic disturbances. While the rates of growth of its exports and
imports fluctuate just like other Asian economies (see Charts 12 and 13), the rate of growth of
its real GDP has remained quite stable (see Chart 14). The Mainland economy survived the
East Asian crisis, the internet bubble, the global financial crises and the European sovereign
debt crisis relatively unscathed. This is due to both the scale and the diversity of its economy,
which is today mostly driven by the growth in its own domestic demand.
0
5
10
15
20
25
30
35
40
45
50
55
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
East Asian and South Asian Stock Exchanges
U.S. Stock Exchanges
European Stock Exchanges
12
Chart 11: Exports of Goods and Services as a Share of GDP in Selected Economies
Chart 12: Quarterly Rates of Growth of Exports of Goods: Selected Asian Economies
0
50
100
150
200
250
Bru
nei
Daru
ssala
m
Ca
mb
od
ia
Ch
ina
Hon
g K
on
g, C
hin
a
Ind
on
esia
Ja
pan
Kore
a, R
ep.
of
Lao
PD
R
Maca
u,
Ch
ina
Mala
ysi
a
Mya
nm
ar
Ph
ilip
pin
es
Sin
gap
ore
Th
ail
an
d
Vie
tna
m
Taiw
an
, C
hin
a
Ind
ia
Un
ited
Sta
tes
Per
cen
t
1980 1990 2017
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
70
Q1
19
97
Q2
19
97
Q3
19
97
Q4
19
97
Q1
19
98
Q2
19
98
Q3
19
98
Q4
19
98
Q1
19
99
Q2
19
99
Q3
19
99
Q4
19
99
Q1
20
00
Q2
20
00
Q3
20
00
Q4
20
00
Q1
20
01
Q2
20
01
Q3
200
1Q
4 2
00
1Q
1 2
00
2Q
2 2
00
2Q
3 2
00
2Q
4 2
00
2Q
1 2
00
3Q
2 2
00
3Q
3 2
00
3Q
4 2
00
3Q
1 2
00
4Q
2 2
00
4Q
3 2
00
4Q
4 2
00
4Q
1 2
00
5Q
2 2
00
5Q
3 2
00
5Q
4 2
00
5Q
1 2
00
6Q
2 2
00
6Q
3 2
00
6Q
4 2
00
6Q
1 2
00
7Q
2 2
00
7Q
3 2
00
7Q
4 2
00
7Q
1 2
00
8Q
2 2
00
8Q
3 2
00
8Q
4 2
00
8Q
1 2
00
9Q
2 2
00
9Q
3 2
00
9Q
4 2
00
9Q
1 2
01
0Q
2 2
01
0Q
3 2
01
0Q
4 2
01
0Q
1 2
01
1Q
2 2
01
1Q
3 2
01
1Q
4 2
01
1Q
1 2
01
2Q
2 2
01
2Q
3 2
01
2Q
4 2
01
2Q
1 2
01
3Q
2 2
01
3Q
3 2
01
3Q
4 2
01
3Q
1 2
01
4Q
2 2
01
4Q
3 2
01
4Q
4 2
01
4Q
1 2
01
5Q
2 2
01
5Q
3 2
01
5Q
4 2
01
5Q
1 2
01
6Q
2 2
01
6Q
3 2
01
6Q
4 2
01
6Q
1 2
01
7Q
2 2
01
7Q
3 2
01
7Q
4 2
01
7Q
1 2
01
8Q
2 2
01
8Q
3 2
01
8Q
4 2
01
8Q
1 2
01
9
An
nu
ali
zed
Per
cen
t p
er a
nn
um
Hong Kong, China India
Indonesia Korea, Rep. of
Malaysia Philippines
Singapore Thailand
China,P.R.: Mainland Japan
Taiwan, China
13
Chart 13: Quarterly Rates of Growth of Imports of Goods: Selected Asian Economies
Chart 14: Quarterly Rates of Growth of Real GDP, Y-o-Y: Selected Asian Economies
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
70
80
Q1
199
7Q
2 1
99
7Q
3 1
99
7Q
4 1
99
7Q
1 1
99
8Q
2 1
99
8Q
3 1
99
8Q
4 1
99
8Q
1 1
99
9Q
2 1
99
9Q
3 1
99
9Q
4 1
99
9Q
1 2
00
0Q
2 2
00
0Q
3 2
00
0Q
4 2
00
0Q
1 2
00
1Q
2 2
00
1Q
3 2
00
1Q
4 2
00
1Q
1 2
00
2Q
2 2
00
2Q
3 2
00
2Q
4 2
00
2Q
1 2
00
3Q
2 2
00
3Q
3 2
00
3Q
4 2
00
3Q
1 2
00
4Q
2 2
00
4Q
3 2
00
4Q
4 2
00
4Q
1 2
00
5Q
2 2
00
5Q
3 2
00
5Q
4 2
00
5Q
1 2
00
6Q
2 2
00
6Q
3 2
00
6Q
4 2
00
6Q
1 2
00
7Q
2 2
00
7Q
3 2
00
7Q
4 2
00
7Q
1 2
00
8Q
2 2
00
8Q
3 2
00
8Q
4 2
00
8Q
1 2
00
9Q
2 2
00
9Q
3 2
00
9Q
4 2
00
