The cross-strait economic relationship's impact on development in Taiwan and China

This chapter assesses the impact of trade and investment across the Taiwan Strait on the economic development of Taiwan and China, ¹ and finds that the benefits for each side have outweighed the costs thus far. While there have been fears of hollowing out of manufacturing in Taiwan with the opening of trade with China following WTO accession, this chapter argues that Taiwan has adjusted remarkably well to the increasing trade with and investment in China. For the Taiwanese, even for some sectors, such as manufacturing employment, where one might expect severe economic dislocation and adjustment, the effects have been relatively minor. From China's vantage point, there have been charges that foreign investors, including Taiwanese, ² have come to dominate China's economy, particularly its export sector, even as these foreign investors have brought little actual technology and knowledge to China. ³ This chapter will provide evidence that Taiwan has in fact played a critical role in boosting China's technological development, despite the charges to the contrary. Nonetheless, the gains from integration are not the only story in the cross-strait economic relationship. There were also costs to this increasing integration and disappointments in areas where benefits were expected.