Economic Relations Across the Strait: Interdependence or Dependence?

Recent cross-Strait tensions following Taiwan’s more assertive attempts at international recognition have raised the question of the viability of Taiwan’s strategy of divorcing its policy of ‘pragmatic diplomacy’ from its economic ambitions to achieve the status of a middle-level industrialised economy. This paper analyses the impact of cross-Strait tensions in the lead-up to the 1996 presidential elections on Taiwan’s real economy, financial sector and on economic flows across the Strait. The seemingly widely-held perception that the PRC is considerably more dependent on cross-Strait economic flows than Taiwan is on the PRC is then assessed by examining the degree of the PRC’s reliance on Taiwan’s trade, investment and technology flows, their relative magnitude and characteristics. In doing so, we conclude that Taiwan’s economic future is irrevocably tied to the PRC: an economic dependence, rather than balanced interdependence, that would seem to place a constraint on the strategies of pursuing greater national identity and international recognition The PRC will continue to dominate much of Taiwan’s trade and investment policy, and increasingly its transport and communications policy. Stable political and economic relations with the PRC will be crucial to Taiwan’s plans to successfully transform its economy into a service-oriented one and its hopes to attract US and European multinationals as a gateway to East Asian markets, especially the PRC.