9Q
1 2
01
0Q
2 2
01
0Q
3 2
01
0Q
4 2
01
0Q
1 2
01
1Q
2 2
01
1Q
3 2
01
1Q
4 2
01
1Q
1 2
01
2Q
2 2
01
2Q
3 2
01
2Q
4 2
01
2Q
1 2
01
3Q
2 2
01
3Q
3 2
01
3Q
4 2
01
3Q
1 2
01
4Q
2 2
01
4Q
3 2
01
4Q
4 2
01
4Q
1 2
01
5Q
2 2
01
5Q
3 2
01
5Q
4 2
01
5Q
1 2
01
6Q
2 2
01
6Q
3 2
01
6Q
4 2
01
6Q
1 2
01
7Q
2 2
01
7Q
3 2
01
7Q
4 2
01
7Q
1 2
01
8Q
2 2
01
8Q
3 2
01
8Q
4 2
01
8Q
1 2
01
9
An
nu
ali
zed
Per
cen
t p
er a
nn
um
Hong Kong, China India
Indonesia Korea, Rep. of
Malaysia Philippines
Singapore Thailand
China,P.R.: Mainland Japan
Taiwan, China
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
Q1 1
994
Q3 1
994
Q1 1
995
Q3 1
995
Q1 1
996
Q3 1
996
Q1 1
997
Q3 1
997
Q1 1
998
Q3 1
998
Q1 1
999
Q3 1
999
Q1 2
000
Q3 2
000
Q1 2
001
Q3 2
001
Q1 2
002
Q3 2
002
Q1 2
003
Q3 2
003
Q1 2
004
Q3 2
004
Q1 2
005
Q3 2
005
Q1 2
006
Q3 2
006
Q1 2
007
Q3 2
007
Q1 2
008
Q3 2
008
Q1 2
009
Q3 2
009
Q1 2
010
Q3 2
010
Q1 2
011
Q3 2
011
Q1 2
012
Q3 2
012
Q1 2
013
Q3 2
013
Q1 2
014
Q3 2
014
Q1 2
015
Q3 2
015
Q1 2
016
Q3 2
016
Q1 2
017
Q3 2
017
Q1 2
018
Q3 2
018
An
nu
ali
zed
Rate
s in
Per
cen
t
Hong Kong, China India
Indonesia Korea, Rep. of
Malaysia Philippines
Singapore Thailand
China,P.R.: Mainland Japan
Taiwan, China
14
The fact that the Mainland economy has been able to keep growing at more than 6.5%
per annum since the global financial crisis of 2007-2008 lends credence to the partial de-
coupling hypothesis, namely, that the East Asian economies can continue to grow even as the
North American and Western European economies go into recession. While the Mainland
economy may have some financial vulnerability because of the non-performing loans resulting
from its excess production capacities, its high national savings rate, in the mid-forties, should
make any such financial crisis manageable.
Can India, which will have the world’s largest population sometime after 2030, be a
possible economic counter-weight to the Mainland? While India has been growing in recent
years even faster than the Mainland, its GDP in 2017 was only US$2.6 trillion, or a little more
than one-fifth of the Mainland’s US$12 trillion (see Table 1). Indian real GDP is likely to
surpass Japanese GDP in another decade, but it will take a long time for India to catch up to
the Mainland in aggregate terms, and even longer in per capita terms, given that its rate of
growth is at most only a couple of percentage points higher than that of the Mainland. India
will be a major player in the world economy, but not until after the middle of the 21st Century.
Thus, the “Indo-Pacific Quartet,” consisting of Australia, India, Japan and the U.S., is unlikely
to become a major economic force any time soon. Neither is the “Trans-Pacific Partnership
(TPP)” without the U.S. and China. The European Union, with a 2017 GDP of US$17.1
trillion, is a possible economic counter-weight to and perhaps a partner for the Mainland on the
global economic scene if it can remain united (less the U.K. of course).
