Beijing Hopes to Cash In Taiwanese Public Support

China has offered billions in loans to Taiwanese firms, but what exactly is China after?


China is finding that it may not need to threaten or invade this diplomatically isolated island, which it considers a rogue province. It’s doing just fine buying influence from the inside out.

But a decision by China’s Taiwan Affairs Office earlier this month to offer $95 billion in loans to Taiwanese firms looking to set up shop in the Middle Kingdom hasn’t gone down well with some observers.

“This is totally political. There’s a lot of money in Taiwanese banks. We don’t need loans from China,” said Chang Ching-hsi, an expert on China at National Taiwan University’s Economics Department.

According to state-run Xinhua news agency, four Chinese government-owned banks will administer the loans in the latest move by Beijing to build closer ties to the island republic.

Beijing has long vowed to use force if necessary to bring it into the fold.

“Because of their domestic social problems they try to use unification as a tool to show the strength of the government. The Chinese public wants unification even more than the party,” said Chang. “It has been wooing Taiwanese companies for years. But it’s a dangerous investment location for Taiwanese because there is no rule of law.”

For their part, polls show that Taiwanese are overwhelmingly against politically integrating their hard-won democracy with their Communist cousins across the sea.

But that hasn’t stopped Beijing from trying. Observers say that the latest round of targeted financial offerings, intended to curry favor with the public, could just be the beginning.

In the past two weeks, Beijing said it would increase Taiwanese rice imports, expand the number of outbound Chinese tourists to the island and send a trade delegation to sign deals to purchase $4.5 billion worth of flat panel displays from Taiwanese manufacturers.

It could, however, be a race against time. Polls also show that the island’s youth comprise the most anti-unification voting bloc in the nascent democracy. Taiwan's pro-China President Ma Ying-jeou, who was re-elected in January, has made the warming of ties between Taipei and Beijing the lynchpin of his economic and foreign policy.

In June 2010, he signed off on the Economic Cooperation Framework Agreement, or ECFA, a landmark trade agreement that he promised would filter down through the economy. However, it’s largely been one-way traffic to date.

While Taiwanese investors have pumped hundreds of billions of dollars, and swaths of technology and management transfers into the world’s second largest economy, Chinese businesses have only invested about $300 million into the island to date.

“It will take time. More foreign companies are investing in Taiwan because of ECFA, particularly Japanese firms,” said Wang Ming-te at the Ministry of Economic Affairs’ Investment Commission. “Because of the historical problems between China and Japan, Japanese companies find it difficult there. They say the shortest distance between Tokyo to Beijing is through Taipei.”

Wang says that trade figures also show Taiwan enjoying a healthy trade surplus over its rival. China is Taiwan’s biggest trade partner, taking about 41 percent of the island’s exports.

But that figure is misleading as 70 percent of those exports are actually components shipped to Taiwanese-owned and operated factories in the mainland.

This island 100 miles off China’s southern coast ranked as the world’s 24th largest economy in 2011, according to the CIA World Fact Book. Taiwan's $325 billion in exports was good for 17th place.

And despite an ongoing immigration crackdown against foreign workers within its borders, Beijing also announced this month that it will ease restrictions on Taiwanese working in China, particularly tertiary education lecturers and professors.

And that could spell trouble for a country that is suffering from a brain drain and struggles to recruit top-shelf international talent. According to a report released by the Council of Labor Affairs, average salaries for those with masters' degrees have increased by just $60 to $1,080 per month in the past 13 years.

Worse still, average monthly salaries for new bachelor's degree graduates declined by 3.2 percent over the same period to $888.

The council estimates that about 1 million Taiwanese work in China on at least a semi-permanent basis.

Labor activists have warned that the exodus of white collar workers, coupled with a rapidly aging population could eventually hollow out large tracts of the island’s industry. Still, Wang is optimistic.

“From 2013, ECFA will be expanded from the so-called early harvest items and we will be in a unique position as a major manufacturing nation that has close ties to China, in much the same way Hong Kong operates within services,” he said. If not, China might just be waiting to pick up the pieces.