Earlier this week, Taiwan's government announced the "relaxation" of two restrictions on high-tech investment in mainland China. Effective immediately, reports the Financial Times, Taiwanese companies will be allowed to invest in "low-end chip testing and packaging, and small-size flat panels" operations in China.
The most interesting part of the story, to me, came near the end: "Even those companies that apply under the new rules will be subject to tight scrutiny, as they will have to prove that their move is part of overall investment plans which also strengthen operations in Taiwan."
The politics of what is known as "cross-straits investment" between Taiwan and China are fraught with all kinds of economic, technological and security pitfalls. China considers Taiwan a rebel province and has refused to renounce the use of force in seeking reunification. Taiwan's leaders have long worried that if they allow Taiwanese businessmen to move wholesale to China, Taiwan's economy would be at the mercy of Communist Party whims. They have been especially protective of the semiconductor industry, and have long blocked Taiwan's biggest chip companies from moving their most advanced technology across the Taiwan straits (a policy that has strong U.S. support).
But is Taiwan trying to have it both ways? The success of Taiwan's semiconductor industry is one of the world's great examples of globalization. Taiwan's made-to-order chip foundries, led by the Taiwan Semiconductor Manufacturing Corp., enabled the state-of-the-art cross-national supply chains that are so fundamental to modern electronics production. And yet, in trying to require that companies moving to China demonstrate that they are continuing to invest and modernize at home, Taiwan is now trying to shape globalization to its own domestic, bordering on protectionist, purposes.
The impulse is entirely understandable, and illustrates that the interests of a state and its people are not necessarily synonymous with the interests of the business community. Surely, there are many in the U.S. who would love to require that U.S. companies that want to expand their foreign operations simultaneously beef up their local enterprises. The problem is that there is little evidence, in Taiwan's case, that restrictions have been effective at doing anything except potentially cripple the long-term competitiveness of Taiwan's elite firms. Taiwan is already so thoroughly enmeshed in China's economy that, should China's leaders wish to do so, they could inflict devastating harm on Taiwan without ever firing a single one of the 800 or so missile batteries pointed directly at the island. Taiwan has long been the single largest foreign investor in China. And in the semiconductor industry, Taiwanese businessmen have been adroit in evading every restriction placed upon them, whether that means using offshore third parties to invest secretly, or adopting U.S. citizenship, or simply paying lip service to the regulations while ignoring them in practice.
Taiwan may have been successful in slowing this flow, but if it wants to maintain its hard-fought position near the top of the chip food chain, it simply has to be a major player in China.
One theory of globalization holds that an essential part of the modern global economy is that "the state is in retreat." That is, governments are finding that they simply do not have the power to resist the movement of capital and resources around the globe. Taiwan has the strongest possible reasons to try to prevent its leading-edge high-tech enterprises from moving to China -- the very existence of the nation as an independent political entity is at stake. But Taiwan rose to economic power in part by siphoning American technology and capital to its own shores, and it knows better than anyone how easily, how relentlessly, that flow will continue elsewhere.
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