The Current Status and Future Outlook of China-Taiwan Economic Relations: From Politico-Economic Separation to Politico-Economic Integration

No.69
March 2000
Senior Fellow Yan Zhu

1. Economic exchange between China and Taiwan began with the thaw in relations across the Taiwan Strait at the start of the 1980s. The characteristics of economic exchange through trade and investment have been politico-economically separated, indirect, complementary, and mutually beneficial, and have yielded great profits for both China and Taiwan. However, since the end of the 1990s, political relations have once again grown strained and the effects have been felt in economic relations as well. The limits of politico-economic separation have been reached.
2. When investigated from the economic side, changes such as sustainable growth for the Chinese and Taiwanese economies, structural adjustments and internationalization, and the international economic environment have all served as catalysts for China-Taiwan economic exchange. Consequently, three possibilities for changes in economic relations are also present when considering purely economic factors: (1) The economy will continue to grow rapidly, promoting economic relations, (2) economic growth will stall, and economic exchange will be supported or will stagnate, (3) an economic crisis will loom, disrupting economic exchange.
3. The fate of China-Taiwan economic relations, however, is decided by political relations. Presently, both China and Taiwan are at odds with regard to various issues surrounding unification, including their recognition of the current situation, premises and conditions for unification, and the way to proceed in improving relations and negotiations. Among other issues, the progress of economic stability and political reform in China, the vicissitudes and power rotations of Taiwanese politics, and changes in international relationships, with the U.S.'s policies toward Taiwan at the center of this issue, will control the future course of China-Taiwan political relations. Consequently, three possibilities exist for futures changes in these relations: (1) Political relations will improve, and a path to political unification will be agreed upon, (2) tensions will ease, but relations will not improve and the present schism will continue, (3) the struggle between unification and independence will intensify, and relations will worsen.
4. From both political and economic perspectives, there are nine aspects to the future development of China-Taiwan economic relations, which can be summarized in the following three scenarios.
   
   1. Significant improvement in political relations or the continuation of present conditions will lead to increased economic exchange (60% chance).
   2. Under improved political relations or the continuation of present conditions, economic troubles will result in a lack of major development of economic exchange, and the present state of exchange relations will continue (25% chance).
   3. In light of unimproved political relations or escalating tensions, all economic exchange will be suspended and economic relations will be destroyed (15%)

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