Can Taiwan pull off its China gamble?

11 August 2020

7:08 PM

11 August 2020

7:08 PM

When Alex Azar, the US health secretary, arrived in Taipei on Sunday, he became the highest-ranking US official to visit Taiwan since the United States began diplomatic recognition of Beijing in 1979. In both Washington and Taipei, the significance of the visit has been rightly emphasised. Still, the visit has not been met with unequivocal praise in Taiwan. After all, while visits of this nature are undoubtedly important, they risk generating instability in cross-Strait relations. Could a closer relationship with the US spell trouble for Taiwan?

In one editorial published in Taiwan’s United Daily News on Monday morning, the trip was described as ‘a new wave of attack in the fight between the United States and China for leading global status’. The title of another editorial said the trip will ‘push Taiwan to the US’s front line in resistance to China’. This ‘front line’ risks jeopardising the relative stability Taiwan has enjoyed during the global pandemic began.

Thanks to its swift and effective response, the Taiwanese government has not had to enforce even a local lockdown and the country has seen fewer than 500 cases. As a result, recent analysis by the Brookings Institute revealed Taiwan to be one of the few Asian economies to stave off a downturn in 2020, expanding by 1.5 per cent in the first five months of the year. The same report showed Taiwan’s export orders in April rose by two per cent per cent the same period last year. This increase was propelled largely by growing demand for Taiwanese technology, a by-product of the massive growth in video conferencing thanks to the global lockdown.

Shifting trends in supply chains are another potential source of opportunity for Taiwan. The World Economic Forum said that coronavirus had ‘accelerated the pace’ of response to US-China trade tensions. In other words, firms are looking for factories outside the Chinese mainland.

Even if Trump loses the upcoming US election, bipartisan US support for a tougher stance of China means the risk of instability for businesses with interests in China remains high. Britain too, through its commitment to offering a path to citizenship to Hong Kongers, opens itself up to retaliation from Beijing.

In this fast-evolving climate, Hong Kong is perhaps the greatest catalyst of regional change. The erosion of freedoms, sanctions and political instability have all contributed to the declining view of the city as the obvious location for entering Asian markets. At the moment, Taiwan remains a stable alternative.

Steven Parker, CEO of the British Chamber of Commerce Taipei, explains that over the past few months, he has seen a notable uptick of British businesses interested in Taiwan. Before the pandemic, Parker said the organisation might expect an average of one inquiry per month from businesses looking to set up on the island. They now receive around two to three per week.

Growth broadly falls across three sectors; brands (particularly food and drink), renewable energy and financial services. Parker explains that Taiwan is viewed by British companies as ‘a safe place to get on and do business right now’.

Beyond the concerns of the pandemic, two major obstacles continue to limit the attractiveness of the Taiwanese market. The first is luring foreign talent; it is notoriously cumbersome for companies in Taiwan to obtain visas for foreign workers. The second is language; English ability is generally good, but it cannot compete with the bilingual systems of Hong Kong and Singapore.

Even before the pandemic, policies had been set to meet these challenges. In 2018, the Taiwanese government introduced a new form of employment visa for skilled foreign professionals. The visa, known as the ‘gold card’, entitles holders to reside in Taiwan without attachment to a specific company, as well as providing tax breaks for high earners. In the first five months of 2020, the number of ‘gold cards’ issued was up 80 per cent on 2019. Meanwhile, president Tsai Ing-wen has set out plans to make Taiwan a bilingual country (Mandarin Chinese and English) by 2030.

But the road ahead for Taiwan is not without difficulty. These economic imperatives, which hint at the benefits of maintaining the political status quo, are something of a dilemma for the ruling Democratic Progressive Party (DPP). Historically, the DPP is a party that is broadly sympathetic to independence – due to the Chinese Communist Party’s claims on the island, Taiwan has never sought to declare formal separation. Younger Taiwanese voters now believe the DPP has gone soft on pursuing this aim.

Azar’s visit can be celebrated with caveats; to the extent that it does not catalyse a collapse in cross-Strait relations and that it recognises the broader US Asian strategy, of which Taiwan is just one facet. Within this web of global power struggles and international distrust, there are opportunities for Taiwan. Making good on them is another matter.

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