The Implications of China-Taiwan Economic Liberalization

by Daniel Rosen, Zhi Wang

Overview

China and Taiwan have built one of the most intertwined and important economic relationships in the world, and yet that relationship is not mutually open, compliant with World Trade Organization norms, or even fully institutionalized. What's more, despite massive trade and investment flows, the boundary between the two is a serious flashpoint for potential conflict. But leaders in Beijing and Taipei have committed to normalize and deepen their economic intercourse and open a new post-Cold War era in their relationship. While the political significance of this gambit has captured attention worldwide, the scope of opening intended and the bilateral, regional, and global effects likely to ensue are as yet poorly understood.

This volume attempts to remedy that uncertainty with careful modeling combined with a qualitative assessment of the implications of the cross-strait economic opening now agreed in an Economic Cooperation Framework Agreement (ECFA). The study explores the implications for Taiwan and China, for their neighbors, and for the United States if this undertaking is fully implemented by 2020.

Product Details

ISBN-13:	9780881325010
Publisher:	Peterson Institute for International Economics
Publication date:	12/15/2010
Series:	Policy Analyses in International Economics , #93
Pages:	128
Product dimensions:	5.90(w) x 8.90(h) x 0.60(d)
Age Range:	18 Years

About the Author

Daniel H. Rosen was a visiting fellow at the Peterson Institute for International Economics. Rosen is a principal at the Rhodium Group, a New York-based research firm. He is also an adjunct professor at Columbia University's School of International and Public Affairs (2001–present). Rosen was a member of the National Economic Council staff (2000–01), where he served as senior adviser for international economic policy. His work has focused on the economic development of East Asia, particularly greater China, and US economic relations with the region. Other areas of research include energy, agriculture and commodities, trade and environment linkages, and economic transitions and competitiveness. He is author or coauthor of China's Energy Evolution (forthcoming), The Implications of China-Taiwan Economic Relations (2011), Prospects for a US-Taiwan Free Trade Agreement (2004), Roots of Competitiveness: China's Evolving Agriculture Interests (2004), The New Economy and APEC (2002), Behind the Open Door: Foreign Enterprises in the Chinese Marketplace (1999), and Powering China (1995).

Table of Contents

Preface vii

Acknowledgments xi

Acronyms xv

Map xvii

Introduction 1

1 China-Taiwan Economic Relations 5

Trade: Data Problems, Economic Drivers, and Political Barriers 6

Direct Investment and Portfolio Holdings 27

Flows of People 42

Conclusions 46

2 Bilateral Effects of Deepening the Economic Relationship 51

What, Why, and How? 53

Assessing the Economic Effects 63

Conclusions 95

3 Regional Implications 97

Taiwan's Liberalization beyond China 98

Impact on Others in Asia 106

Conclusions 111

4 Cross-Strait Economic Relations and the United States 113

The US-China-Taiwan Economic Relationship 113

Modeling Results for the Economic Cooperation Framework Agreement and the United States 117

Broader Issues of Regional Leadership 123

Peace Dividend? 133

Conclusions 134

5 Conclusion 137

Taiwan 138

China 142

The United States 143

Appendix A Specification of the Global Recursive Dynamic Computable General Equilibrium Model 149

Appendix B Algebraic Specification of the Model 163

References 185

Index 189

Tables

Table 1.1 Taiwan's import prohibitions by category 18

Table 1.2 Growth of Taiwan's services exports and imports with the world 21

Table 1.3 Dimensions of Taiwanese outward foreign direct investment, 1988-2009 30

Table 1.4 Top 10 Chinese industries targeted by Taiwanese foreign direct investment, 1991-2009 34

Table 2.1 Scenarios: Taiwan's economic participation limited to ECFA 67

Table 2.2 Change in 2020 GDP 69

Table 2.3 Change in 2020 global trade and welfare indicators 71

Table 2.4 Trade dependence between China and Taiwan 73

Table 2.5 Taiwanese exports of significant value that go predominantly to China 80

Table 2.6 Disaggregation of Taiwan's most China-dependent exports 81

Table 2.7 Highest-value Taiwanese exports to China 83

Table 2.8 High-value Taiwanese exports to the world, but not to China 85

Table 2.9 Change in Taiwan's industrial output, 2020 88

Table 2.10 Change in China's output in final year, 2020 94

Table 3.1 Scenarios: Taiwan's participation beyond ECFA 98

Table 3.2 Change in 2020 trade and welfare indicators in scenarios where Taiwan extends regional integration beyond ECFA 101

Table 3.3 Percent change in production in 2020 103

Table 3.4 Change in 2020 GDP of economies other than China and Taiwan when Taiwan is limited to ECFA 107