Monday, July 10, 1995

Synergy across the Taiwan Straits

Come early August, a Taiwan delegation of forty some individuals, consisting of officials under the guise as "economists" and real industrialists from the private sector, will convene in Beijing for about a week to meet with counterparts from their host! (Yes, Beijing is still the capital of The People's Republic of China.)

What will they talk about? According to the advance agenda and if all goes well, the two sides will discuss economic development and cooperation. The Taiwan delegation are planning to discuss their strengths and needs in electronics, aeronautics, iron and steel, and the automotive industry. They will listen to the reciprocating presentations from the Beijing side and then they will tour the famed "electronics row" near Beijing University and the special economic development zone in nearby Tianjin. On the last day of their visit, combined study groups representing each industry will present their collective conclusions and future action items.

This is, of course, not a sudden whim but a carefully planned event borne out of mutual necessity and complementary strengths. The mainland economy has been booming along at over 10% per year. Even so, the growth has been lopsided, heavy in the southern regions near Hong Kong and Taiwan and lighter to hardly any elsewhere. A vast number are still under-employed in state-run enterprises that do not know what to do with them. Beijing needs Taiwan's expertise in building large scale manufacturing operations to make more efficient use of the labor pool. Along with it, Beijing needs Taiwan's capital, international market access and presence, business acumen and management expertise.

Taiwan's economy has been cooling down and it's electronics business based on the personal computer taking its lumps. Taiwan's industries are naturally attracted by the nearby source of low cost labor, a labor force with common cultural background with which to bring down their cost base. Taiwan is also drooling over the prospect of many natural resources on the mainland such as coal, oil and minerals that are awaiting for development. Most surprising perhaps to the western observer is that Taiwan also covets the mainland's store of technology!

That a less developed economy such as China should possess technology of value to Taiwan is on the surface surprising. The reason that this is so is because Taiwan has historically under-invested in research and development even as the economy was expanding rapidly. Mainland China despite a per capita GNP about one - tenth that of Taiwan has always employed a lot scientists and technologists at the universities, research institutes and industrial organizations. By and large, these developments sit in the laboratories unloved because China lacks the resource and know-how to turn them into commercial successes.

Then came Taiwan. In recent 2-3 years, the Taiwan government came to realize that as wages rise, the electronics industry, notably the personal computers, will no longer be able to compete as the low cost producer. They sought the advice of A. D. Little, the Cambridge, Mass., think tank. ADL's advice was to seek strategic alliances as the way of injecting Taiwan with new technology. Alas, it has been easier said than done. Taiwan looks to U.S., Japan and Western Europe for advanced technology. Other than cash, as is the case on the deal they are negotiating with McDonnell Douglas, it's not obvious to the countries with advanced technology as to what else Taiwan brings to the party. The mainland on the other hand has no trouble appreciating the merits of cooperating with Taiwan.

Whether the August meeting is the beginning of a symbiotic mutual dependence remains to be seen. As to which of the mainland technological developments are real commercial plums is also not clear to the outside observers. Only time will tell.

A final point, it seems to me, is that despite their still enormous political differences, China and Taiwan are finding ways to work toward common economic gain. The U.S. with much less political capital at stake is missing out. Except for a few notable exceptions such as Du Pont, Hewlett-Packard, IBM, Motorola and 3M, most American companies are not investigating the growing economy in China. Nor are there many companies taking advantage of Taiwan as the gateway to the growing markets of southeast Asia.

About 12 years ago, a Cathay Pacific flight from Hong Kong to Tokyo was forced to make an emergency landing in Taipei. All the passengers had to disembark and wait for another plane, including a group of mainland officials holding PRC passports. In those days, each side was still very much the enemy of the other. What to do? A most awkward incident was avoided when the Taiwan immigration official waived the procedure of examining the transient's passport. Even then, the Chinese in Taiwan showed the willingness to be flexible. We, in America, ought not let any political high horse get in the way of doing business in Asia. In Taiwan and especially in mainland China, anything American still carries a special cache, a special feeling dating back to World War II. Too bad more American businesses are not taking advantage of this vast reservoir of built-in good will.
Note added on January 20, 2008. Tragically, the synergy discussed abovebecame what could have been when the political condition in Taiwan took a turn away from reapproachment and the potential of cross strait cooperation was only partially realized.