Taiwan Pivots Away from China, Towards the South

$5 Taiwanese coin. Flickr/Eli Christman

Tsai and the DPP see more promise in ASEAN.

Taiwan is laying the groundwork for a major charm offensive towards Southeast Asian nations and India in an effort to gain a strong foothold in these fast-growing economies and to diversify its economic relations away from China. China and Hong Kong together absorb nearly 40 percent of Taiwan’s exports, with exports accounting for 70 percent of the island’s GDP.

The Tsai Ing-wen administration’s New Southbound Policy seeks to promote tourism, industrial cooperation and a broad array of exchanges spanning the education, culture and technology fields with the nations of ASEAN and South Asia. It is a creative “people-focused” strategy aimed at knitting Taiwan into the economic and social fabric of these dynamic regions in the absence of official diplomatic ties. It also appears designed to mitigate Taiwan’s economic marginalization in a rapidly integrating region, which is by and large the result of Chinese opposition to Taiwan’s signing of bilateral and regional trade agreements.

Taiwan’s Southern Pivot, Version 3.0

As indicated in its name, the New Southbound Policy is a novel approach to redirect Taiwan’s trade-dependent economy to other parts of Asia from the Chinese market. Beginning in 1994, then Taiwan president Lee Teng-hui championed a “Go South” policy that urged Taiwan businesspeople to invest in Southeast Asia. The 1997 Asian Financial Crisis and its fallout, however, spooked Taiwan investors away from ASEAN towards China, the latter having begun sweeping market reforms under the stewardship of Premier Zhu Rongji (1998-2003).

Lee’s successor Chen Shui-bian attempted to reintroduce Lee’s “Go South” policy in 2002, but this proved largely ineffective as Taiwan investors continued to perceive the Mainland as a more attractive investment destination. Chen’s 2001 decision to lift longstanding restrictions on investment in China combined with explosive Chinese growth throughout the first decade of this century served only to accelerate cross-Strait commercial ties.

Whereas these prior initiatives focused almost exclusively on trade investment figures, the Tsai government claims its new Southern-directed strategy is multifaceted in its additional emphasis on soft, people-to-people elements. It is also now targeting South Asian nations, particularly India—the region’s economic powerhouse that is pushing to become a global manufacturing hub under Prime Minister Modi’s “Make in India” scheme. It also envisions ASEAN not merely as a manufacturing base, but as an extension of Taiwan’s domestic market whereby Taiwan products and services meet the consumption needs of region’s burgeoning middle class.

Signaling the importance President Tsai attaches to the New Southbound Policy, she named former ROC Foreign Minister James Huang (2006–08)—a close confidante—to head a task force inside the presidential office that will spearhead the initiative and coordinate among Taiwan’s government ministries, relevant industries and educational institutions. This New Southbound Policy Office, whose founding guidelines were approved by Tsai on June 15, will ramp up its operations in in the coming weeks, with Mr. Huang required to periodically brief Tsai on overall strategy and project implementation.

Taiwan has already unveiled a number of proposals that help to form the nuts and bolts of the New Southbound Policy. It recently added Cambodia, Laos and Myanmar to the list of Southeast Asian nations it currently offers streamlined visa application procedures, and is even considering the inclusion of all ten ASEAN nations into its visa-waiver program. The Taiwan Ministry of Education will allocate funding for Taiwan youth to conduct internships in Southeast and South Asia, as well as provide scholarships to citizens of ASEAN nations to study in Taiwan. The establishment of a national-level think tank for ASEAN and South Asia studies is also in the pipeline.

Tapping into an Ascendant ASEAN and India

Asia’s shifting economic landscape undergirds the logic of the Tsai administration’s Southern pivot. India outpaced China as the world’s fastest-growing large economy in both 2014 and 2015, whereas ASEAN nations are poised to experience robust growth in the coming decades thanks to their young populations and the ongoing formation of a single regional market and production base, the ASEAN Economic Community.

Meanwhile, rising labor prices in China and the overall Chinese economic slowdown are leading Taiwan corporations to consider alternative locales to build manufacturing facilities. Most notably, Foxconn—one of Taiwan’s largest companies and a key supplier to Apple—announced in August 2015 that it plans to invest $5 billion in a manufacturing plant and a R&D center in the Indian state of Maharashtra.