Wednesday, November 5, 2003

Taiwan Ignores China at Its Own Economic Peril

Pacific News Service, Commentary, George Koo, Posted: Nov 05, 2003

Editor's Note: Taiwan's impressive economic gains are poisoned by its refusal to increase ties to mainland China. U.S. influence in the region is similarly diluted by divisive cross-strait relations.

Taiwan President Chen Shui-bian flew halfway around the world to shake hands with Secretary of State Colin Powell in Panama, but he won't or can't reach across the Taiwan straits to Beijing. Unfortunately for the United States, potential American influence in Asia is being diluted by this contradiction.

Recently, Taiwan's Ministry of Economic Affairs organized a business alliance conference to attract foreign direct investments. Absent were representatives from China, Taiwan's biggest economic partner.

A parade of multinationals dutifully marched up the stage to announce plans to invest in Taiwan. Particularly impressive was the message that Taiwan has moved up the high tech food chain toward increasingly higher value-added economic activity.

Taiwan pioneered the idea of making semiconductor devices as a service for others, and now owns up to three quarters of the world's semiconductor fabrication capacity that is for hire. A complete industry sprang up around the now-renowned Taiwan Semiconductor Manufacturing Corporation, a multibillion dollar company. Because of TSMC, Taiwan has become a major semiconductor power to rival the United States, Japan and Europe.

Fabless Semiconductor Association came to the Taipei conference to announce the formation of its first office outside the United States, in Taipei. A "fabless" semiconductor company concentrates on the design of new chips for new applications and contracts the making of the devices to the likes of TSMC.

Taiwan has made an even more amazing leap forward in the manufacture of flat panel displays, capturing over 30 percent of the world market by 2002 and surpassing Japan to become the second largest supplier of the displays, behind South Korea.

Flat panel displays are used in laptops and notebook PCs, camcorders and other electronic gadgets. Their next huge application will be on hang-on-the-wall color TVs.

Yet, Taiwan's future in both semiconductors and flat panel displays rests squarely on its symbiotic relationship with China. China just surpassed Japan as the major supplier of IT (information technology) products to the United States. More than 65 percent of these products were exported by Taiwan companies operating on the mainland.

At the business alliance conference, Vice Minister Yen-shiang Shih was asked if Taiwan could maintain its $30 billion trade surplus with China -- an annual surplus that has more than covered Taiwan's deficit with the rest of the world.

Yen candidly replied that Taiwan will continue to provide the high tech computer innards and consumer electronic appliances that are assembled and exported from China. So long as China keeps its competitive manufacturing edge, Taiwan will continue to have an outlet for its sophisticated semiconductor chips and flat panel displays.

Of course, it's not just in China's export of high tech products that Taiwan serves as the crucial partner. Taiwan also has the insider advantage in serving China's vast domestic market. From fast food to fashion to consumer electronics, Taiwan's presence can be seen in all walks of China.

More than a million Taiwanese now live and work in China. Thousands of young Taiwanese flock to Beijing or Shanghai for graduate school. Despite these developments, the Taipei government would rather look elsewhere for its economic partnerships.

According to Taiwan's own statistics, only 145,000 mainland professionals have been permitted to visit the island in last 10 years. About twice that number of visitors goes from Taiwan to mainland China every month.

Taiwan companies have invested over $100 billion in China. China has made zero investments in Taiwan because local regulations forbid it.

Tourists out of China already represent the third largest in the world, but none are allowed to visit Taiwan. Every year about 10 million mainlanders visit Hong Kong. If one out of 10 were to visit Taiwan, it would more than double the number of tourists Taiwan receives annually. Taiwan's economy would easily get a billion-dollar shot in the arm.

At the conference, Taiwan made clear its desire to develop its tourist industry. Yet the most obvious source of tourism, from across the strait, was ignored. In contrast, about two out of every three Taiwanese who go abroad for vacation went to the mainland.

China's economic boom has benefited everybody in the region, not just Taiwan. Trade with neighboring Asian countries is increasing at 50 to 100 percent per year. Everybody seems to understand the importance of China as part of the integrated regional economy except the Taiwan government.

In action and in rhetoric, Chen Shui-bian tends to dismiss China's importance and point to Taiwan's own supposedly more democratic and by implication superior economic system. The United States has heretofore supported Chen's delusion. Instead, the Bush administration should be telling Taiwan to listen to the wise counsel of Singapore's senior statesman Lee Kuan Yew.

Recently, the former prime minister publicly urged the current Taiwan government to face economic reality and play less politics in its cross-straits relations. Whether it's high tech, low tech or no tech, Taiwan's future lies in maximizing its relationship with China, not minimizing it.

