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Direct Investment and Economic Integration in the Asia Pacific: The Case of Taiwanese Investment in Xiamen

  • Qi Luo and Christopher Howe


The Asia-Pacific region, and particularly its East Asian core, has achieved an impressive record of growth, export expansion and regional economic integration that now spans more than three decades and a wide variety of world economic environments. A key indicator of these achievements is the changing level of intra-regional foreign trade. This indicator is positive for the region as a whole over the period, although trends since 1980 are quite sensitive to the precise definition of the region employed. However, for the NICs (Hong Kong, Taiwan, South Korea and Singapore) and the ASEAN group (Thailand, Malaysia, Indonesia, Philip-pines and Brunei) in isolation, intra-regional trade increased by approximately 25 per cent over the decade 1980–1990.



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1. Valuable surveys of these trends are in FAIR, Interim Report of Asia Pacific Economic Research (Tokyo, 1989) and Ohno, Koichi (ed.), Regional Integration and its Impact on Developing Countries (Tokyo: Institute of Developing Economies, 1993, Part 1). An excel-lent survey of the development of south China with a valuable chapter and data survey on Taiwan-Fujian relations is Nobuo, Maruyama (ed.), Kanan keizaiken (The South China Economic Region) (Tokyo: Ajia Keizai Kenkyujo, 1992).

2. All references in dollars ($) in this paper are, unless specified otherwise, to United States dollars (US$).

3. Bank for International Settlements, 63rd Annual Report (Basle, 1993), pp. 9091.

4. These estimates are based on figures quoted in The Far Eastern Economic Review (FEER), China Daily and the Asian Wall Street Journal. According to some commentators, all official numbers should be doubled. Judging by the discoveries made in the UK when serious enquiries were made into illicit post-war direct investment flows from the UK, this view should be taken quite seriously.

5. BBC, Summary of World Broadcasts, FE/W00278, 19 05 1993, p. 7.

6. Guoji maoyi (Intertrade), April 1993, p. 58.

7. Beijing Review (BR), 27 January–2 February 1992, p. 17.

8. Ibid. p. 18.

9. It was estimated that the number of Taiwanese visitors to Xiamen had exceeded 1.3 million by the end of 1992.

10. Jingji ribao (Economic Daily) (JJRB), 8 January 1992, p. 4.

11. Free China Journal (FCJ), 18 August 1992, p. 3. According to Osman Tseng, there are four reasons for the continued appreciation. The large surplus generated by Taiwan's foreign trade, its extraordinarily large sums of foreign exchange reserves and its higher interest rates have all created a growing demand for the NT$;. Also, the economic recession in the U.S. has weakened the USS and thus further raised the NT$. For more details, see Tseng, Osman, “Unappreciated appreciation,” Free China Review (FCR), 02 1992, pp. 4043.

12. Ibid.

13. The average wage in the mainland is only about one-tenth of that prevailing in Taiwan. For a typical Taiwan operation in the mainland, wages account for about 11 % of the total production costs while in Taiwan it is about 36%. See Jingji daobao (Economic Report) (JJDB), No. 9 (9 03 1992), p. 33.

14. FCR, June 1990, p. 60.

15. FCJ, 6 October 1992, p. 7.

16. Ibid. 18 August 1992, p. 3.

17. Yuanjian (Global Views) (YJ), May 1992, p. 47. According to a survey report published in Taiwan in 1992, the export prices for the products manufactured by the Taiwanese firms in the mainland, i.e. those “made in China,” are estimated to be 10% cheaper than those “made in Taiwan.” SeeIbid. p. 44.

18. BR, 27 January–2 February 1992, p. 17.

19. Xiamen tongji (Xiamen Statistics), No. 8 (1990), p. 25.

20. One of the findings of the field visit in Autumn 1991. This is particularly true in umbrella and luggage manufacturing.

21. The plastic footwear industry is a good example. The total number of factories in Taiwan dropped from a peak of 1,400 to only 700 in 1990, primarily because of moves to the mainland. See FCR, June 1990, p. 60.

22. BR, 27 January–2 February 1992, p. 18.

23. Caves argues that foreign investors having a competitive edge in overseas marketing are likely to play an active role in the export marketing of their subsidiaries. See Caves, R. E., “International corporations: the industrial economics of foreign investment,” Econometrica, No. 149 (02 1971), pp. 127.

24. Zhang, Kong, “Assessment of Taiwan investment in Xiamen,” Gang-Ao jingji (Hong Kong and Macau Economies), 06 1991, p. 34.

25. Xiamen Statistical Bureau (XSB), Xiamen jingji tequ nianjian 1991 (Almanac of the Xiamen Special Economic Zone 1991) (Beijing: Zhongguo tongji chubanshe, 1991), p. 58.

26. BR, 27 January–2 February 1992, p. 18. The total Taiwan investment in mainland real estate stood, at the beginning of 1992, at $100 million. See Ibid.

27. Caixue, Xu, “Xiamen builds her dream on Taiwan,” YJ, 02 1992, p. 121.

28. Peizhao, Hu et al. , “Report on the Taiwan investment in Xiamen,” Zhongguo jingji wenti (China's Economic Problems and Issues), 04 1990, p. 14.

29. BR, 27 January–2 February 1992, p. 17.

30. Fenqing, Zhang, “Analyses of Taiwan investment in the Xiamen SEZ,” Duiwai maoyi yanjiu (Research on Foreign Trade), p. 3.

31. BR, 27 January–2 February 1992, p. 18.

32. Ibid. p. 17.

33. However, the scale of losses in all FDI projects in the PRC is rising, and, in some areas, about 50% of FDI firms are reported to run at a loss. This has already become the focus of attention both within and outside China. See JJDB, 6 April 1992, p. 18.