Table 1: Comparisons of the Economic Indicators (2017) of Selected Economies
Mainland Taiwan U.S. India Japan
2017 GDP (US$ billion) 12,014.6 573.2 19,390.6 2,611.0 4,872.1
2017 year-end Population (milliion) 1,390.1 23.6 325.9 1,316.9 126.7
2017 GDP per Capita (US$ thousand) 8.6 24.3 59.5 2.0 38.4
2017 Real Rate of Growth (percent) 6.9 2.9 2.3 6.7 1.7
2017 Total Exports (US$ billion) 2,422.9 395.0 2,331.6 488.1 875.3
2017 Total Imports (US$ billion) 2,212.2 322.8 2,900.0 561.4 837.6
15
The Innovation Race
However, the U.S., despite its relatively slow growth, is still the most innovative
economy in the world. One indicator of the potential for innovation is the number of patents
created each year. In Chart 15, the number of patents granted in the United States each year to
the nationals of different countries, including the U.S. itself, over time is presented. The U.S.
is the undisputed champion over the past forty years, with 140,969 patents granted in 2015,
followed by Japan, with 52,409 patents. (Since these are patents granted in the U.S., the U.S.
may have a home advantage; however, for all the other countries and regions, the comparison
across them should be fair.) The number of patents granted to Mainland applicants each year
has increased from the single-digit levels prior to the mid-1980s to 8,166 in 2015. The
economies of South Korea and Taiwan, granted 17,924 and 11,690 U.S. patents respectively
in 2015, were far ahead of the Mainland.
Chart 15: Patents Granted in the United States: Selected Economies
The Mainland has been strongly promoting innovation itself. The number of patents
granted on the Mainland is today the highest in the world. The Mainland has also stepped up
1
10
100
1,000
10,000
100,000
1,000,000
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Canada FranceGermany ItalyJapan United KingdomUnited States ChinaHong Kong, China South KoreaSingapore Taiwan, ChinaIsrael
16
its enforcement of intellectual property rights in recent years by setting up permanent special
courts for intellectual property right disputes with jurisdiction over the entire nation.
The high number of patents granted to U.S. nationals is in part a reflection of the fact
that the U.S. has consistently invested a high percentage of its GDP in research and
development (R&D), averaging 2.5% over the years (see Chart 16). The Mainland’s R&D to
GDP ratio has risen very fast in recent years, but still lags behind Israel, South Korea, Japan,
Taiwan, Germany, the U.S., France and Singapore. It is targeted is to reach 2.5% in 2020.
Chart 16: R&D Expenditures as a Share of GDP and Their Target Levels in 2020:
Selected Economies
The R&D capital stock, defined as the cumulative past real expenditure on R&D less
depreciation of 10% per year, is a useful indicator of innovative capacity. R&D expenditure
should quite properly be treated as investment since R&D efforts generally take years to yield
any results. The R&D capital stock can be shown to have a direct causal relationship to the
number of patents granted (see Chart 17, in which the annual number of U.S. patents granted
is plotted against the R&D capital stock of that year for each economy). Chart 17 shows clearly
that the higher the stock of R&D capital of an economy, the higher is the number of patents
granted to it by the U.S. each year.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
19
63
19
64
19
65
19
66
19
67
19
68
19
69
19
70
19
71
19
72
1973
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
1988
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
2002
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
2017
20
18
20
20
Ta
regt P
ercent
Per
cen
t
U.S. Japan W. Germany
Germany U.K. France
Canada Italy South Korea
Singapore Taiwan, China Mainland, China
HK, China Israel
17
Chart 17: U.S. Patents Granted and R&D Capital Stocks: Selected Economies
In order to have a chance to make a break-through discovery or invention, there must
be significant and sustained investment in basic research. Basic research is by definition patient
and long-term research. The rate of return of basic research, at any reasonable discount rate,
will be low. It must therefore be financed by the government or non-profit institutions and not
by for-profit firms. The atomic and hydrogen bombs, the nuclear reactors, the internet, the
packets transmission technology and the browser are all outcomes of basic research done many
years ago. However, Mainland investment in basic research has remained low relative to other
economies (see Chart 18). Mainland devoted only 5 percent of its R&D expenditures to basic
research, compared to the more than 15 percent of the U.S. Germany, Israel, Japan, Taiwan
and Russia all devoted a higher percentage of their R&D expenditures to basic research.
0
1
10
100
1,000
10,000
100,000
1,000,000
0 1 10 100 1,000 10,000
Nu
mb
er o
f U
.S.