Thursday, September 4, 2003

Don't Blame China for America's Economic Ills

Pacific News Service, Commentary, George Koo, Posted: Sep 04, 2003

Editor's Note: Like it did with Japan some 20 years ago, America seems to be looking East for an excuse for its own troubled economy. This time, China and its currency, the renminbi, are the scapegoat.

If the recent action of members of Congress bemoaning the loss of U.S. jobs is any indication, the United States is suffering from another anxiety attack and loss of confidence. These lawmakers accused China, in particular, of sabotaging the American economy by unfairly undervaluing its currency, the renminbi, against the dollar.

Bear in mind that China first pegged its currency to the dollar almost 10 years ago. When, three years later in 1997, Asian economies suffered a flight of capital and drastic devaluation of local currencies, China was universally praised for holding fast to the peg: it refused to devalue the renminbi in order to protect its share of export trade. (Interestingly, China's exports inexorably marched on despite a stronger currency relative to its faltering neighbors.)

Since then the dollar has weakened against world's major currencies, including the renminbi. Now, suddenly, forcing China to raise the value of the renminbi is being touted as the magical cure to America's economic ills.

This is somewhat reminiscent of America's ire with Japan some 20 years ago. At the time, Japan also held a huge trade surplus and was accused of keeping its yen artificially weak relative to the dollar.

Japan acquiesced and raised the value of the yen. But that did not solve America's economic woes in the early 1980s. Detroit screamed the loudest about the "unfair" competition, but failed to recapture lost market share even as Japanese carmakers raised their prices.

Some long-forgotten member of Congress even smashed a Japanese-made VCR on the steps of Capitol Hill to great fanfare, but this contributed not a whit to solving America's economic problems.

Whereas Japan was a closed economy that discouraged foreign investment and therefore outside participation in its economic growth, China has been open to foreign direct investment and attracted more of such investment than any other nation last year.

Companies invest in China by building manufacturing facilities there. China provides a productive work force at stable wage rates; one that works hard, learns fast and makes a wage high enough to raise its living standards.

Companies that have invested in China make more money by being able to export high quality goods at reasonable prices.

American consumers benefit by being able to buy these goods at a reasonable price and thus improve their standard of living without having to deal with the chaos of escalating inflation.

It has been a winning arrangement for all.

Those who claim that China is enjoying an unfair advantage with an artificially weak renminbi have failed to explain how any currency revaluation is going to bring jobs back to the United States.

Consider the most extravagant claim: The renminbi is being artificially depressed by 40 percent. Even if the renminbi were adjusted upward by 40 percent -- from 8.28 yuan to one U.S. dollar, to 5 yuan to $1 -- the average cost advantage of the Chinese worker over the U.S. worker would drop from 20 to 1 to a "mere" 12 to 1. How much net gain in jobs for the United States will result from that?

The reason China has become the factory for the world is because companies that used to supply the U.S. market from Taiwan, Korea and Mexico have moved their production to China to remain in business. The truth is that most of those jobs have not been in the United States for decades.

Some economists point out that China buys in the global markets almost as much as it sells. China buys products for domestic consumption, and it also purchases intermediate materials that need to be converted into export products. An economically strong China is looked upon as a possible tractor to pull the world out of the economic muck.

Wringing one's hands because we have been beaten in terms of cost and productivity won't solve anything. As recent as three years ago, we were bragging about the superiority of American technology and productivity. We need to get back to that frame of mind.

Forcing the renminbi off the peg is tantamount to destabilizing China's economy. And nobody wins from a weakened Chinese economy.

Wednesday, May 14, 2003

Book Review - “The Chinese in America” by Iris Chang

NCM, George Koo, Posted: May 14, 2003

Iris Chang in her latest book, The Chinese in America, examines the phenomenon of an immigrant community still regarded as foreign despite having lived in America for more than 150 years. To Iris, the Chinese experience in the United States has been more of a series of repetitive cycles rather than a monotonic progression from victims of brutal abuse to becoming widely accepted as a “model minority.”

Chang chronicles early experiences that branded the Chinese. In 1877, there was Denis Kearney, a demagogue who rose to political power by fanning an anti-Chinese hysteria, accusing them of stealing the white man’s livelihood. In 1950, Senator Joseph McCarthy began a witchhunt to look for communists under every bed and an inquiry on “who lost China” to communism. The Chinese American community especially felt the heavy siege of suspicion and glare of McCarthyism.

In 1853, the conviction of killers for the murder of Chinese immigrant Ling Sing was overturned on the grounds that the “inferior caste of people who were non-citizens,” meaning Chinese, cannot testify against whites. In 1982, Ronald Ebens and Michael Nitz used a baseball bat to bash Vincent Chin to death. Even though Chin was born in America, Ebens and Nitz did not spend even one night in jail.