34. Jing bao (The Mirror), January 1992, p. 79.

35. Zhang, Kong, “Assessment of Taiwan investment,” p. 34.

36. BR, 27 January–2 February 1992, p. 17.

37. Caixue, Xu, “Xiamen builds her dream,” p. 120.

38. Renmin ribao (People's Daily) overseas edition, 14 April 1993, p. 1; JJRB, 20 February 1993. p. 3.

39. JJDB, 16 March 1992, p. 10.

40. JJRB, 8 January 1992, p. 4; BR, 21 January–2 February 1992, p. 17.

41. JJDB, 1 January 1992, p. 28.

42. Caixue, Xu, “Xiamen builds her dream,” p. 120.

43. Research Office of Development Strategy of the Xiamen SEZ Government, Xiamen jingji shehui fazhan zhanlue 1985–2000 (The Strategy of Xiamen Socio-Economic Development 1985–2000) (Xiamen: Lujiang chubanshe, 1989), p. 139.

44. BR, 27 January–2 February 1992, p. 19.

45. Xiamen tequ yanjiu (Research on the Xiamen SEZ) (XMTQYJ), March 1991, pp. 17–18; Zhang, Kong, “Assessment of Taiwan investment,” p. 34.

46. XMTQYJ, March 1991, pp. 17–18.

47. China-Britain Trade Review, January 1992, p. 14; Zhiping, Yan, “The constraints on and counter-measures for Taiwan investment in Xiamen,” Fujian jingji (Fujian Economy), p. 28.

48. Zhiping, Yan, “Constraints and counter-measures,” p. 34.

49. Zhang, Kong, “Assessment of Taiwan investment,” p. 34.

50. Peizhao, Hu, “Report on the Taiwan investment in Xiamen,” p. 17.

51. Zhang, Kong, “Assessment of Taiwan investment,” p. 34.

52. XSB, Xiamen jingji tequ nianjian 1990 (Almanac of the Xiamen Special Economic Zone 1990) (Beijing: Zhongguo tongji chubanshe, 1990), p. 333.

53. Caixue, Xu, “Xiamen builds her dream,” p. 121.

54. Ibid. p. 120.

55. XSB, Xiamen tongji nianjian 1989 (Almanac of Xiamen's Statistics 1989) (Xiamen:, Xiamen tongji ju, 1989), p. 352; XSB, Xiamen tongji tequ nianjian 1990, p. 305.

56. Zhang, Kong, “Assessment of Taiwan investment,” p. 35.

57. FCJ, 4 September 1992, p. 3.

58. Ibid. 30 November 1992, p. 3.

59. Ibid. 20 November 1992, p. 3.

60. Trade between the PRC and Taiwan is growing sharply. Total trade volume with the mainland accounts for 4.6% of Taiwan's global trade (exports account for 7.3% and imports for 1.6%). See FCJ, 30 October 1992, p. 3. The same CEPD report also reveals the close trade linkage between the two in the sense that when PRC total exports expand by HK$1 million, Taiwan's exports to the PRC increase by 0.02%; while a decrease of $1 million in the PRC foreign exchange reserves result in a 0.01% drop in Taiwan's trans-shipments. SeeIbid.

61. Ibid. 24 July 1992, p. 3.

62. Ibid. 2 April 1993, p. 3.

63. Ibid. 18 September 1992, p. 3.

64. Ibid. 4 September 1992, p. 3.

65. Ibid. 21 July 1992, p. 8; 4 June 1993, p. 3; 15 June 1993, p. 3.

66. Ibid 1 December 1992, p. 3.

67. JJDB, 1 June 1992, p. 31.

68. FCJ, 4 September 1992, p. 3. As more than 90% of Taiwan firms are small and medium-sized, few have the ability to conduct simultaneous investment on both sides of the Taiwan Straits.

69 Ibid. 15 June 1993, p. 3.

70. YJ, May 1992, p. 44.

71. JJDB, 15 June 1992, p. 12.

72. Ibid. 24 February 1992, p. 16.

73. Recently, the PRC offered to help Taiwan dispose of waste from its three atomic energy plants, which the PRC will not normally do for a “foreign” country. In exchange, Taiwan was to co-operate in high-technology areas. At the same time, influential people in Taiwan made the suggestion that Taiwan should use its foreign exchange resources to buy the mainland's technology to support high-technology researches there. See FCJ, 28 August 1992, p. 3. Plans have reportedly been made to co-operate in such areas as aerospace, superconductivity and computers. See Ibid. 6 October 1992, p. 7.

74. Some mainland scholars maintain that the acute difficulty of raising funds in the mainland is one of the major reasons why Taiwanese entrepreneurs prefer wholly owned ventures to mainland-Taiwan joint ventures. See Zhiping, Yan, “Constraints and counter-measures,” p. 29.

75. FCJ, 3 August 1992, p. 3.

76. Ibid. 15 June 1993, p. 3.

77. Ibid.18 August 1992, p. 3; Jiushi niandai (The Nineties), September 1992, p. 67.

78. Ibid. 14 August 1992, p. 8.

79. Ibid. 1 September 1992, p. 3.

80. JJDB, 25 May 1992, p. 22.

81. FCJ, 4 June 1993, p. 3.

82. The World Bank, referring to the three entities as the “Chinese Economic Area,” predicts that the area's economic boom will continue, making it the world's fourth growth pole. SeeIbid. 20 April 1993, p. 1.

83. In fact, the PRC-Taiwan relationship could affect Hong Kong's ties with Taiwan since the bulk of trade between the mainland and Taiwan goes through Hong Kong.

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Direct Investment and Economic Integration in the Asia Pacific: The Case of Taiwanese Investment in Xiamen

  • Qi Luo and Christopher Howe


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