Pa
ten
ts G
ran
ted
R&D Capital Stocks, in 2016 USD billions
Canada FranceGermany ItalyJapan United KingdomUnited States ChinaHong Kong, China South KoreaSingapore Taiwan, ChinaIsrael Linear Regression
𝒚 = 2.160 + 1.145 𝐱 (0.126) (0.025)
18
Chart 18: Basic Research Expenditure as a Share of Total R&D Expenditure:
Selected Economies
Thus, it should be no surprise that the FAANG (Facebook, Amazon, Apple, Netflix and
Google), and Microsoft and Uber, all originated in the U.S. The Mainland internet giants,
Alibaba, Baidu and Tencent, have all benefitted from the protection against foreign competition
on the Mainland. However, Tencent’s Wechat and Alibaba’s Alipay are genuinely original
innovations which fit the conditions on the Mainland, where few have fixed landline telephones
or desk computers, and no one has personal checking accounts. Unfortunately, it is ingrained
in the East Asian culture to respect age and established authority, it is therefore more difficult
to have break-through discoveries or inventions of a revolutionary nature in East Asia,
including China. While the Mainland has made great progress in science and technology, and
has caught up with the U.S. in a number of fields such as super-computers, quantum
communication and 5th generation wireless systems (5G), it still lags far behind the U.S. in
many other fields, for example, in semiconductor manufacturing. It will take a while, in some
cases up to a couple of decades, before the Mainland is able to fully match the U.S.
technological capability.
4
6
8
10
12
14
16
18
20
22
2419
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Per
cen
t
Germany Israel Japan United States China Russia Taiwan, China
19
Military Power
In terms of military capability, the Mainland is currently no match for the U.S. If a war
breaks out between the Mainland and the U.S. today, there is no question that the U.S. will win
readily, but it will possibly also suffer a significant loss of lives. The Mainland has a minimally
sufficient second-strike capability as a deterrent to a potential nuclear attack by the U.S. (or
any other country). The Mainland is committed to a “no first use” policy as far as nuclear arms
are concerned. However, the potential outcome of a war between the Mainland and the U.S. is
so unthinkably devastating to both sides that it is most unlikely to occur. It is therefore in the
best interests of both the Mainland and the U.S. to avoid the so-called “Thucydides Trap”.2
But a war between an established power and a rising power is not inevitable—an example was
the rise of the former Soviet Union since the Second World War, which only resulted in a cold
war, even though the Soviet Union’s rise did not last long.
Will Pax Americana be Succeeded by Pax Sinica?
Given continuing American superiority in innovation and military power, it is
premature to talk about a post-Western world, even though a gradual transition may begin to
take place around the middle of this Century. It took the United States more than a generation,
from the First World War to the early 1950s to finally assume undisputed leadership of the
Western (or non-Communist) world. It will likewise take more than a generation before the
world becomes more pluralistic, that is, not solely dominated by the West. However, as the
Mainland’s economic power grows, it is likely to become a more active participant in
international rule-setting, as it did in making the unanimous passage of the Paris Climate
Accord in 2015 possible.
It is still far too early to be able to see the Mainland playing the same active role as the
U.S. on the world scene, to see Pax Americana succeeded by Pax Sinica. If there is ever such
a transition, it is unlikely to be totally peaceful, but hopefully a hot war may be avoided. It is
inevitable that the two largest economies of the world will compete commercially,
2 For a discussion of the “Thucydides Trap” as it applies to China-U.S. relations, see Graham T. Allison, “The
Thucydides Trap: Are the U.S. and China Headed for War?” The Atlantic, 24 September 2015. Allison argues
that a China-U.S. war is eventually inevitable as a rising power challenges the dominance of an established power.
20
economically and technologically, especially as the Chinese economy moves up the value-
added chain. The current China-U.S. trade war is only a manifestation of the underlying
competition which is much broader and more encompassing than trade alone.3
However, it is possible to envisage the Mainland and the U.S. learning to live peacefully
with each other, respecting each other’s core interests, collaborating and cooperating when
their national interests align, and agreeing to disagree when their national interests differ, but
without getting into a war. For example, it is unlikely that the Mainland will privatise its
centrally-controlled state-owned enterprises any time soon. Historically, neither China nor the
U.S. have treated a friendly nation as an equal: so both of them have to learn. For China, it
was either the centre of the universe, or a defeated country at the mercy of the victors. For the
U.S., it won the two World Wars for the Western world, occupied both Germany and Japan,
and defended Western Europe from the Soviet Union. The only country it considered equal
was probably the former Soviet Union, but it was an adversary, not a friend.