Ling Sing’s case prompted the phrase “not a Chinaman’s chance.” After nearly 130 years, Vincent Chin’s chances fared no better.

Everett Drumwright, then U.S. consul in Hong Kong, concluded in his Foreign Service report, filed in 1955, that nearly all Chinese in America were illegal aliens capable of all sorts of dastardly deeds including spying for China.

FBI Director J. Edgar Hoover also subscribed to the notion that the Chinese community teemed with spies from China. Later, FBI analyst Paul Moore was to refine Hoover’s theory by suggesting that China recruited spies differently relying on “ethnic affinity” rather than the customary blandishments of cash and sex.

Moore’s testimonies before the House Select Committee headed by Congressman Christopher Cox contributed to a sensational report alleging that more than 10,000 PRC company offices in the United States are intelligence gathering stations and all Chinese in the United States regardless of citizenship status are potential spies.

Opponents of President William Clinton used the Cox Report to accuse him of losing nuclear warhead missile technology to China. In response, his administration promptly offered Dr. Wen Ho Lee as the designated sacrificial lamb, the book suggests.

Lee was thrown in solitary confinement for months on 59 charges, all but one of which were later thrown out. He pled guilty to one count in exchange for time spent in jail. One can argue that Lee’s experience was an improvement over the fate of his predecessor scapegoats that were lynched, burned or shot by periodic rampaging mobs in the late 1800’s.

The author also drew positive parallels. Yung Wing became the first Chinese to graduate from a major university (Yale in 1854) and opened the door for others. In the early 1900’s, Chan Chung Wing became the first Chinese to practice law in California. Bessie Jeong was the first Chinese American woman to graduate from Stanford and became a practicing physician.

By breaking the mold, the trailblazers paved the way for others to follow. Today, accomplished Chinese Americans occupy every profession from Tsung Dao Lee and Chen Ning Yang (Nobel laureate physicists), to I.M. Pei (architect), Yo-Yo Ma (music), David Ho (medicine), Elaine Chao (government), to Gary Locke (politics), Charles Wang (software), Jerry Yang (Internet) and many more.

Of course, all Chinese Americans should read this book to truly understand how their roots in America were planted. They will be better braced for the next time they face a random invitation to “go back to where they come from”—even if this means Peoria. This book is not just for Chinese Americans but also for all newly arrived immigrants and conscientious citizens that care to appreciate the deficiencies of American democracy.

To read Iris Chang’s book is to understand that the only recourse is to stand for what is right and vigorously protect the principles that have made America a diverse nation from which its unique greatness sprang.

Friday, March 28, 2003

For China, Iraq Conflict is America's War

Pacific News Service, Commentary, George Koo, Posted: Mar 28, 2003

Editor's Note: China is officially opposed to the war in Iraq, but recent actions show China is most concerned with improving its relationship with the United States and keeping its giant economy growing.

On a recent business trip to Shanghai I asked people about the conflict with Iraq. They had little to say. To the Chinese, this is America's war.

China's top advisory body recently expressed "shock and concern" with the war. But unlike France and Russia, which have strongly opposed the war with belligerent statements and U.N. Security Council veto threats, China's response has been relatively mild.

It has never been in the Chinese character to tell another nation what to do. China long ago concluded that confrontation with the United States was not in its national interest. After Sept. 11, 2001, China actively sought common cause with Washington in fighting terrorism. China's former president, Jiang Zemin, visited President George Bush at his Crawford, Texas, ranch in the fall of 2002 to seemingly seal the alliance.

Since then China has gone out of its way to cultivate friendly relations with the United States.

As the U.S.-led military action in Iraq began, a spokesman from Beijing's Foreign Ministry expressed "regret and disappointment" and indicated that the invasion "violates norms of international behavior." His comments, read during a regularly scheduled briefing, did not criticize the United States by name.

After the first missiles landed on Baghdad -- shown live on China Central Television -- reaction on the street was considerably stronger. The U.S. bombing of the Chinese embassy in Belgrade seemed to bubble to the fore, as most concluded that, in the words of one man, "the U.S. is being a big bully again."

Officially, China continues to work within the U.N. charter and in cooperation with other nations to look for a peaceful solution. Clearly, China is reluctant to take any lead in opposition to the unilateral U.S. action. In any case, events on the ground and in Iraq's airspace are likely to overtake any further and futile attempts at diplomacy.

Looming on the horizon is the threat from North Korea, which the Bush administration seems to think is within China's capability to resolve unilaterally. China has demurred, but offers to assist the U.S. in multilateral diplomacy -- alas, not a strong suit for the Bush administration.

China's priority remains its domestic economy, which must continue to grow at 7 to 8 percent per year in order to create the jobs needed to soak up laid-off workers and rural migrants.

