You Can’t Just Throw Money at the Taiwan ‘Issue’

The pursuit of an economic solution to the dispute in the Taiwan Strait is an exercise in futility and one that will only cause more frustrations in Beijing
Photo: Reuters
J. Michael Cole

After nearly eight years of rapprochement between Beijing and Taipei under the custodianship of President Ma Ying-jeou, a process that has given Chinese people an unprecedented opportunity to better understand Taiwan, many academics, journalists and officials in China persist in their belief that economics is the key to ‘peaceful unification,’ and that a better distribution of the wealth created by closer ties is all it will take to win the hearts and minds of the Taiwanese.

But that line of argument will only result in greater consternation on the Chinese side as ingrate Taiwanese continue to reject all that ‘goodwill’ by persistently resisting unification.

The concept behind Beijing’s approach to resolving the problem is known as ‘economic determinism’, the belief that financial inducements and economic benefits will trump social, ethnic, religious, environmental, and political considerations. It is predicated on the belief that people have a price.

After realising that a confrontational approach to Taiwan was counterproductive, Beijing shifted gear and banked on economics to win the Taiwanese over and accept ‘one China.’ Following Ma’s election in 2008, the liberalisation of cross-Strait ties facilitated this strategy: Chinese investment began pouring in, millions of Chinese tourists headed for Taiwan, and government-sanctioned purchasing delegations, usually coinciding with elections, went to Taiwan and spent heavily in selected communities. In return, Beijing expected gratitude and counted on greed to influence elections in favour of political parties that, like the Chinese Nationalist Party (KMT), favoured greater integration with China.

On paper, the idea made sense. But as the Tibetan experience over the past 65 years has made perfectly clear, money cannot replace people’s fundamental beliefs. Beijing has injected billions of dollars into Tibet, it has ‘modernised’ what it customarily refers to as a previously ‘backwards’ society, and has improved the living standards of tens of thousands of Tibetans through its ‘rehousing’ policy. Yet Tibet today remains occupied territory requiring an increasingly repressive paramilitary presence. The same applies to Xinjiang, which is quickly turning into China’s version of Israel’s Palestinian problem.

A more refined, but ultimately still flawed, version of the ‘economic determinism’ argument is that the wealth inequality that has been exacerbated by Beijing’s economic policies with regards to these territories has created resentment. Under that view, better distribution of wealth would not only mitigate resentment, but also create a more favourable attitude to life under the People’s Republic of China.

Writing recently in the South China Morning Post, Alex Lo argued that economic inequality and poor prospects for youth were also behind the unfair perceptions of the PRC in Hong Kong and Taiwan:

The economic reasons for the rejectionism of Taiwan’s and Hong Kong’s youths towards greater integration with the mainland are almost exactly the same. Cross-strait trade since the 1980s mostly benefited Taiwan’s big businesses just as our own tycoon-dominated business sector has enjoyed preferential treatment.

Poor job prospects, low wages and unaffordable homes are some of the same problems that haunt young people in both places, while widening income and social inequalities have created widespread discontent.

Beijing’s policy of integration has paradoxically disenfranchised a whole generation in Hong Kong and Taiwan. Beijing and its local allies see today’s youths as radicalised. But unless Beijing works to woo them back, China’s dream of peaceful unification will remain a pipedream.

There are several problems with Lo’s approach. For one thing, the reasons for Taiwan’s rejection of greater integration with China are certainly not ‘almost exactly the same’ as in Hong Kong, as the two societies are markedly different. Only someone who believes in the ability of money to resolve problems would believe that a single pill could fix a variety of ailments.

Inequality, low wages, and poor employment prospects in Taiwan are not caused by China, but rather are the outcome of domestic policies as well as globalisation. Wages in Taiwan were stagnant well before President Ma opened the door to Chinese money, and its economy had slowed not because of China but because politicians failed to reinvent Taiwan’s economy after years of double-digit growth. No doubt closer engagement with China has exacerbated those problems, but Beijing cannot be blamed for the root causes.

Lo certainly isn’t alone in believing that economic dislocation is behind the poor reception to integration. Reports last month indicated that Chen Yunlin, China’s former point man on cross-strait negotiations, had fallen out of favour for ‘losing’ Taiwan. Among other things, Chen was reportedly being blamed for failing to ensure that most Taiwanese felt the benefits of closer ties with China.