3. The Global Challenges
There are many global challenges, for example, global warming, cyber-security, geo-
political conflicts and uncertainties, truth decay, epidemics, terrorism, and the rise of artificial
intelligence. They will all affect Taiwan. Here we shall consider only the challenges which
have a much more direct and immediate impact on Taiwan’s future. We shall discuss in turn
the following global challenges: economic de-globalisation, the relative decline of U.S.
economic power, the risks of the “Thucydides Trap”, and intensified global competition.
Economic De-Globalisation
The growth of both world trade and cross-border direct investment has essentially
halted since the global financial crisis of 2008 (see Charts 19 and 20). They have met
headwinds coming from isolationism, nationalism, populism and protectionism. Can economic
globalisation be revived and continued? The Mainland (and Taiwan before it) have been major
beneficiaries of economic globalisation. (The Mainland’s economic growth trajectory became
3 See the discussion in Lawrence J. Lau, The China-U.S. Trade War and Future Economic Relations, Hong Kong:
The Chinese University of Hong Kong Press, 2019.
21
noticeably steeper after its accession to the WTO in 2001.) The Mainland is thus most likely
to continue to support continuing economic globalisation, working together with similarly-
minded European Union and other developed and developing economies, including Taiwan.
From its own experience, the Mainland fully understands the benefits of an open economy. Its
Belt and Road Initiative is a recognition that connectivity and openness can create enormous
economic benefits to all participants in the world economy.
Chart 19: Total World Trade in Goods and Services as a Percentage of World GDP Since 1960
20
24
28
32
36
40
44
48
52
56
60
64
19
60
19
61
19
62
19
63
19
64
1965
19
66
19
67
19
68
19
69
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
1988
19
89
1990
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
2013
20
14
20
15
20
16
20
17
Pec
ent
22
Chart 20: Total World Foreign Direct Investment since 1970, US$ billions
Given Taiwan’s high degree of dependence on international trade (see Chart 11),
isolationism and protectionism are likely to hurt Taiwan much more than the Mainland. Unlike
the Mainland, the Taiwan economy cannot prosper by going alone. For Taiwan, the optimal
strategy is to be as open as possible. Its economy is too small to achieve efficient scale if it
pursues a protectionist trade and direct investment policy, which will certainly be countered by
a similarly protective policy elsewhere. Populism, which tends to favour isolationism and
protectionism, must be carefully managed in Taiwan.
The Relative Decline of U.S. Economic Power
U.S. economic power is based on a number of factors. First of all, it is the largest
economy in the world. Second, it is also the largest market. Third, it is the largest foreign
direct investor in the world. Fourth, it is the provider of the principal international medium of
exchange and the only safe haven currency, the U.S. Dollar. Fifth, it is the leading source of
innovation in the world. Of course, U.S. economic power is also simultaneously buttressed
and supported by the military might of the U.S. All of this confers on the U.S. leverage that it
can use to enforce sanctions through banking, import controls and other means against
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
US
$ b
illi
on
s
23
countries deemed unfriendly, such as Cuba, Iran and North Korea, successfully. With the
relative decline of U.S. economic power, it will become more difficult for the U.S. to exercise
such power unilaterally. The question is: Will similar leverage be available and used by another
country with rising economic power?
The Risks of the “Thucydides Trap”
Is a war between an established power and a rising power inevitable? A war between
the Mainland and the U.S. cannot be good news for Taiwan. Taiwan is in the best situation if
Mainland and U.S. relations are good. Taiwan is actually worse off if relations between the
Mainland and the U.S. turn sour. Can the Mainland and the U.S. manage their potential conflict
and maintain good relations despite differences? Taiwan should avoid taking sides or being
used as a pawn in big-power games. Some in the U.S. are not yet willing or ready to accept
the possibility that in terms of aggregate GDP the Mainland will be Number One some day.
However, Mainland economic growth is unlikely to be stopped. If it ever stops, it is due to
internal, rather than external factors. A war between the Mainland and the U.S. will be
unthinkably devastating, with huge spillover negative effects. The U.S. will probably win if a
war breaks out today, but there will be no real winners, only losers.
However, whether the Mainland and the U.S. will be friends or foes in the future
depends on mutual long-term expectations, which can be self-fulfilling. If both sides expect to
be ultimately friends, and act accordingly, they will be friends. If both sides expect to be foes,
and act accordingly, they will be foes. Thus, it is the responsibility of leaders on both sides to
manage carefully the mutual expectations. The truth is that the degree of mutual economic
interdependence between the Mainland and the U.S. is already very high. ZTE, among the top
five cell phone manufacturers in the world, relies on the U.S. for more than 30 percent of its
critical components. The closure of ZTE will hurt both Mainland and U.S. enterprises and
workers. Apple not only assembles its iPhones on the Mainland, but sells one-quarter of its
iPhones on the Mainland as well, which accounts for a significant proportion of its profits.
