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As Asia builds economic ties, Taiwan sidelined by China

Taiwan watches as Asian neighbors ink trade deals, lower tarrifs, and get access to Chinese loans for growth.

By Jonathan AdamsCorrespondent of The Christian Science Monitor / April 12, 2009

Containers are seen stacked up at the Port of Taipei after economic data showed Taiwan's exports fell 35.7 percent in March, the seventh-straight month of decline.

Pichi Chuang/Reuters


Kaohsiung, Taiwan

Looking out over towering stacks of containers and hulking freighters here, the problem is far from evident.

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But this bustling port – once one of the world's busiest – is in sharp decline.

By the port's own calculations, it's now fallen off the list of the world's top 10 – down to No. 12, from No. 3 just a decade ago, a ranking that should become official later this month.

That's not because Kaohsiung Port isn't growing. It's because China's ports are growing much faster.

"In the last decade, several new ports have been established in the mainland, with annual growth rates of 40 percent," says Shieh Ming-hui, director-general of the Kaohsiung Harbor Bureau. "Our port's growth rate is about 4 percent per year. That's the main reason for this phenomenon."

Kaohsiung Port's decline is a symptom of a far more serious problem for this island-nation: Amid China's dramatic rise, Taiwan is being economically sidelined.

But it's not just that this onetime economic "tiger" now can't compete head-on with China in ports and other areas. Due to Beijing's political pressure, Taiwan is also the odd-man out amid the trend of Asian economic integration.

Taiwan watches from the wings

China sees self-ruled Taiwan as part of its territory. It forcefully objects to any nation signing pacts with Taiwan that would confer on it the status of statehood.

Taiwan was able to join the World Trade Organization in 2001, a day after China. But it joined as a "separate customs territory" – not a nation.

Since then, Taiwan has watched fretfully from the wings as Asian neighbors lower tariffs, ink trade pacts, and schmooze at regional conferences.

It was left out of China's trade pact with the Association of Southeast Asian Nations (ASEAN), which will create the world's largest free trade area (encompassing some 2 billion people) and eliminate tariffs on most goods by next year.

This weekend, China announced a $10 billion ASEAN-China infrastructure investment cooperation fund, plus another $15 billion in credit to ASEAN nations, designed to help them out of the global economic doldrums – with Taiwan again shut out.

Meanwhile, South Korea has signed its own trade pact with ASEAN, and is in talks with the United States and the European Union. Taiwan has tried but failed to interest those parties in trade talks.

Trade pact with China?

This has left many Taiwanese deeply uneasy about their economic future. Taiwan has seen its per capita GDP ($18,300) stagnate as peers like South Korea ($19,600) out-race it.

Most Taiwanese expect that their island's economic fortunes will be increasingly tied to China's. For them, the debate isn't about whether to integrate with the giant next door, it's about what the terms will be.

"Everyone wants to make sure Taiwan isn't marginalized," says Kung Ming-hsin, vice president of the Taiwan Institute of Economic Research. "But we disagree on how to do that."