Key Cooperative Research Institute for Policy Studies of the Ministry of Foreign Affairs of the P.R.C (2022-2024)

Jian Junbo, "Mainland China-Taiwan Trade Talks & Consequences for ASEAN" (Diplomatist)


The trade negotiation between Beijing and Taipei has been pending since a protest movement by Taiwan’s young people to against the Cross-strait service trade agreement happened in May 2014. To understand contemporary complicated economic relations between Chinese Mainland and Taiwan, it’s absolutely necessary to recall the relations in history.

In the early stage of China’s reform and openness from 1980s, Taiwan is of importance for Mainland’s economic resurgence and growth. Due to the investment from overseas Chinese living in Southeast Asia, including those from Hong Kong, Taiwan, Thailand and Singapore and so on, Chinese poor economy had the chance to get into a track of quick development.

Although in that time the Cross-strait relations were still in the state of belligerency theoretically since two sides had never singed the armistice agreement or similar accords since the civil war was happened from 1949. However, benefiting from Beijing’s openness policy and Taiwan’s rising, the Cross-strait economic relations was strengthened. From 1960s to 1980s, Taiwan’s economy grew quickly and it was marked as one of Four Dragons of Asia (others are Singapore, Hong Kong and South Korea). Due to its rich capitals and foreign exchange reserves, Mainland China’s openness gave Taiwan a great window of chance to invest to Mainland China (via Hong Kong or Japan). Namely, this is a case that can satisfy both sides, except for the political relations, the economic linkages between two sides became closer than ever before.

However, the rigid political relations were subtly changed when either Beijing or Taipei had done something toward each other in 1990s. in reality, as early as in 1980s, Beijing had promised to forsake the slogan-“liberation of Taiwan by force”, being replaced by “peaceful approaches”. But in almost all 1980s, Taiwan authority insisted on “Three Nos” policy-“no contact, no negotiation, no compromise” with Mainland, the political relations were unable to develop. When Lee Teng-hui came into power as Taiwan’s leader around the late of 1980s, he renounced the martial law which strictly prohibited Taiwan’s people to keep in touch with Mainland’s people, although they were families.

That is to say, Beijing’s strategy toward Taiwan in 1980s is to make a room by loosing political relations for Taiwan’s investment to Mainland, and Taipei’s strategy, by today’s views, is to translate Cross-strait relations into international relations between two “sovereign states”, because the martial law that Lee unleashed is made in the framework of “one China”.

Whatsoever, regardless of their true intentions, the economic relations was boomed between two sides, and many Taiwan’s factories received super national treatment in Mainland and spread there as flowers open in Spring.

When the 21st century comes, the nature of Cross-strait relations was silently changed. China grows up as a super star in the world stage, having huge number of foreign exchange reserves, yet Taiwan’s economy just keeps a mediocre development, and gradually loses the glory as a “Dragon”, lagging behind other “dragons” in Asia. The relation between Beijing and Taipei became more and more strained and unpredicted.

when Chen Shui-bian elected as Taiwan’s leader in 2000, he claimed Taiwan and China were two states and even seek for Taiwan’s independence or accession to the United Nations, which led to huge tensions between Taiwan Strait and the introduction of Anti-Secession Law made by Beijing. This tense situation had not changed until Kuomingtang’s Ma Ying-Jeou was in power, who had frozen the political quarrels between Beijing and Taipei and strengthened their economic linkages, although he never successfully stop the political quarrels domestically, especially between his party KMT and the main opposition group, Democratic Progress Party (DPP).

In the first term of Ma Ying-jeou, Mainland of China and Taiwan signed an accord Economic Cooperation and Free Area (ECFA), an negotiation framework for pushing the Cross-strait free trade. And recently, the free trade is extended to service field.

Basically, after 2000, the Mainland-Taiwan trade balance was broken, Mainland has great trade deficit with Taiwan, which implies Taiwan benefits much more than Mainland in the trade relationship. Although the trade deficit exists, according to the service trade agreement, Beijing is still willing to open more markets to Taiwan’s goods including services, although Taiwan’s openness to Mainland is much narrower. Obviously, for Beijing, to keep contemporary unbalanced trade relations between the Strait is not for economic profit but for political reasons.

Since Beijing abandons to liberate Taiwan by force, it has to take any peaceful approach to integrate the island into China, since reunite Taiwan into homeland is an “inescapable historical responsibility”. Economic linkage is considered as an approach to promote Cross-strait relations, at least prevent Taiwan from independence.

That is to say, today’s Cross-strait trade negotiation, for Beijing, is to promote the reunion of two sides, at least to keep status qua. However, for KMT’s regime, a closer trade relations with Mainland is to benefit from the economic rising of China and at the meantime, keep Taiwan’s autonomy and the de facto quasi-independence.

However, considering of the power’s imbalance between two sides, many Taiwanese, especially encouraged by the opposition party DPP, objected free trade with Mainland, especially opposed the service free trade between them. In May 2014, Taiwan’s young people, many of them are students in universities, launched a “sunflower movement”, protesting the free service trade agreement between Beijing and Taipei. These young men and women forcibly occupied the legislative institution and main streets in Taipei, and finally gave rise to the failure of passing the agreement in Taiwan’s parliament.

Generally, in Taiwan there are four groups against the service trade agreement with Mainland- those oppose service trade itself, those criticize to sign it in “present” stage, those refuse black-box operation on the agreement, and those with hostility toward Mainland, refuting any contact with China.

