Since his election in 2008, Taiwanese President Ma Ying-jeou has presided over uneven growth and has had to deal with some of the lowest popularity polls in Taiwan’s political history. Ma’s answer to the island’s economic woes is to draw closer to its largest trading partner, China. It’s a risky strategy. China has not given up its goal to regain what it considers a lost province, by force if necessary.
Ma now has to defuse tensions after students occupied the legislature in Taipei to protest his latest proposal, a deal with Beijing to open Taiwan’s services industries to Chinese competition and investment. The Sunflower Movement is striking a nerve. A huge crowd (estimated by police at more than 100,000 and by organizers at over 300,000) marched on the president’s office on March 30. Ma says he won’t back down on the agreement to open banking, hospitals, e-commerce, and other businesses to Chinese investment and competition. He calls the proposal a crucial step in revitalizing the economy.
Providing fuel for the protests is the worry that Taiwan and its electronics exporters are adrift as the island searches for a place in a world dominated by Apple (AAPL) and Samsung Electronics (005930:KS). Taiwanese tech companies have long been important players in the global electronics industry, designing and producing PCs for companies such as Hewlett-Packard (HPQ) and Dell. With smartphones and tablets replacing laptops and desktops, demand for Taiwanese computers is falling, and manufacturers are struggling. Although economic growth has averaged 4 percent over the past decade, last year it was just 2.1 percent, according to Bank of America Merrill Lynch (BAC). Even Taiwanese companies that thrive in the new order, such as Apple outsourcer Foxconn Technology (2354:TT), employ most of their workers in China and other countries, leaving relatively little for the folks back home. Average wages in Taiwan are at the same level as a decade and a half ago.
South Korea is pursuing its own trade pact with China. “Korea is aggressively negotiating and not waiting,” says Marcella Chow, Taiwan economist for Bank of America Merrill Lynch. If Ma’s deal with China remains stuck in the legislature, “it sends signals to other countries that Taiwan is not willing to open its market.” She adds that if South Korea can ink liberalization deals with China, which Taiwan can’t match, multinationals might be more likely to invest in South Korea than Taiwan.
Ma’s critics fear that a pact with China will make Taiwan even more vulnerable to pressure from the mainland to unify on terms that would jeopardize the island’s democracy. With the ruling Kuomintang holding a majority in the legislature, the president might still be able to force through the services pact. Yet the current deal is “not that important,” says Chow. “The most important is the trade-in-goods agreement afterwards.” This is a far more ambitious pact that would reduce tariffs and enable Taiwanese exporters to sell made-in-Taiwan products in the mainland more easily. It would also end protection for Taiwanese farmers by opening the island to food imports from the mainland. Even before the demonstrations, the trade-in-goods agreement was a sensitive subject for both opponents and supporters of closer ties with China. With the Sunflower Movement mobilized, Ma’s task is even more daunting.