Taiwan’s plan to reduce reliance on China runs into headwinds

TAIPEI – Nearly half the goods made in Taiwan, famous for its computer chips and electrical components, are exported to China, its neighbour and largest trade partner.

But the self-governing island is determined to reduce economic reliance on a country that regards it as a territory, and to boost sluggish growth. To that end Ms Tsai Ing-wen, the pro-independence President, is trying to deepen trade and investment links with South-east Asia.

No governments in the region formally recognise Taiwan, and Ms Tsai faces a huge challenge in persuading its unofficial partners to withstand growing pressure from Beijing.

“We’re trying to diversify our trade and investment but countries are cautious and China always tries to block our relations with other nations,” says Mr Lo Chih-cheng, a member of the ruling Democratic Progressive Party and the head of the foreign affairs committee in Taiwan’s legislature.

Mr John Chen, the representative of Taiwan’s economic and trade office in Indonesia, South-east Asia’s biggest economy, says political pressure from Beijing is a constant problem and being excluded by China from regional economic integration agreements is a “great challenge”.

China is the biggest market for Taiwanese products, accounting for 40 per cent of exports, followed by South-east Asia, which accounts for 18 per cent. Many Taiwanese manufacturers, including iPhone maker Foxconn, have large production bases in China.

Since Ms Tsai’s election last year, Beijing has renewed its diplomatic war with Taipei, snatching one of its 22 remaining formal allies, the tiny African nation of Sao Tome and Principe, at the end of last year.

Mr Donald Trump’s suggestion last month, ahead of becoming the United States President, that he would push for closer relations with Taipei angered Beijing. During a visit by China’s Foreign Minister to Nigeria, the west African country ordered Taiwan to close its trade office in the capital, Abuja.

China is likely to intensify pressure on other nations to curtail the activities of Taiwan’s international trade offices, which are staffed by diplomats but do not have the status and access of a formal embassy.

A lack of diplomatic relations means Taiwanese companies cannot benefit from the bilateral trade agreements or tax and investment treaties that help their multinational rivals invest overseas. Some are incorporated in countries such as China and Singapore to get around curbs.

“The hurdles can be quite big but even if the government cannot jump over them, the private sector can do it,” says Mr Chen.

Still Taiwan’s exclusion from big trade deals, such as the Asia-wide Regional Comprehensive Economic Partnership, severely limits access for its companies. And the lack of formal ties with South-east Asian nations means Taiwanese investors cannot benefit from the sort of government-to-government lobbying on which US, Chinese and Japanese companies rely to overcome the many bureaucratic roadblocks in emerging markets such as Indonesia. Pressure on Taiwan varies from country to country. But diplomats say their Chinese rivals will protest every time they meet senior officials. The interference often extends to petty matters such as blocking attendance at international conferences and lobbying aviation officials to deny landing slots to Taiwanese airlines.

While there are no formal diplomatic relations with South-east Asia, there are plenty of established trading relationships. Mr Chen, who was ambassador to São Tomé, says cooperation with a large developing economy such as Indonesia is far broader than with many of Taiwan’s formal allies, which are mostly small, poor nations such as Palau and Guatemala.

More than 20,000 people work in the more than 2,000 Taiwanese businesses in Indonesia. Smartphone makers HTC and Asus and tyre maker Cheng Shin Rubber, which owns the Maxxis brand, plan to invest in Indonesian production facilities, capitalising on low labour costs and a ready large market.

Mr Ross Feingold, a political risk analyst in Taipei, warns that the “new southbound policy” faces further difficulties because of Beijing’s improved relations with Malaysia, the Philippines and Thailand.

“It takes two to tango,” he says. “The government can’t just sit in Taipei, say we want better engagement with South-east Asia, and expect results, especially in an environment where the cross-strait relationship is deteriorating.” FINANCIAL TIMES