Tsai Ying-Wen, the Chairwoman of DPP, had criticized that negotiations on service trade must be both offensive and defensive, unfortunately, the Ma’s administration opens the door for mainland, which only slightly benefits a small number of large enterprises of Taiwan, but let those vulnerable industries and small and medium enterprises suffer a huge challenge; and it also ignores the impact of service trade to the political and social aspects of Taiwan, letting Taiwan encounter national security challenge.

Thus, on the one hand, Beijing’s goodwill in economy is not accepted by many Taiwanese, and meanwhile, it also cannot satisfy many people in Mainland who claim that Beijing should not sacrifice own economic benefit to court Taiwanese although they are never ungrateful for it.

Consequently, the Cross-strait relations somehow come into a deadlock, service trade negotiation is to some extent in a stalemate, impressive progress is unable anticipated, and the political relations has made no progress. Especially considering that the leader’s campaign of Taiwan will take place in next year, the new-round service trade negotiation between two sides maybe will be set aside. And meanwhile, Beijing seems no great interest to start a new negotiation before a consensus on it is reached within Taiwan.

Nevertheless, as to express the goodwill and sincerity to Taiwan people, Beijing agreed to launch the goods trade negotiation with Taiwan. In September 2014, the 9th goods trade negotiation was finished. In this negotiation, Mainland agreed to open more markets for Taiwan’s four important industries-panels, petrochemical, automobile, and machine tools. However, the 10th round of negotiation on goods trade is not foreseeable yet.

Facing this stalemate of the Cross-strait service trade bargaining, Taiwan’s leaders expressed their anxiousness on the future of Taiwan’s economy. Ma Ying-jeou on 23 March 2014 when the “Sunflower Movement” was in the climax had said that Cross-strait agreement on trade in services is for the future of Taiwan's economy. He also stressed that the regional economic integration is the world’s unstoppable tide, if the service trade with Mainland was not passed in Taiwan, the result will affect Taiwan's international credit and Cross-strait relations.

Lee Hsien Loong, the Singapore Prime Minister had also argued that the Cross-strait service trade agreement is a good agreement for Taiwan, yet it’s unfortunate Taiwan doesn’t sigh it. He also commentated that in a democracy it is not normal behavior to occupy the Legislative institution and even rushed into the Executive department.

Due to the domestic quarrels, Taiwan’s international economic relations is affected too. It’s reported some countries like the Philippines, India, Indonesia, Australia, Chile, Malaysia, and so on, originally have FTA negotiations with Taiwan are now taking a wait-and-see strategy. Namely, these countries would not sign economic agreements with Taiwan until Taiwan reaches the agreement with Mainland China. Cooked ducks fly, said one observer.

According to this situation, Beijing enhanced the FTA negotiation with other East Asian countries, especially with South Korea. On 10 November 2014, Chinese President Xi Jinping and South Korean President Park Geun hye jointly announced in Beijing that two countries’ FTA negotiations had reached agreement. This agreement covers about 22 areas of both sides in service, investment, finance and communication, etc.

It’s clear the Taiwan's industry would be seriously affected by the China-S. Korea FTA. It’s evaluated that about 24.7% of Taiwan’s industrial products (including several industries such as steel, machine tools, automobiles, panels, petrochemical, textile and glass) exported to Mainland China would be attacked by the FTA. 77% goods exported to Chinese Mainland are the same ones that South Korea exports to Mainland China, which means Taiwan would encounter serious competitive challenge by South Korea, since Mainland China is the biggest trade partner of Taiwan. Terry Gou, Taiwan's Hon Hai Group Chairman, had expressed his deep worries about the stalemate of the Cross-strait trade agreement and the signing of China-S. Korea FTA. “No time for Taiwanese now”, he commented. On 23 November 2014, 30 representatives of 22 business groups of Taiwan met Jian Yihua, the chief of Taiwan’s executive institution, strongly urging Taiwan authority as soon as possible to promote the Cross-strait service and goods trade agreements to be effect, in order to make Taiwan avoid being marginalized in the regional economic integration.

Practically, the economic integration between China and its neighboring countries is in good condition. China-ASEAN FTA, reached in September 2004, had formally come into force in January 2010. As the largest FTA among developing countries, it will benefit all members economically and at the same time, will be helpful for dealing with some political and sovereign disputes among them. In November of last year, Chinese Premier Li Keqiang wrote for a Thailand’s newspaper, promising to finalize the enhancement of China-ASEAN FTA and Regional Comprehensive Economic Partnership (RECP) by 2015, pushing East Asia’s economic integration.

The history tends to be full of drama. In 1990s when Beijing tried its best to attract overseas investment, Taiwan authority led by Lee Teng-hui took measures to guide Taiwan’s capital to invest to Southeast Asian countries like Malaysia, Vietnam or Indonesia, but not to Mainland China. Although this so-called “South-oriented policy” (upper mentioned countries are located at south of Taiwan) was not as successful as anticipated, at least it reflects in that time Taiwan wanted to leave Mainland but to build closer relations with Southeast Asian partners; ironically, after about one decade, when Taiwan’s elites want to build closer trade relations with Mainland, nonetheless, Beijing has built closer trade relations with Southeast neighbors than with Taipei. It tells us the geo-economic situation in Southeast Asia has changed, then the geopolitics will be followed as well.