Another songbird has toppled off its perch. Singapore, the first canary to succumb to the carbon monoxide poisoning of dwindling world trade, may shrink a ghastly 5 per cent this year. Now Taiwan, another export-dependent economy gasping for survival, has gone one worse: its gross domestic product fell 8.4 per cent in the fourth quarter, an annualised contraction, seasonally adjusted, of an alarming 22 per cent.
Taiwan’s collapsing output has highlighted its vulnerability to outside events. If Asia is the world’s factory, then Taiwan is the factory’s factory, producing the chips and flat screens that go into the branded products no longer being sold by Chinese, South Korean and Japanese manufacturers.
There is a glimmer of hope. Taiwan’s integration into China’s manufacturing process cuts both ways. One reason for the frightening fourth-quarter contraction was plummeting exports to the mainland, which fell by half. Beijing has sought to slow an overheating economy by tightening credit and removing export incentives. Now the authorities have reversed, hosing the economy with funds to stimulate domestic demand.
In the longer term, closer integration with China is likely to benefit Taiwan economically. Ma Ying-jeou, Taiwan’s president, has been busily mending relations with Beijing ruptured by his more pro-independence predecessor. If Mr Ma pursues more explicit economic integration – something that need not entail concessions to Beijing on Taipei’s de facto independence – it could reap significant economic benefits.
Potentially, opening the tap of finance, goods and people with the mainland could boost Taiwan’s economy in several ways. Direct flights already mean that 1m Taiwanese businessmen living in mainland China can visit home more frequently, boosting domestic demand. A more open investment regime would encourage Taiwanese to repatriate profits instead of hiding them from Taipei. Closer integration could help Taiwanese productivity by forcing a stricter division of labour with the mainland, and open opportunities for Taiwan’s relatively strong service sector.
There is some opposition, partly based on concerns about Chinese farm products. But these should be addressed on purely phytosanitary – not protectionist – grounds. It would be foolish to deny there are no political implications to Mr Ma’s cross-Straits initiatives. Nor should Taiwan entrust its economic wellbeing entirely to China. But in these chill times it makes sense to huddle up to the only economic fire still flickering in the region.
