Mapping a new economic strategy

James Tien

January 7^th 2001 South China Morning Post

A ferry trip from Matsu to Fuzhou lasts an hour and that from Kinmen to Xiamen is much less. But the voyage that the two Taiwan vessels embarked on last week also took more than 50 years. These limited, direct contacts are now called “the three mini-links”. The gesture was modest but the symbolic value was momentous. Once the Chinese wondered “if” Taiwan and the mainland would ever open direct ties. Now we ask “how soon?”

We in Hong Kong applaud any easing of tensions in the Strait. We understand that full contacts may still be some time away. We know, though, these are as inevitable as national reunification and maybe prelude to it.

Our city figures mightily in the cross Strait equation. Hong Kong’s return to China in July 1997 set the tone and the momentum for the settling of the Taiwan issue under the concept of “one country, two systems”. Indeed Deng Xiaoping conceived the solution not only for Hong Kong but, chiefly, as a means for restoring Taiwan to the national family. Our importance in the scheme of the Chinese reunion is not only political and historical for also economic and social.

Hong Kong has expedited not only its own economic integration with the mainland and also that between the two sides of the Strait. In 1999 the recorded mainland and Taiwan trade amounted to HK$200 billion. A substantial portion of that booming traffic had been conducted through Hong Kong in the form of re-exports. In 1999 the mainland shipped $12.7 billion worth of goods to Taiwan through Hong Kong whereas Taiwan shipped almost $64 billion to the mainland through Hong Kong.

Chances are a portion of that trade would not be routed through Hong Kong if Taiwan and the mainland could send their goods directly to each other. But we should not be too grim about the mainland-Taiwan re-export traffic ceasing altogether. In recent years many Taiwan investors, besides doing business in Fujian Province, have also established factories in the Pearl River Delta region. They must continue to manage and finance those enterprises in Guangdong Province as well as export the finished products through our city.

Some shippers believe that in the short term, even with limited direct traffic between the ports of Kiaoshiung and Xiamen, we may lose only five per cent of that trade. The more serious impact would still be some years away, giving us sufficient time to map out a strategy not only to cope with the sea change but also to gain from it.

The other challenge is financial. Taiwan businesses have invested an estimated $300 billion on the mainland since the 1980s. The government of President Chen Shiu Bian has all but dropped the policy of his predecessor Lee Teng Hui who had tried in vain to curb the flow of money into the mainland and prevent Taiwan from becoming too dependent on that market. A substantial portion of the capital has been channeled through Hong Kong, which has unrivaled acumen in servicing such investments. When Chen was the Mayor of Taipei he had aspired for the city to emulate Hong Kong as a financial center, which, back then, was impossible given the hostility across the Strait. Circumstances have changed and we have to be ready for the competition. 

But in time Taiwan’s advantage over Hong Kong in technological development, telecommunication and the sciences – with its numerous PhDs trained in the United States – could be telling. American technology companies may find Taiwan a more attractive, alternative gateway to the mainland, if only because the costs of doing business on the island are lower and expertise is abundant. This is why it is imperative that we treat Taiwan as a potentially serious rival, to shore up our own technology, or else to work out a partnership which would be mutually beneficial for all three Chinese territories.

Perhaps the most vulnerable sector is tourism in Hong Kong. The Chinese from the mainland have become our most numerous visitors. Some 3 million of them called on Hong Kong in 1999. The next most numerous are the Chinese from Taiwan. Almost 2.1 million of them visited us in 1999, in most cases in transit to or from the mainland, and injected $11 billion in our economy. One day with direct flights to the mainland, many visitors from Taiwan could decide not to come through Hong Kong. Our tourism planners in the government and the Hong Kong Tourist Association should consider how best to appeal to Taiwan so that more people would not delete us from their itineraries.     

The Financial Secretary has less than three months to draft his next Budget. Mr. Donald Tsang shall of course tailor our finances to fit our immediate economic shape. He should also ponder the meanings of rapidly expanding links between the mainland and Taiwan, both of which are to join the World Trade Organization probably early this year. We are now poised on the precipice of peril or the threshold of opportunity. If we missed our step, we would stumble, perhaps fall. If we seized the chance and adopted the right policies, we could help everyone – the mainland, Taiwan and ourselves – to achieve a three-win situation and serve as the catalyst for the peaceful, and prosperous, reunification of our nation.