Taiwanese President Chen Shui-bian made a breakthrough tour of the U.S. and Latin America in late May, but grim economic news from back home overshadowed what should have been a diplomatic triumph. Taiwan's high-tech economy is being hammered by the global slowdown. The island's currency is sliding, the unemployment rate is rising, and growth is grinding to a near halt. The sputtering of the electronics sector comes at a time when Taiwan's heavy industry is weakening in the face of relentless competition from archrival China. In response, Chen's government is increasingly heeding the calls of local entrepreneurs to link the island's economic fate with the mainland.
Conservative estimates put Taiwanese investment in China at almost $50 billion, and it may be as high as $70 billion. Today, Shanghai and the surrounding Yangtze River Delta is almost like a Taipei suburb. With Taiwanese businessmen investing in everything from notebook computer factories and semiconductor manufacturing plants in Greater Shanghai, Taipei's ban on high-tech investment in the mainland is clearly not stopping the exodus from the island.
Chen's government is gingerly moving to liberalize its policies. Taiwanese businessmen, some of the world's most avid capitalists, are going to find a way to follow the market whether the Taipei government lets them or not.
So it's in the interest of Chen's government to get out in front on this issue by making it easier for companies to make the jump while leaving key service operations in Taiwan. That way the island has a chance to become for the Yangtze River Delta what Hong Kong has become for the Pearl River Delta: a hub providing banking, insurance, logistics and research and development.
Beijing and Washington, still angry at one another over the spy-plane incident, need to recognize that they stand to gain from this move, too. China needs Taiwanese dollars and high-tech expertise. President Jiang Zemin's efforts to intimidate the Taiwanese into submitting to Beijing's formula for reunification have not worked. Instead, the Chinese leadership would do well to encourage Taiwanese by treating their companies fairly. Integrating the Chinese and Taiwanese economies is the best hope of peacefully integrating the countries politically.