China's Economic Reform Course Crucial for Future Cross-Strait Relations
Commercial Times Editorial, December 30, 2023
Mainland China’s investigation into Taiwan’s trade barriers was publicized in advance at the end of 2023, and then it announced the termination of preferential tariffs on 12 products including propylene in the early harvest list of the cross-strait Economic Cooperation Framework Agreement (ECFA), which directly impacted Taiwan’s petrochemical industry and once again drew attention to the future of cross-strait economic and trade relations. However, many factors affect cross-strait economic and trade ties. In addition to ECFA, another significant issue is the direction of the mainland’s economic policies.
In recent years, the Chinese economy has slowed down under severe challenges and its economic policies have become ideological, which has impacted Taiwan’s confidence in the Chinese market and cross-strait economic and trade ties. From the U.S.-China trade war, Hong Kong protests, to the impact of the COVID-19 pandemic, the political and economic environment inside and outside China have become tense, and overall economic risks have increased. Beijing responded by strengthening its ideology and concentrating resources. The policy of “state advances and private sector retreats” and “common prosperity” was borne in response, and the tendency of centralization and administrative intervention became increasingly obvious.
Over the past few years, various improper economic policies have been repeated in the mainland. Interference in education, medical care, platform economy, and real estate, just in the name of “common prosperity”, often leads to the collective collapse of specific industries. For example, in 2018, real estate was suppressed on the grounds of deleveraging, causing the cash flow of Chinese real estate companies to deteriorate. In July 2021, in the name of reducing the burden on students, the Double Reduction Policy was launched to severely crack down on the after-school tutoring industry, causing the tutoring industry with millions of employees and a scale of up to trillions of dollars to fall into losses overnight or mired in the bankruptcy crises. Another example is the appeal for antitrust and supervision of online platform companies such as Alibaba and Baidu. The once-celebrated Alibaba founder Jack Ma has now been “traveling” overseas for more than a year. Coincidentally, Beijing recently issued an official document targeting the management of online games, which severely hit the Hong Kong stock market, causing the market value of online game companies such as Tencent and NetEase to evaporate by HK$367 billion (about US$47 billion) in one day. In addition, during the pandemic, in order to highlight the superiority of the socialist system, the political movement mobilization model was used to carry out excessive elimination measures, which led to local governments being exhausted and the people being depleted of money.
While the external stock markets frequently hit the top, mainland China’s stock market continued to break bottom due to the linkage of several industrial sectors such as real estate, education, and medical care. The Shanghai and Shenzhen indices, U.S. and Chinese concept stocks, and the Hong Kong stock market have fallen for three consecutive years. The collapse of various investment channels such as stock markets and real estate funds has reduced wealth, stifled residents’ purchasing power, and depressed the economic climate.
Faced with this situation, although Beijing has implemented multiple policies to rescue the market, they have so far been unable to effectively revitalize the capital market. In the name of “common prosperity,” what the government has done is still extremely limited, which ultimately turned into a huge crisis of confidence. As a result, local debt remains unresolved and the real estate crisis continues. Ideologization of economic policy is the root of the problem. Furthermore, surprise interventions in private enterprises in recent years have made entrepreneurs frightened. It is not easy to rebuild the private sector’s confidence in the government.
The above are the current difficulties of the mainland Chinese economy. However, concluding that Taiwan should stay away from the Chinese market and phase out cross-strait economic and trade from this shallow observation is insufficient.
The fact that cannot be ignored is that although the Chinese economy is slowing down, its scale and growth rate are still far ahead of other countries. Its growth from 2008 to 2020 accounted for 50 percent of the world’s economic growth; China’s share of global economic growth in the next five years will still reach 22.6 percent, far exceeding other countries. In comparison, India's share of global economic growth ranks second at 12.9 percent; the United States ranks third at 11.3 percent; Indonesia ranks fourth at 3.6 percent. The mainland’s annual economic growth is equivalent to that of a medium-sized economy, and even larger than Taiwan’s overall economy. It has the potential and advantages to catch up in many areas such as cutting-edge technology industries and the green economy. Mainland China is still a market that cannot be underestimated for Taiwan’s economic development.
Singapore’s position on the mainland economy is worthy of Taiwan’s attention. Deputy Prime Minister and Finance Minister Lawrence Wong of Singapore, who recently visited China, indicated: “Never bet on the decline of China.” According to Mr. Wong, China is still and will be an economy that can offer huge opportunities. He has high expectations for China-Singapore bilateral cooperation. Mr. Wong focuses on a simple and straightforward fact, namely China’s huge economic potential.
Taiwan’s presidential and legislative elections are approaching, and each party has different views on cross-strait economic and trade relations. The Democratic Progressive Party (DPP) emphasizes national security and advocates staying away from China but ignores the indispensable importance of the Chinese market to Taiwan. The Kuomintang (KMT) values cross-strait economic and trade relations and the protection of the rights and interests of Taiwanese businesspeople but pays insufficient attention to the current plight of the Chinese market. On the one hand, we urge Taiwan not to underestimate the Chinese market and ignore the importance of maintaining cross-strait economic and trade relations; on the other hand, we call on the mainland to prudently implement appropriate economic policies, play the role of supervision, and abandon excessive administrative intervention. Providing the relaxed social atmosphere needed for economic development and reducing formalism will help unleash the powerful economic vitality and creativity of civil society.
The steady development of the Chinese market is the cornerstone of cross-strait interactions. The future of cross-strait economic and trade ties is not only determined by Taiwan’s choice but closely related to whether the mainland may return and embrace the path of reform and opening.
From: https://www.chinatimes.com/opinion/20231230000127-262113