China's economical pressure: mechanisms and consequences for Taiwan

Substantive support: Sandra Krawczyszyn-Trash, Patryk Brush

Types of economical force from China

Taiwan has a developed high-income marketplace economy and its nominal gross home product (GDP) was nearly US$762 billion in 2022. This makes it the 21st largest economy in the world. With a population of nearly 24 million inhabitants, at the end of 2022, GDP per individual reached 32,690 USD[1].

Taiwan's main export categories include electronics, which accounts for 33.1% of full exports, as well as information, communication and audio-video products (10.8%)[2]. Base metals (8.8%), plastics and rubber products (7.1%)[3] are besides important. According to data for 2024, presently Taiwan's largest trading partner is China, as it is where 40% of the product sold reaches average[4]. This is mainly due to the fact that Taiwan is an crucial supplier of advanced technologies, in peculiar semiconductors, which the Chinese manufacture needs to manufacture, among others, smartphones, televisions, computers, electrical cars, microprocessors, graphics cards, defence systems, military communications systems or medical devices. Despite strong trade ties, Beijing successfully combines economical pragmatism with political assertiveness, utilizing trade pressures on Taiwan as an effective political tool. This is mainly aimed at weakening his global position and at forcing him to compromise on political issues specified as the pursuit of unification[5].

One of the direct activities contributing to Taiwan's commercial isolation was the introduction in 2021 of a ban on imports of certain products to China, including pineapples, under the pretext of "harmful creatures" in imported fruit. The ban itself was introduced without prior announcements or warnings, as well as being groundless, as since 2020, Taiwanese pineapples exported to China met 99.79% of standards[6]. This besides involves any stigmatisation and boycotting of products originating in Taiwan, specified as electronics, food products, agricultural products, textiles and clothing. This action was besides noticeable after Nancy Pelosi visited Taiwan. China has begun widely present boycott of Taiwanese brands, including companies specified as Kuai Kuai (乖乖), which produces snacks, among others, from blown corn. This resulted in these companies looking for fresh markets and modifying their marketing strategies[7].

Due to Chinese activities, Taiwanese companies operating in China are frequently faced with expanding regulatory, customs and taxation supervision. This contributes to stricter enforcement of trade rules and more frequent audit checks. specified measures can besides be interpreted as a form of leverage, given Taiwan's deep economical ties to China[8].

This advanced economical dependence of Taiwan on China besides allows Beijing to freely manipulate trade flows. An example of this is the imposition of additional duties on products imported from Taiwan. This was the case in June 2024 erstwhile China imposed duties on 134 products imported from Taiwan, including fruit and vegetables. The decision came after a message from the Ministry of Finance of China (中华人民共和国财政部), which announced that it would suspend preferential treatment of these goods under the trade agreement. The reason was that Taiwan did not offer equivalent concessions, which, according to China, violated the rule of reciprocity[9].

In addition, it is noted that Chinese financial engagement in key sectors in Taiwan, including technology and real estate, is constantly limited. This represents a crucial decrease in China's abroad direct investments in Taiwan. In 2023, specified investments fell by more than 20% compared to the erstwhile year. In addition, Taiwanese companies are moving distant from capital placement in China to countries specified as Vietnam and India, indicating a change in regional investment patterns[10].

Economic consequences for Taiwan

China's expanding dependence on Taiwanese semiconductors, combined with their efforts to reduce Taiwan's global impact, has a immense impact on production and trade. About 68% of the planet semiconductor marketplace is controlled by Taiwan, mainly by Taiwan Semiconductor Manufacturing Company (台灣積體電路製造公司), which produces the most advanced chips, essential for various industries, i.e. from consumer electronics to artificial intelligence. China has invested billions in developing its own semiconductor capabilities, but they inactive produce only a fraction of the chips that their technology manufacture needs. Consequently, import restrictions from Taiwan, especially in semiconductors, can have a immense impact on global supply chains, including supply problems and limited access to the essential materials[11].

Furthermore, these problems arise from the fact that China has not yet developed infrastructure or technology that could compete with Taiwan in chip production, peculiarly for applications in advanced technologies specified as artificial intelligence[12].

China frequently uses its economical strength to effort to change the interests of Taiwanese companies and individuals in Beijing's interests. Under this strategy, Taiwanese companies and skilled workers from high-tech sectors specified as information technology and production are encouraged to transfer their business or investment to mainland China by offering them financial benefits. This is implemented through economical packages specified as taxation exemptions and subsidies[13]. It is besides worth mentioning the programme Thousand Talents Plan (千人计划), which is intended for Chinese scientists who studied abroad or in Hong Kong, Macau and Taiwan, and now would like to return to Shanghai to work.

In addition, China uses its economical influence to force Taiwanese companies to submit to Beijing's policy, which makes specified companies usually seen as ‘prochines’. An example of specified companies is Acer, a leading Taiwanese technology company. It faced challenges of gathering Beijing's requirements in the context of wider geopolitical tensions around Taiwan and its status. Chinese activities towards this company include a crucial simplification in supply chains, including semiconductors, which has contributed to halting the production of any of the equipment offered by Acer and a crucial decrease in corporate revenues[14].

It is besides unacceptable for Taiwanese companies to neglect to comply with the “one China” policy, which results in boycotting or stigmatizing the company. An example is Nvidia Corp., whose CEO, Jensen Huang, made a message about Taiwan: “Taiwan is 1 of the most crucial countries in the world. It is at the centre of the electronic industry." For calling Taiwan a ‘country’, Huang was asked to explain whether there was a mistake in his statements, and many users called for a boycott of Nvidia[15].

