Thursday, January 31, 2008

Political Pand'-ering

Beijing attempts to spread its soft (and cuddly!) power to the island of Taiwan.

With the March presidential elections on Taiwan quickly approaching and a continued strong outlook for KMT candidate Ma Ying-jeou, China has relaunched an insidiously furry plan to win over the people of Taiwan with their most advanced PR weapon--the ultimate WMD of public diplomacy. . . that's right, pandas.

According to today's AP article, a pair of Chinese pandas were first offered to Taiwan in 2005 "to mark a landmark visit by the leader of Taiwan's Nationalist party." Beijing then acted shocked and appalled at Taiwan President Chen's refusal to admit the oversized raccoons for obvious political reasons, because, well, Taiwan obviously needs pandas—as do we all (please pause for a moment to note our thick tone of sarcasm).

Beijing, of course, didn't make the whole thing go over any easier with Taiwan's ruling party when, according to the AP, they subsequently named the lovable fuzzy-wuzzies: "'tuantuan' and 'yuanyuan' — words that together mean 'reunion' in Chinese."
Now that the KMT candidate is the pollster's favorite for the March election in Taiwan, Beijing has put Taipei on notice that the pandas are up for offer once again.

We see this as yet another example of Beijing's inability to refrain from tainting even the most trivial connection to Taiwan with nationalist overtones. It would have been much more subtle and effective to have simply offered the pandas to Taiwan with no strings attached. After all, its tough to demonize a country that lends you a pair of objectively cute panda bears and asks for nothing in return.

Tuesday, January 22, 2008

Taiwan's Titanic Tech Trade

We came across an article from last Friday on PC Magazine's website entitled, "China-Taiwan Showdown Involves Politics, PCs." Glenn Smith's article is an interesting look at the ways in which a serious turn for the worse in the relationship between Taiwan and China could pose a serious threat to the world's IT electronics market. At face value, Smith's thesis seems a bit obvious: Taiwan is the world's leading producer higher end electronic devices, and many of the components used to assemble these products are sourced from factories in China, so of course a serious confrontation across the Taiwan Strait would harm the industry. Yet the scope of the possible harm done can sometimes be easily overlooked.

According to Smith's article, "Taiwan is the world's number one volume supplier of motherboards, WLAN NIC cards, VoIP cards, VoIP routers, laptops [83%], DSL customer premises equipment, cable modems, IP phones, PDAs [73%], VoIP terminals, LCD monitors [70%], switches, WLAN access points, color tube monitors and large LCD panels." Not only does Taiwan lead in all of these categories, it commands over half the global market share's dollar value in each and every one of them. Taiwan's tech industry is truly a global juggernaut.

Although over the years an increasing share of this nominal output has been manufactured by Taiwanese-owned fabrication outfits in China, virtually all product design originates in Taiwan's venerable scientific industrial parks. Furthermore, TFT-LDC lens and semiconductor production still remains largely on Taiwan soil. From the article:

Tze-Chen Tu, general director of the Industrial Economics & Knowledge Center (IEK), at Taiwan's Industrial Technology Research Institute (ITRI), said that every country wants to keep its first-tier industries at home, and that technology transfers are banned if thought harmful to economic or national security.

"We don't like to see them go but even when Taiwan companies shift manufacturing to China, they come back for design and for critical components," said Tu.

The net result? According to Smith, whereas the production and export of existing electronics to the United States and other tech-consuming countries might be maintained during a crisis, "if things fall apart and a Tom Clancy scenario unfolds in the Taiwan Strait you can forget about upgrading your PC or laptop for a while. The hundred miles of shallow seas separating Taiwan and China happen to be the most important yet most precarious link in the global ICT [Information and Communications Technology] supply chain."

All these are very good economic reasons for the United States and most other countries to take a vested interest in maintaining peace and trade communications across the Taiwan Strait. Yet, in highlighting Taiwan's central role in this global industry, we are also shining light on the real benefits that could be reaped by businesses and consumers in both Taiwan and the United States from a free trade agreement between the two countries.

The electronic 'triangle trade' that currently exists between the U.S., Taiwan and China is formed as major American firms such as IBM, Intel and Apple look to Taiwan firms to design critical components for new products which are then manufactured and assembled in China and shipped to consumer outlets in the U.S. Due in large part to this dynamic, the United States is Taiwan's largest source of foreign direct investment and 3rd largest export market, while Taiwan, an island of 23 million, is the United States' 9th largest trading partner and 8th largest export market. Lowering trade barriers on any leg of the ICT trade flow would lower artificially imposed production costs and therefore equal higher company profits and lower price tags for consumers.

As mentioned in earlier posts on this site, there are of course other economic areas in which Taiwan and the United States, as close allies and trading partners, have formed strong ties. U.S. exports to Taiwan in 2006 amounted to $23 billion and Taiwan is a leading consumer of American meat and produce as well as cars and other industrial products. One 2002 study by the U.S. International Trade Commission (USITC) projected that a Taiwan-U.S. Free Trade Agreement (TUFTA) would double American exports to Taiwan in the agricultural and auto sectors while raising overall exports $3.4 billion or 16% (at the time) annually. In 2004 a study by the Institute for International Economics (IIE) raised the expectations for annual increases in exports to $6.6 billion. Clearly the potential for growth in American exports Taiwan is increasing in proportion to current trade volume and considerably outpacing the current level of growth.