Intensified Global Competition
The real threat to the Taiwan economy is the obsolescence of its technology. The
Hsinchu Science Park, founded in 1980, was very critical in Taiwan’s transition from an
24
exporter of light manufactured products to an exporter of high-technology products and
components. However, comparative advantages are not static. Taiwan must continually
upgrade its technology to maintain its competitiveness. The key is to encourage, promote and
support research and development (R&D), especially basic research, and to try to be always
one step ahead of potential competitors, and to make new investments. It is also important to
improve the business environment. The overall competitiveness of the Taiwan economy has
declined recently. The 2018 IMD (International Institute for Management Development)
World Competitiveness Rankings show that the Mainland has risen to 13th place from 18th
place but Taiwan has slipped down to 17th place from 14th place (see Table 2). Persistent
tension between the two sides of the Taiwan Strait cannot be good for business or for new
investment in Taiwan.
Table 2: The Top 20 2018 IMD World Competitiveness Rankings
(2017 Rankings in Parentheses)
Source: IMD World Competitiveness Yearbook 2018, Lausanne: International Institute for Management
Development, 2018.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Luxembourg (8)
USA (4)
Hong Kong SAR (1)
Singapore (3)
Netherlands (5)
Switzerland (2)
Denmark (7)
UAE (10)
Norway (11)
Sweden (9)
Canada (12)
Austria (25)
Australia (21)
United Kingdom (19)
Ireland (6)
China Mainland (18)
Qatar (17)
Germany (13)
Finland (15)
Taiwan (14)
25
4. The Local Challenges
The two principal local challenges to Taiwan are first, the rise of the Mainland economy
and second, how to manage its economic dependence on the Mainland and to create economic
interdependence with the Mainland.
The Rise of the Mainland Economy
Since the beginning of its economic reform in 1978, Mainland China has been growing
at an average annual rate of just under 10% per annum. It is already the second largest economy
in the world and the second largest trading nation. It will become the dominant economic
power, certainly in Asia today, and in time in the world. In 1978, Taiwan GDP was US$65
billion (2017 prices), compared to a Mainland GDP of US$369 billion. The Taiwan economy
was almost 18 percent of the Mainland economy. Taiwan was among the earliest and the most
important direct investors on the Mainland in the 1990s and made significant contributions to
its economic development. However, by 2017, while the Taiwan GDP grew to US$573 billion
(2017 prices), the Mainland GDP surged to US$12.7 trillion. The Taiwan economy has become
less than 5 percent of the Mainland economy. The economic bargaining power of Taiwan has
been greatly eroded.
26
Chart 21: Actual and Projected Mainland and Taiwan Real GDPs and Their Rates of Growth
In 1978, real GDP per capita of Taiwan was US$3,814 (2017 prices), ten times the
Mainland’s US$383. By 2017, real GDP per capita of Taiwan grew to US$24,335 (2017
prices), only approximately two and a half times the Mainland’s US$9,138.
-2
0
2
4
6
8
10
12
14
16
18
-10
0
10
20
30
40
50
60
70
80
901978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
Percen
tU
S$ t
rill
ion
s, 2
017
pri
ces
Growth Rate of Taiwan Real GDP (right scale) Growth Rate of Mainland Real GDP (right scale)
Taiwan Real GDP, in 2017 prices Mainland Real GDP, in 2017 prices
27
Chart 22: Actual and Projected Mainland and Taiwan Real GDPs per Capita
And Their Rates of Growth
By 2050, Taiwan real GDP will be approximately US$2 trillion (2017 prices),
compared to a Mainland real GDP of US$82 trillion. The Taiwan economy will be less than
2.5 percent of the Mainland economy. However, Taiwan real GDP per capita will be
approximately US$66,000 (2017 prices), still higher than the Mainland real GDP per capita of
US$52,870 by 20 percent. In these projections, the rate of growth of real GDP of Taiwan is
assumed to be similar to the actual rates of the past decade. It is assumed to be lower than that
of the Mainland because the Taiwan real GDP per capita is higher (see Chart 4 above).
