Alumni News

—A Commentary by Sean King (MBA ’99)

Taiwan, Sleeping Tiger

In the 1970s, authoritarian Taiwan – then claiming to speak for all of China – emerged along with Hong Kong, Singapore and South Korea as one of Asia’s four “tigers.” Today’s Taiwan, a civil society grappling with identity issues, is the world’s 22nd-largest economy. However, faced with cooling growth rates, internal political gridlock, and its own diplomatic orphan status – all in the shadow of hypersonic mainland Chinese growth – Taiwan has fallen off the business front pages. But a presidential election in March, and long overdue policy breakthroughs, might push this island economy front and center again.

Taiwan’s star-crossed existence is an officially unofficial one. At Beijing’s behest, Taiwan is kept out of the United Nations, the World Bank and even the World Health Organization. In 2005, Beijing (which has almost 1,000 missiles aimed at Taiwan) passed its Anti-Secession Law, empowering it to employ “non-peaceful” means should Taipei ever attempt to formalize its de facto operational independence.

Taiwan’s economy excels nonetheless, particularly in technology. Original design manufacturer Hon Hai Precision Industry built Apple’s iPhone, and homegrown Acer just bought America’s Gateway. Taiwan Semiconductor Manufacturing Company leads the world in made-to-order chips. And last year, Taiwan overtook Korea as the world’s largest production base for liquid crystal flat-panel screens.

Taiwan can sometimes be its own worst enemy, however. Infrastructure hasn’t kept pace with that of its regional peers. Taiwan has also dragged its feet on tax reform, foreign work permits and intellectual property rights. But liberalized economic relations with mainland China, or the lack thereof, are most vexing of all.

Given the potential for military conflict between the two countries, Taiwan restricts direct travel and trade with mainland China. Virtually all persons and cargo must travel via a third territory, e.g. Hong Kong. Mainland visitors are effectively banned. Taipei forbids local companies from investing more than 40 percent of their net value in mainland China, which paradoxically only further encourages them to leave Taiwan wholesale. To circumvent these restrictions, some Taiwanese firms opt to list in Hong Kong, or court foreign ownership.

Love it or hate it, mainland China is the keystone in today’s global supply chain and is – ironically enough – Taiwan’s number one “export” market. But for current Taiwan President Chen Shui-bian, a former human rights lawyer whose second and final term expires in May 2008, there is no room for nuance with Beijing. Thankfully, both of this year’s presidential candidates realize, to varying degrees, that fully re-joining the world economy actually enhances Taiwan’s security. When it happens, not only will foreign multinationals care more about Taiwan’s welfare, but so will their governments.

Opposition Kuomintang candidate and former Taipei Mayor Ma Ying-jeou wants to move fast on mainland economic relations. Ruling Democratic Progressive Party (DPP) candidate and former mayor of southern port city Kaohsiung, Frank Hsieh, is more guarded. However, both favor some form of eventual direct travel and trade links with the mainland. Beijing would rather deal with Ma than with Hsieh, but Taiwan’s voters have the only say. Either way, come mid-2008, Taiwan will start moving toward greater economic engagement with mainland China – and by extension – the world.

The surest way to safeguard Taiwan’s territorial integrity is through a stronger “national” defense, not self-imposed economic isolation. With the region’s second-lowest interest rates, and an undervalued bourse, Taiwan is already Asia’s hottest private equity market. For sure, the economy won’t be the only issue this spring, as competing referenda on UN membership and charges of corruption also figure in. But for Taiwan’s sake, let’s hope that whoever wins in March takes that hitherto elusive next step, and wakes the sleeping tiger in time for it to take a leading role on the world economic stage.

—Sean King (MBA ’99) is Vice President at Park Strategies, a business consultancy managed by former U.S. Senator Alfonse M. D’Amato. King advises clients on their activities in Asia, in particular Taiwan. He also regularly writes and lectures on the subject.