No Missiles Required: How China is Buying Taiwan’s “Re-Unification”; Taiwan’s investment liberalization is giving Beijing greater economic leverage on the island

No Missiles Required: How China is Buying Taiwan’s “Re-Unification”

Taiwan’s investment liberalization is giving Beijing greater economic leverage on the island.

By J. Michael Cole

August 23, 2013

While experts continue to look at the rapidly expanding military capabilities of the People’s Republic of China (PRC) as the greatest threat to Taiwan’s sovereignty, Beijing would much prefer bringing about “re-unification” without having to fire a single missile. Ongoing cross-strait investment liberalization could help make that possible.

The key to the strategy is two-fold. First, flooding Taiwan’s economy with Chinese investment and second, ensuring that a greater number of Chinese are in positions of authority on the island. Since June 2009, when limited Chinese investment was first allowed in Taiwan, Chinese citizens who invest as much as 15 million New Taiwan Dollars (US$490,000) in the economy have been entitled to a one-year, multiple-entry visa. As with other foreign investors, the permit can only be renewed if the company the investor has put capital into has an annual revenue that exceeds 10 million NTD.

While a number of core sectors, such as traditional industries, remain closed to Chinese investment, ongoing liberalization trends will gradually create a more permissive environment for Chinese investment. Under the Economic Cooperation Framework Agreement of June 2009, Taiwan opened 205 manufacturing, services, and finance sectors to Chinese investment, which was followed by a further opening up of 42 sectors — 25 in manufacturing, eight in services, and nine in public construction. On March 19, the Executive Yuan approved a “third stage” of investment liberalization in opening up an additional 161 categories in manufacturing, services, and infrastructure, as well as 43 items of public facilities, to Chinese capital. In the 115 areas in the manufacturing sector included in the new policy, in only two — LED and solar battery manufacturing — are Chinese investors not allowed to hold controlling power. And still, Chinese officials and academics complain that Taiwan remains too closed to Chinese investment.

The Cross-Strait Services Trade Agreement signed on June 21 contains provisions that, according to opposition lawmakers, lower the threshold for Chinese investors to obtain a multiple-entry permit to as little as 6 million NTD, or about US$200,000. Under current quotas, a Chinese professional is given a one-year, multiple-entry visa to Taiwan for every US$300,000 in investment, with a maximum of seven Chinese professionals eligible per project.

Chinese companies with offices in Taiwan that invest at least US$1 million annually, as well as firms operating in export processing zones, are also now able to apply as inviters for the granting of multiple-entry visas to Chinese professionals.

Although the various trade agreements signed since 2009 are ostensibly (albeit not fully) reciprocal and allow Taiwanese investors preferential access to China, the political ramifications of the growing investment between the two sides — especially Chinese investment in Taiwan — warrants much greater scrutiny. The reason is that while both countries are World Trade Organization members, the relationship is not a conventional one: Beijing does not recognize the existence of Taiwan and now increasingly relies on economic encirclement of the island to achieve eventual unification. When it comes to Taiwan, it would be foolhardy to assume that Chinese only think in profit terms: there almost always is a political component, and the price of Chinese money “helping” or “rescuing” Taiwan’s under-performing economy is Taiwan’s sovereignty, something that Beijing never made a secret of.

According to the Investment Commission under Taiwan’s Ministry of Economic Affairs, 11 investors from the U.S., Canada, and South Korea are currently in Taiwan on multiple-entry visas. Given the political pressure for Chinese investment in Taiwan and the preferential thresholds offered to Chinese investors, it won’t be long before Chinese transcend that number.

It’s worth noting that cross-strait investment liberalization occurs at a time when Taiwan has lost some of its luster as a Foreign Direct Investment destination, which adds pressure on the local sector to open up to China in times of economic stagnation. 2011 was the first time in four decades that Taiwan registered a negative inflow of FDI.

Beyond Taiwan’s oft-mentioned growing economic reliance on China is the recent phenomenon of Chinese investors acquiring stakes — including controlling ones — in Taiwanese firms. This raises the possibility that Chinese investors and managers will seek to use their positions to influence subordinates’ attitudes towards cross-Strait relations. Even if they did not, Taiwanese workers at Chinese companies might be hesitant to express their support for a political party that opposes unification for fear of hurting their career prospects. Like the 2 million or so Taiwanese working in China, over time such workers would also naturally tend to favor political parties that support closer relations with China as strained ties could hurt their economic livelihoods.

In short, rather than fire missiles at Taiwan, Beijing could very well use its immense investment power to gain enough influence to achieve its “re-unification” dreams.