Lo is mistaken when he argues that Beijing’s policy of integration has ‘disenfranchised a whole generation in Hong Kong and Taiwan.’ In Hong Kong, local resentment stems instead from the dislocation caused by millions of Chinese tourists, Beijing’s meddling in the territory’s domestic affairs, erosion of its democracy and freedom of the press, and broken promises on universal suffrage. In Taiwan, the sense of alienation is largely the result of China’s authoritarian system, which contrasts markedly with Taiwan’s cherished and hard-won liberal democracy, the separate geography and history, the unrelenting PLA threat, as well as policies that prevent Taiwan from playing its rightful role in the international community.

Lo and Beijing are right when they assess that Taiwan is slipping away and that the PRC’s Taiwan policy in the past eight years has been mostly a failure. But their prognosis is way off. With a few exceptions, Taiwanese favour closer economic ties with China and realise that economic liberalisation with the world’s second-largest economy is unavoidable. From the small merchant at a night market in Kaohsiung to the head of a major financial institution in Taipei, the majority of Taiwanese support efforts to normalise exchanges with China — not because they support unification, but because they regard the two territories as sovereign countries, and ultimately because it makes sense.

Beijing’s problem is that it merged economics and politics whereas Taiwanese regard the two as distinct phenomena. So when economic agreements are seen to be endangering Taiwan’s values and way of life, society will take action, as it did over the Cross-Strait Services Trade Agreement in March-April 2014. Had Taiwanese simply wanted more money from China, and had they not cared about the socio-political repercussions, they would not have taken issue with the CSSTA.

In the end, no matter how much money you throw at the problem, identity trumps all other factors. And for better or worse, one’s identity isn’t a rational choice based on the calculated maximisation of material interests. Shaped over centuries, Taiwan’s complex and distinct identity is also inseparable from its recent development as a liberal democracy, which has acted as an antibody against the deepening authoritarianism and nationalist ideology in China (even ardent supporters of the Republic of China who tend to oppose Taiwan’s de jure independence have made their democracy a non-negotiable item).

Given the trend lines over the past 25 years, it’s unlikely Beijing can do anything to persuade the Taiwanese that their future lies with China. My own assessment is that no matter what Beijing does, Taiwanese society will continue to refuse annexation, much as, say, New Zealanders would refuse annexation by Australia, regardless of the economic incentives for doing so. What is undeniable is that the pursuit of an economic solution to the Taiwan ‘issue’ is an exercise in futility and one that can only cause more frustrations in Beijing.


J. Michael Cole is editor in chief of Thinking Taiwan, a senior non-resident fellow at the China Policy Institute, University of Nottingham, and an Associate researcher at the French Center for Research on Contemporary China (CEFC) in Taipei. A version of this originally appeared on Oct. 22 in the Lowy Interpreter

One Response to “You Can’t Just Throw Money at the Taiwan ‘Issue’”

October 24, 2015 at 6:22 pm, Mike Fagan said:

“Inequality, low wages, and poor employment prospects in Taiwan are not caused by China, but rather are the outcome of domestic policies as well as globalisation.”

You say that like it’s an established and easily verifiable fact, but I suspect there are several PhDs to be had in inverting that statement to a series of questions, e.g. are low wages in Taiwan the result of domestic policies? Just off the top of my head I can think of several things that aren’t domestic policy but which may depress competition among employers for labor, e.g. the general unwillingness of Taiwanese to move abroad. A twenty-something Taiwanese girl can make NT$60,000 per month picking strawberries in Australia, but chooses to remain in her office job in Tainan, with no prospect of advancement, working eight to ten hour shifts Monday to Friday for NT$26,000 per month. That’s a choice she makes, probably along with large numbers of other young people, for reasons that have to do with family and friends and nothing to do with government policy. If there are sufficient numbers of people making choices like that, then there will be less pressure on employers to compete for labor by offering higher salaries and wages. So a large cause of the stagnant wages phenomenon may actually be cultural and psychological in nature rather than as a linear result of government policy.

“…its economy had slowed not because of China but because politicians failed to reinvent Taiwan’s economy after years of double-digit growth.”

Well first, other people’s lives – which is what the economy ultimately is – are most certainly not the government’s to “reinvent”, but in any case why must the slow rate of economic growth necessarily be regarded as the failing of this or that government policy or the absence thereof? For all we know the truth of the matter may be that the problem of creating new values, i.e. new goods and services that people want, is just harder than it was in previous years. Perhaps most of the low-hanging fruit in manufacturing has been picked already, and any new economic growth is going to have to come the hard way by people – entrepreneurs – inventing new values. What possible government policy is there that could directly contribute to that? Classes on entrepreneurship?


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