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Why China’s Financial Incentives for Taiwanese Flatlined

China and Taiwan flags, on texture graphic
China and Taiwan flags, on texture graphic

China has claimed sovereignty over self-ruled Taiwan since the Chinese civil war of the 1940s and threatened to take it by force if needed.

Just over a year ago the Chinese government announced 31 incentives for Taiwanese to work, study and invest in China, a market where salaries can run higher than in Taiwan and the number of consumers has no equal. The Taiwan government fretted then that China was trying to attract Taiwanese people as a way of pressing its case for political unification – a goal that Taipei opposes.

But those measures have made little impact over the past year because of anxiety among the Taiwanese being targeted, experts and officials say.

Economists point to rising costs in China. There’s spillover from the Sino-U.S. trade friction. Some Taiwanese worry about holes in China’s legal system, particularly when it comes to protecting copyrights and trademarks. Other Taiwanese wonder whether, by working or investing, they would unwittingly help China’s goal of unification, the government in Taipei believes.

“The main goal is to inject some energy into China’s economy,” said Chiu Chui-cheng, spokesman for the Taiwan government’s Mainland Affairs Council. “As for us, our initial review over the past year is that at the moment, to be honest, there’s no obvious impact on our society, industry or economy.”

Political backdrop

China has claimed sovereignty over self-ruled Taiwan since the Chinese civil war of the 1940s and threatened to take it by force if needed. More than seven in 10 Taiwanese oppose unification, the Mainland Affairs Council said in January. Officials in Taipei see the incentives as a soft approach to bring the two sides together.

“Taiwanese have learned to be a little bit smarter than taking the bait from China,” said Shane Lee, political scientist with Chang Jung Christian University in Taiwan. “Political reasons have overtaken the economic reasons.”

Other workers and investors may fear that China’s communist political system lacks the legal guarantees, such as copyright protections and fair court hearings, that they’re used to in their democratic homeland, some analysts say. “Gaps” are also clear in the development of China’s market economy compared to Taiwan’s, Chiu said.

China needs to gain Taiwan’s trust in its laws and “structure” that includes economics and politics, said Wu Hui-lin, research fellow with Taipei-based policy research organization Chung-Hua Institution for Economic Research.

Shifting economic landscape

Sino-U.S. trade friction over the past year also raises tariffs on Taiwanese companies that produce in China for export to the United States. China rolled out its incentives for Taiwan a month before U.S. President Donald Trump issued a memorandum ordering the round of tariffs that kicked off the past year of trade tensions.

“These 31 measures, held up to the Sino-U.S. trade conflict, they didn’t offer much of a big incentive at that time,” said Darson Chiu, deputy macroeconomic forecasting director with the think tank Taiwan Institute of Economic Research in Taipei.

Labor costs are also rising, and Chinese environmental rules growing more stringent, causing trouble for some Taiwanese investors, Chiu said.

Taiwanese investors have capitalized factories in China since the 1980s, taking advantage then of cheap labor and a fast-growing domestic consumer base. Investments there totaled $8.74 billion in 2017 after falling for three straight years. As costs of business rise in China, some Taiwanese investors have expanded into Southeast Asia or back to Taiwan.

Taiwanese investors from offshore, often in China, have applied since January to start projects at home worth a total $1.29 billion since January, the economic affairs ministry in Taipei said on March 15. It cites its own incentives as a reason.

“It’s impossible to survive in China,” Wu said, referring especially to Taiwanese tech firms. “So, we can see these Taiwanese investors who have recently returned, almost all are going to the science parks to look for land.”

More incentives coming

Chinese Premier Li Keqiang said March 15 his government would offer additional incentives for Taiwanese people. He did not give details when making the announcement in Beijing.

The premier probably means “good jobs” and “good conditions for investment” that might appeal especially to this year’s batch of Taiwanese university graduates, Lee said. Those incentives would be consistent with last year’s list. The existing 31 measures include tax breaks and special land use rights.

Young people in Taiwan might still try out China’s incentives, the Mainland Affairs Council spokesman said. China is encouraging younger Taiwanese to start their own companies in its hubs for startups.

The success rate of Taiwanese people’s “business launches” in China is about 1 percent, the spokesman cautioned. “They’ve run into some difficulties,” he said. “We’ve reminded our youth to beware of the risks.”