Unfortunately, China's economy is also fueled by oil, and this spells potential future conflict with the United States. In 2000, 31 percent of the oil consumed by China was imported. Within 30 years, China's dependence on imported oil is expected to increase to 84 percent. Much of the world's oil is located in the Gulf region.

China can only hope that by the time competition for oil arises, the United States will be too busy or too exhausted to pick another fight.

Friday, January 3, 2003

Twisted Flights, Flawed Logic - Time for Taiwan to Face Economic Facts

Pacific News Service, George Koo, Posted: Jan 03, 2003

Editor's Note: The roundabout flights from Shanghai to Taipei are just the beginning of Taiwan's convoluted logic when it comes to China, writes PNS contributor George Koo. Missing a golden opportunity last year to improve relations with its giant neighbor, Taiwan must take steps in 2003 to stop job loss and brain drain across the Taiwan Strait.

For the first time ever, thousands of Taiwanese living in Mainland China will fly from Shanghai, uh, somewhat directly to Taipei to celebrate the Chinese New Year, coming Feb. 1, at home. Specially chartered planes will take off from inside China and touch down in Hong Kong or Macao before proceeding to Taipei.

But instead of a short, one-hour hop from Shanghai to Taipei, the planes will fly two long legs of a triangle, roughly quadrupling the flight time, just to be politically acceptable to Taipei. The planes will be empty of passengers on the return part of the trip. Why? Because there is no formal recognition between governments across the Taiwan Strait, Taipei reasons that the planes cannot behave as if they were bona fide commercial flights.

The passengers will have ample time to ponder the absurdity of it all. Their flight path is comparable to flying from Boston to New York via St. Louis.

Taiwan's business community has been clamoring for direct links to the mainland. Some $600 million is spent annually on unnecessary airfare, to say nothing of wasted time in transit.

Since he came to power in 2000, many of President Chen Shui Bian's backers have urged him to move boldly toward full independence from Beijing. The end result is like the charter flights, a compromise that pleases no one and solves nothing.

Last year, the Chinese Year of the Horse, could have been a breakthrough year in cross-strait relations. Both sides just entered WTO and needed to begin bilateral discussion to work out the details. Instead, the horse never left the post. Taipei so artfully stalled that only now have they agreed to meet and begin discussions.

Meanwhile, it has become increasingly obvious that benefits of cross-strait relations are all going in one direction: to China. Taiwan capital, people, production equipment, ideas and products are going to China. By some estimates, as much as $100 billion -- more than one-fifth of the total foreign investment in China -- originates from Taiwan.

What about investment in the other direction, from China to Taiwan? None, because in contrast to Beijing's open door, Taipei's policies restrict visitors from the mainland, rendering such investments impractical.

Advocates of Taiwan independence, particularly those residing comfortably in the United States, like to point out that one cannot live by bread alone, but must have the personal freedom of choice. Sadly, Taiwan's economy has been rolling steadily downhill, and unemployment is at an all-time high. Political choice is hardly on the agenda of folks without bread.

Some of the best and brightest are choosing with their feet. They now live and work in China, most conspicuously in the greater Shanghai area. They are putting roots down in China, bringing their families and buying homes.

One Taipei study estimates that those leaving for the mainland represent 25 percent of Taiwan's economic elite. Their absence ripples throughout Taiwan's economy.

Taiwan's housing market is depressed because more are selling than buying. Instead of seeing their favorite customers every week, popular restaurants now see them every two to three months -- on their periodic return from China.

Even Taiwan's Lions Club feels the economic shift. In the first six months of last year, its membership dropped from 35,000 to 31,000. At its peak, club membership included more than 40,000 professionals. At every meeting, someone else is missing, having left for the mainland.

Taiwan is becoming a depressing place, especially so because the government seems so unaware of the economic consequences of its politics.

Two out of three Taiwan tourists go to the mainland for vacation. Only 1 out of 10,000 tourists from the mainland is able to visit Taiwan. In just 10 months last year, 12 million tourists went globetrotting from China. The Taipei government could see immediate economic benefits merely by welcoming an annual projected stream of 300,000 visitors from across the strait.

President Chen dares not open Taiwan to the mainland for fear of losing his political support and for reasons rooted in paranoia. During the debate about direct flights from the mainland, someone in his administration actually opposed them on the grounds that an unfriendly plane could make a Sept. 11-like beeline for the presidential palace in Taipei.

Chen's approval rating is at an all-time low, as is Taiwan's economy. Everyone is watching to see if he will take decisive action in 2003 to turn things around. If not, his re-election in 2004 is not assured. He came to power with less than 40 percent of the popular vote. He may have to do considerably better next time and not count on a divided opposition to again put him in power.