Political responses from Taiwan

One of the major initiatives of the Tsai Ing-wen government on economical reorientation towards Southeast Asia is considered to be The fresh Southbound Policy (NSP). This task focuses on deepening Taiwan's cooperation with 10 ASEAN members, six South Asian countries, as well as Australia and fresh Zealand. It aims to exploit the island's possible in areas specified as culture, education, technology, agriculture and the economy to support regional integration and contribute to the dynamic improvement of the Indo-Pacific area. This initiative seeks to deepen economical relations by integrating regional supply chains, developing exports and implementing common infrastructure projects specified as the public transport strategy in Jakarta. The NSP besides stresses cooperation in areas that are not straight dependent on China, including wellness care, culture, tourism, technology and agriculture. At the same time, it focuses on strengthening regional ties through trade agreements, strategical alliances and a $3.5 billion improvement fund that supports partner countries[16].

In addition, Taiwan is presently focusing on a crucial simplification in trade dependency on China by acquiring fresh bilateral agreements. The island is presently seeking to regain trade relations with Japan, the United States and the countries of the European Union[17].

Export of Taiwan (source: The post-election Taiwanese economy: decisions ahead and takeaways for the European Union, Bruegel, https://www.bruegel.org/analysis/post-election-taiwanese-economy-decisions-ahead-and-takeaways-european-union, accessed: 27.11.2024).

The illustration shows changes in Taiwan's export patterns by percent between 2010 and 2023. Exports to China and Hong Kong have decreased since reaching the highest level in 2019, indicating a decrease in dependence on this market, possibly due to geopolitical tensions and trade diversification policies. In turn, exports to the US have been increasing rapidly, especially since 2016, due to closer economical ties and expanding request for advanced Taiwanese products specified as semiconductors. However, exports to Europe have shown delicate growth since 2020, which can besides be linked to a greater interest in Taiwanese technologies. These data show that Taiwan is consciously seeking to reduce its dependence on China while developing trade cooperation with the United States and Europe, which strengthens its stableness and economical resilience.

BIBLE

[1] P. Crotty, Taiwan’s Trade: An Overview of Taiwan’s Major Exporting Sectors, Office of manufacture and Competitiveness Analysis, Working Paper ICA-106, May 2024.

[2] Taiwan Exports, Trading Economics, https://tradingeconomics.com/taiwan/exports, accessed: 20.11.2024.

[3] Ibid.

[4] Ibid.

[5] Diversify Trade: Where Taiwan Stands Today, and Where It Should Go Tomorrow, Global Taiwan Institute, https://globaltaiwan.org/2024/02/diversifying-trade-where-taiwan-stands-today-and-where-it- Should-go-tomorrow/, accessed: 23.11.2024.

[6] China has banned the import of Taiwanese pineapples, PAP, https://www.pap.pl/updates/news%2C823715%2Cchiny-introduction-introduction-import-Taiwan-anasov.html, accessed: 24.11.2024.

[7] Brands apologize rapidly to Chinese, but on Xinjiang, Taipei Times, https://www.taipeetimes.com/News/world/archives/2022/07/13/2003781691, accessed: 24.11.2024.

[8] SEF wars of heavyened taxation scrutiny in China, Focus Taiwan – CNA English News, https://focustaiwan.tw/cross-strait/2024071/20020, accessed: 25.11.2024.

[9] China suspends tariff deals on 134 items under Taiwan trade deal, Reuters, https://www.reuters.com/world/asia-pacific/china-suppends-tariff-concessions-134-items-under-taiwan-trade-deal-2024-05-31, accessed: 26.11.2024.

[10] abroad direct investment (FDI) in Taiwan, China, Lloyds Bank, https://www.lloydsbanktrade.com/en/market-potential/taiwan/investment, accessed: 26.11.2024.

[11] Taiwan and the Global Semiconductor Supply Chain, Taipei typical Office in Singapore, https://roc-taiwan.org/uploads/sites/86/2023/12/December-2023-Semi-Report.pdf, accessed: 25.11.2024.

[12] Will China’s Reliance on Taiwanese Chips Prevent a War?, Council on abroad Relations, https://www.cfr.org/blog/will-chinas-reliance-taiwanese-chips-prevent-war, accessed: 21.11.2024.

[13] Chinese economical Coercion Against Taiwan: A Tricky Weapon to Use, RAND, https://www.rand.org/pubs/monographs/MG507.html, accessed: 22.11.2024.

[14] Acer Faces fresh Supply Problems As China Chokes, ChannelNews, https://www.channelnews.com.au/acer-faces-new-supply-problems-as-china-chokes/, accessed: 24.11.2024.

[15] Backlash in mainland China over Taiwan comment by Nvidia's Jensen Huang, CNA, https://www.channelnewsasia.com/east-asia/china-nvidia-boycott-jensen-huang-calls-taiwan-country-4394521, accessed: 26.11.2024.

[16] Taiwan’s fresh Southbound Policy: Deepening Taiwan’s Regional Integration, Center for strategical & global Studies, https://southbound.csis.org/, accessed: 27.11.2024.

[17] The post-election Taiwanese economy: decisions ahead and takeaways for the European Union, Bruegel, https://www.bruegel.org/analysis/post-election-taiwanese-economy-decisions-ahead-and-takeaways-european-union, accessed: 27.11.2024.