In 1978, Taiwan international trade was US$26 billion, more than the then Mainland
international trade of US$20 billion. Mainland international trade did not surpass Taiwan
international trade until 1996. Mainland international trade increased by leaps and bounds after
its accession to the World Trade Organisation (WTO) in 2001. By 2017, total Mainland
international trade has increased to US$4.64 trillion, almost seven times the total Taiwan
international trade of US$0.68 trillion. Over the past ten years, the average annual rate of
growth of Mainland international trade was 8.6% compared to Taiwan’s 3.4%. The disparity
in the rate of growth of international trade is likely to persist given that the demand for imported
-2
0
2
4
6
8
10
12
14
-10
0
10
20
30
40
50
60
7019
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
20
36
20
37
20
38
20
39
20
40
20
41
20
42
20
43
20
44
20
45
20
46
20
47
20
48
20
49
20
50
Percen
tU
S$
th
ou
san
d, 2
01
7 p
rice
s
Growth rates of Taiwan Real GDP per Capita
(right scale)Growth Rate of Mainland Real GDP per
Capita (right scale)Taiwan Real GDP per capita, in 2017 prices
Mainland Real GDP per capita, in 2017 prices
28
consumer goods is likely to grow rapidly with the rising middle class on the Mainland. Since
2002, Taiwan has been running a huge trade surplus vis-a-vis the Mainland (see Chart 24).
Chart 23: Mainland and Taiwan International Trade and Their Rates of Growth
Today, the Mainland is Taiwan’s most important trading partner. Taiwan is the
Mainland’s fifth most important trading partner. The Mainland has, since its accession to the
WTO, replaced the U.S. as Taiwan’s most important export destination and its most important
import origin (see Chart 24). The relative importance of the U.S. as a trading partner of Taiwan
has greatly declined. In 1985, almost half of Taiwan exports was destined for the U.S.; today,
less than 15%. In 1990, Taiwan exports to the Mainland was virtually zero; for the last decade
it rose to almost 30 percent of total exports of Taiwan (see Chart 25). Many economies count
the Mainland as their most important trading partner. Taiwan is the 3rd most important trading
partner of Hong Kong, 4th most important trading partner of Japan, and the fifth most important
trading partner of the Mainland, Singapore and Vietnam (see Table 3).
-25
-15
-5
5
15
25
35
45
55
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
US
$ t
rill
ion
s
Rate of growth of total Chinese international trade, % (right
scale)Rate of growth of total Taiwan international trade, % (right
scale)Total Chinese trade in goods and services (US$ trillions)
Total Taiwan trade in goods and services (US$ trillions)
Percn
et
29
Chart 24: Taiwan Exports to and Imports from the Mainland and the U.S. since 1981
Chart 25: Taiwan Exports to and Imports from the Mainland and the U.S.
as Percent of Total Exports and Imports
0
10
20
30
40
50
60
70
80
90
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
US
$ b
illi
on
s
Taiwan exports to the Mainland
Taiwan Imports from the Mainland
Taiwan export to the U.S.
Taiwan import from the U.S.
0
5
10
15
20
25
30
35
40
45
50
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Per
cen
t
Taiwan Exports to China as Percent of its Total Exports
Taiwan Imports from China as Percent of its Total Imports
Taiwan Exports to the U.S. as Percent of its Total Exports
Taiwan Imports from the U.S. as Percent of its Total Imports
30
Table 3: The Ranks of Mainland and Taiwan as Trading Partner of Selected Countries/Regions
and Vice Versa, 2017
Taiwan should manage cross-strait economic relations carefully to avoid
marginalisation in the long run. The experience of the Mainland economy before its economic
reform and opening in 1978 and those of the Cuban, Iranian and North Korean economies up
until now are cautionary tales. Taiwan should attempt to create economic interdependence
with the Mainland, taking advantage of the complementarities between the two economies. For
example, Taiwan enterprises supply many critical electronic components to the Mainland.
They should continue to invest to upgrade so that their products will always be needed. This
will require significant new investment in human capital and in R&D, especially basic research.
5. The Opportunities
Development into a “Silicon Island”
Given the already high level of human capital in Taiwan, as well as its existing high-
technology industries, Taiwan should increase its investment in R&D and technology to make
Taiwan into a “Silicon Island”. These investments will pay off much more easily with access
to the large Mainland market. This strategy requires both continuing investment in research at
the technological frontier and cooperation with the Mainland, taking advantage of the
Country/RegionMainland Rank as Trading
Partner of Country/Region
Rank of Country/Region as
Trading Partner of the Mainland
Taiwan Rank as Trading Partner
of Country/Region
Rank of Country/Region as
Trading Partner of Taiwan
Mainland China NA NA 5 1
Taiwan 1 5 NA NA
Australia 1 7 12 11
Brunei 4 125 10 65
Cambodia 1 63 12 46
Hong Kong 1 3 3 4
Indonesia 1 17 10 14
Japan 1 2 4 3
Korea 1 4 7 5
Laos 2 85 28 119
Macau 1 81 11 88
Malaysia 1 9 6 7
Myanmar 1 44 10 64
New Zealand 1 41 11 36
Philippines 1 20 9 10
Singapore 1 14 5 6
Thailand 1 13 12 12
United Kingdom 3 15 30 17
United States 1 1 11 2
Vietnam 1 8 5 9
31
technology-large market complementarity. If successful, this should transform Taiwan into a
high-value-added service economy, specialising in basic research, applied research,
development, pilot production and commercialisation.
