Prospects for Taiwan’s New Southeast Asia Policy
By John F. Copper

Prospects for Taiwan’s New Southeast Asia Policy

Jul. 05, 2016  |     |  0 comments

During the campaign leading up to Taiwan’s January 16, 2016 national (executive and legislative) election, the Democratic Progressive Party’s (DPP) presidential candidate Chairwoman Tsai Ing-wen pledged to seek closer economic relations with the countries of Southeast Asia. Her intention was to reduce Taiwan’s dependence on trade and other commercial relations with China, which she viewed as threatening Taiwan’s sovereignty.


After Tsai’s inauguration in May, this policy became more salient as the new president laid out particulars about how to accomplish it while putting some specific tactics into operation. She even decided to set up a “New Southbound Policy Office” that would report to her, apparently beyond the reach of the premier and the legislature.


However, questions soon arose concerning how promising Tsai’s plan might be. In fact, many observers doubted whether it would be successful or, even if it were, whether it would make a difference.


There are good reasons for skepticism.


First, in 1993 President Lee Teng-hui launched a policy called “Go South” to encourage Taiwan’s business community to invest in Southeast Asia rather than China. The fear was that Taiwan was putting too much of its capital in projects in China, giving Beijing undue economic and political leverage over Taipei. Lee reasserted this policy in 1995 and 1996 after China conducted missile tests in the Taiwan Strait to intimidate Taiwan (in the latter case in the context of an election campaign).


With a few exceptions this policy failed. Taiwan’s investors as well as importers and exporters favored doing business in China. They shared a common language with their counterparts there. China was growing economically faster than Southeast Asia and that provided Taiwan better opportunities. The China market was also much bigger. Last but not least, the Chinese government afforded special privileges to Taiwan’s businesses and investors.


President Chen Shui-bian (Lee’s successor elected in 2000) virtually ditched the Go South policy and encouraged broader cross-Strait commercial ties. Business boomed to Taiwan’s advantage. But so did Taiwan’s economic dependence on China. Chen accepted the tradeoff as he needed businesses’ financial donations to survive and win the next election in view of the Nationalist Party’s (Kuomintang or KMT) advantage in funds.


Ironically, Chen, who advocated Taiwan’s independence and its separation from China, advanced Taiwan’s economic reliance on China more than his predecessor or even his KMT successor Ma Ying-jeou. Perhaps that was because his supporters trusted him not to sell out Taiwan, and there was also no opposition political party that made an issue of Taiwan’s growing addiction to China’s trade and investment opportunities.


Second, when Tsai’s Ing-wen became president and sought to implement her plan to grow relations with the countries of Southeast Asia, she realized she had no strategy that would bring immediate results. So she put forth longer-range plans: getting to know Southeast Asia better, promoting cultural and educational exchange, etc.


But she was handicapped by the fact that there is no Southeast Asian language and instruction in the languages spoken in the countries in the region had not been a high priority in Taiwan’s schools. Nor had it been in its diplomatic service. Rectifying this situation would likely take many years.


President Tsai then moved to accomplish something by proposing legislation that would make it easier for residents of Southeast Asian countries to visit or study in Taiwan, or even gain work permits. But this contradicted apprehension in Taiwan that they might seek to stay, something that most citizens opposed.


Moreover, Tsai’s party had special reasons for not wanting immigrants from Southeast Asia. These immigrants did not understand, or like, the DPP’s promotion of a Taiwanese identity, local nationalism, and the party’s reliance on advancing a history of conflict with the “alien” KMT to win elections. Hence, they tended to favor the KMT and voted for KMT candidates if and when they obtained citizenship.


This even applied to the DPP’s position on granting citizenship (and thus voting rights) to foreign spouses of Taiwan’s residents. The party sought to make the process long and difficult to prevent absorbing more potential KMT voters, and made this official practice during the Chen Shui-bian presidency.

Tsai proposed legislation that would make it easier for Southeast Asian residents to visit or study in Taiwan, or even gain work permits. But this contradicted apprehension in Taiwan that they might seek to stay.

The case of Lin Li-chan brought this into focus during the recent election campaign. Lin was born in Cambodia and married a man from Taiwan eighteen years earlier via a for-profit marriage broker. She moved to Taiwan. She learned Chinese, got a master’s degree, and did volunteer work for the Taiwan New Immigrant Development and Exchange Association. In January she won a seat in the legislature representing the KMT — the first ever new immigrant to accomplish this feat.


The third obstacle to Tsai’s making meaningful inroads into Southeast Asia via commercial relations is the fact that China wields vast influence over all of the ten countries of Southeast Asia that are part of the regional organization called the Association of Southeast Asian Nations (ASEAN). There are good reasons for this.


During the 1997 Asian meltdown (a serious economic crisis that began that year and affected Southeast Asia), China did not devalue its currency as others were doing and provided emergency financial aid in the billions of dollars that literally rescued the region. Thailand, Malaysia and Indonesia were major beneficiaries. Their leaders praised China for its help.


In 2002, China launched a plan to build the China-ASEAN Free Trade Area. It was finalized in January 2010 and became the largest free trade area (in population) in the world, and third in gross domestic product and trade volume. Tariffs were reduced to an almost insignificant amount. The result was trade has increased by 37 fold in two decades and has been growing at 20 percent a year recently.


Meanwhile China has built numerous infrastructure projects in Southeast Asia: roads, dams, pipelines, railroads, telecommunications projects, and more. Three stand out. One is China’s One Belt, One Road (the refurbished and expanded old Silk Road and an accompanying Maritime belt). It will be the largest project in human history. Another is a network of fast railroads that will connect all of the countries of mainland Southeast Asia and will augment commercial ties as well as other contacts among the nations involved and connect with China. A third is work on dams in the region, in the case of nations proximate to China on rivers, including the Mekong, which originate in China.


It is not surprising then that all ten ASEAN nations signed on to become founding members of China’s recently established Asian Infrastructure Investment Bank — in spite of American opposition to their doing so. The Manila-based Asian Development Bank estimates that Southeast Asia needs USD 1 trillion in investment in infrastructure in order to maintain its current level of economic growth. Only China can afford to provide the amount of money needed.


Currently, China is ASEAN’s biggest trading partner, as it has been since 2009 (America is fourth). Trade has increased ten fold in the past 15 years and is now reaching USD 500 billion annually. It is still growing notwithstanding tensions in the South China Sea. In fact, it is projected to total a trillion dollars a year by 2020. Moreover, the trade balance favors ASEAN, to their delight.


In conclusion, Taiwan can probably increase its economic ties with Southeast Asian countries. It has some advantages. One, the region is growing fast economically. Two, it is nearby. Three, environmental rules are not as rigidly enforced as elsewhere including China these days.


But it will take time, which Tsai may not have. Taiwan’s GDP growth is currently below 1 percent. The IMF predicts it will be less than the other Asian dragons (South Korea, Hong Kong and Singapore) for the next four years. They are the standard by which Taiwan voters will judge their leaders between now and the next election four years away.


China can easily thwart Taiwan’s plans; through ASEAN Beijing has a virtual veto over Taiwan’s economic ties with Southeast Asian countries. So, to succeed, President Tsai must maintain good relations with Beijing — which her party’s base opposes.


Finally, commerce with Southeast Asian countries will not serve as a panacea for Taiwan to diversify its trade and other economic ties away from China. Economic ties with China are too large. Forty percent of Taiwan’s exports go to China. Production chains link the two. The lion’s share of Taiwan’s foreign investment goes to China. More than a million of Taiwan’s residents are working in China.


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