As we have long been consistently advocating here at R.O.C. the Boat, a US-Taiwan Free Trade Agreement would bring tangible economic benefits two both the United States and Taiwan--two countries whose economies are enmeshed but to a large degree do not overlap. Furthermore, an FTA would grease the wheels of the Asia-Pacific tech trade and add to the stability of the region. Finally, according to the same 2004 IIE study mentioned above, TUFTA would create more economic gains for the U.S. than those of 10 other current or potential FTA partners, including Australia, Singapore, Chile and New Zealand. At a time when the U.S. economy seems to be hitting a rough spot at best and perhaps moving into recession at worst, pursuing a free trade agreement with Taiwan would certainly give several sectors of the American economy something sunny on the horizon to look forward to.

Monday, January 7, 2008

Chicago Tribune interview with President Chen

Yesterday in the Chicago Tribune there was an interview conducted by Dennis V. Hickey with the header, "Person of Interest: Taiwan President Chen Shui-bian." Mostly, the discussion centered on cross-Strait relations with China and the emptiness of Hu Jintao's recent overtures for peace negotiations. Among other things, there was this nice little zinger:
Q: Were you surprised by President Hu's call for peace?

A: No, it's just a strategy to deceive our people and foreign countries. . .If Hu Jintao abandons the one-China principle, I will be surprised. If China gives up its one-party dictatorship, renounces the use of force against Taiwan and removes the 988 [1,326?] missiles deployed opposite Taiwan, then I will be truly surprised.


Thursday, January 3, 2008

China: More guns, less butter.

Recently, two important numbers monitored here at R.O.C. the Boat underwent major revisions:

  • The commonly accepted figure for the size of China's economy was reduced by 40 percent.

  • The estimated number of ballistic missiles deployed against Taiwan by China has increased by 30 percent.

First, discrepancy in the size of China's economy seems to arise from the World Bank's use of way-outdated data sets (originally generated in the 1980s) to come up with the purchasing power parity (PPP) estimates that are crucial when estimating the size of an economy. PPP is a measurement obtained by weighing the relative values of currencies when those currencies are used to obtain identical goods in their domestic markets. Eduardo Porter, who wrote a great editorial for the New York Times on the 'downsizing' of China's economy almost a month ago, put it this way:
Take a 40 yuan serving of noodles at an eatery in Beijing. If the same dish cost $4 at a comparable restaurant in New York, the noodle P.P.P. would be 10 yuan to the dollar. Calculated using a large basket of goods and services, this ratio allows for a more consistent comparison of economies. . .

. . .It turns out that things in China are more expensive. It’s as though we discovered that the real price of the noodles in Beijing was 50 yuan, yielding a P.P.P. of 12.5 yuan to the dollar rather than 10. That means the Chinese are relatively poorer and China’s economy is smaller than everybody thought.

This is not a mere technicality. Suddenly the number of Chinese who live below the World Bank’s poverty line of a dollar a day jumped from about 100 million to 300 million, roughly the size of the United States population. And if you thought China’s energy consumption was dismally inefficient, consider that it still uses the same amount of energy to produce 40 percent less stuff.

As Porter puts it, with the release of the new World Bank figures, China's estimated economic output "lost a chunk roughly the size of Japan’s output." Maybe the World Bank will remember to update their purchasing power figures sooner next time?

The phenomenon of China's shrinking 'overnight' was also mentioned in today's Nelson Report, where the venerable Chris Nelson referred readers to a much more recent article in the LA Times entitled "The Great Fall of China". As China no longer seems like quite the economic juggernaut it has often been made out to be, perhaps the specter of 'antagonizing China' will no longer carry quite as much weight. To add a little more perspective, consider that the United States' economy is currently worth about $13 trillion. Economists previously thought the U.S. would be eclipsed by China's $11 trillion economy in 5 years. Not anymore: China's $11 trillion economy is now a $6 trillion economy.

Secondly, there's the small matter of the missiles China is piling up in its southeastern provinces, with a view toward threatening and forcibly coercing Taiwan. Throughout the second half of 2007, it was estimated that the number of short-range ballistic missiles the PLA had deployed against Taiwan was just shy of one thousand. However, during his final New Year's Day address, Taiwan's President Chen announced an updated study by Taiwan's Ministry of Defense boosts this number to 1,326. Just during President Chen's term alone, the number has increased by almost 700%. The jump in China's arsenal was reported in this article by the Epoch Times; an English-language transcription of President Chen's New Year's Day address can be read here.

These new figures will hopefully generate a more realistic public image of China's adopted role in the world economy and international relations. Combine China's increased poverty figures and drastically slashed economy size with continued missile proliferation and sales of weapons to governments like those of Myanmar and the Sudan, and one quickly realizes that China's role entails a lot more guns and a lot less butter than most of us previously thought.