Energy Research and Exploration
There are a number of possibilities for cross-strait collaboration and cooperation. There
is significant interest and as well as efforts in fusion energy research on both sides of the Taiwan
Strait. I believe this can be a real game-changer for the world, especially in view of the risks
of global warming. There can be joint research on as well as joint application and
implementation of renewable energy, especially wind energy, which is gaining prominence in
Taiwan. The Taiwan Strait is supposed to be ideal for wind power because of its high winds.
Joint exploration for oil and gas in the Taiwan Strait and possibly in the Spratly Islands on a
shared revenue and cost basis is another possibility.
E-Commerce
Taiwan has the world’s highest rate of internet utilisation in the world. E-commerce
has the ability of making small and medium enterprises (SMEs) just as competitive as much
larger enterprises. Taiwan excels in having many SMEs developing and producing innovative
consumer products appealing to consumers in special niches (nougat candies and cookies are
one example). Distribution via e-commerce will expand the market and lower the costs for
SMEs. It should lead to a mushrooming of internet-savvy SMEs. What Taiwan needs to do is
to facilitate cross-border e-commerce, through the simplification of export and import,
remittance and tariff procedures, and allowing delivery services to operate both inbound and
outbound in Taiwan, thus opening new markets for its SMEs.
The Green Economy
Taiwan has an excellent record of environmental protection, preservation and
restoration. It can provide lessons and services to other economies. For example, it leads the
world in the pre-sorting of waste so that it can be appropriately treated and recycled. It also
emphsises individual voluntary participation in environmental protection and preservation. It
can be a model for the rest of the world.
32
Tourism
Tourism is also something that should be promoted. As I often emphasise, with
economic globalisation, any job that can be moved away will be moved away. Tourism
generates jobs that cannot be moved away. People who want to see Sun Moon Lake will have
to come to Taiwan. Another source of “long-term tourists” is higher education. Taiwan should
consider opening its tertiary educational institutions to students from all over the world.
Taiwan has more than sufficient capacity to serve its own college-aged students. But it can
also generate a great deal of revenue and create many jobs by using the excess capacity to serve
non-local students. When these students graduate and return home, they become Taiwan’s
goodwill ambassadors in their respective home communities. And if they stay, they become a
source of talents for Taiwan.
6. The Alternatives for Taiwan: Confrontation or Accommodation?
The Taiwan economy risks being increasingly marginalised in the face of a rapidly
growing Mainland with rising economic influence. In the same way that the U.S. was able to
keep Cuba, Iran and North Korea poor, the Mainland could in principle do the same to Taiwan
in the future. Taiwan should not and cannot be seen as a threat, or aiding and abetting a threat,
to the Mainland. Moreover, it is unlikely that the U.S. will ever go to war with the Mainland
over Taiwan.
The U.S. also has strong economic interests in maintaining stable relations with the
Mainland. The Mainland and the U.S. are the most important trading partners of each other.
Taiwan is only the eleventh most important trading partner of the U.S. Many U.S. companies,
such as Apple and Qualcomm, derive significant shares of their revenues from sales to the
Mainland.
There are many communalities between the Mainland (especially the Province of
Fujian) and Taiwan. There are the common cultural, ethnic, historical and linguistic ties. There
is economic complementarity. And the two sides have similar positions on the Diaoyu Islands
in the East China Sea and the Spratly Islands in the South China Sea. There are many possible
opportunities for cross-strait economic collaboration and cooperation as described above.
33
Successful collaboration and cooperation can generate goodwill and mutual trust, which both
sides need for an eventual peaceful resolution.
7. Concluding Remarks
It is necessary for Taiwan to think and plan ahead for twenty or thirty years. Where
can Taiwan be in Asia and the World then? Where will Taiwan be in Asia and the World then?
What can be achieved and what cannot? What is in the long-term best interests of the people
of Taiwan? It is best to focus on developing the economy and promoting peace.