The Impact of China and Taiwan's Simultaneous Induction into the WTO: The Consequences for ASEAN and the Formation of a Chinese Economic Zone

No.93
October 2000
Research Fellow Jianmin Jin

1. The implementation of China's reform policy of opening up to the outside world, coupled with other developments such as the economic internationalization and democratization of Taiwan and the handover of Hong Kong mean that the economic relationships of Greater China (China, Hong Kong, and Taiwan) have naturally drawn closer during the 1980s and 1990s. Furthermore, a structure of industry specialization is continually developing. However, localization-the antithesis to globalization-is pulling China in the opposite direction, and has become an impediment to the creation and development of a Chinese economic zone. In the short and medium term, the outlook for the harmonization of political opposition is slim, yet it is thought that the realization of China and Taiwan's simultaneous induction into the WTO within the year will become the trigger for the creation and development of a Chinese economic zone. In the future, there is a strong possibility that interchange will progress and a unified market will be realized within such an economic zone, consisting of China as a production base, Hong Kong as a financial and information center, and Taiwan as an R&D center.
2. With the rise of China beginning in the early 1990s, the target of FDI in Asia shifted from the high-priority ASEAN region of the 1980s to that of the Chinese economic zone. The Chinese economic zone eclipsed ASEAN as a result of its external economic performance (i.e. China's exports and the inflow of FDI) that effectively absorbed large volumes of foreign investment and foreign technology (as a part of FDI). With the simultaneous inclusion of China and Taiwan into the WTO, the Chinese economic zone has become an even more attractive investment market. From the perspectives of the introduction of technology, long-term cash flow stability, and inculcating the export industry, FDI is indispensable to ASEAN, and the shift of foreign capital to the Chinese economic zone is a development that is cause for much alarm for the future of ASEAN economic management.
3. Lack of foundation for the absorption of foreign technology, small and non-integrated markets, and low sensitivity to new economies have become chokepoints to the construction of a competitive and attractive ASEAN market. Regarding the future of economic management in ASEAN, this study presents five proposals: (1) a shift in the focus of the ASEAN free trade agreement from tariff reduction to the abolishment of non-tariff barriers and the liberalization of the service industry; (2) construction of regulations and dispute resolution mechanisms with binding authority; (3) planning for effective market integration including the establishment of an ASEAN industrial adjustment fund that casts aside the fears associated with liberalization; (4) development of "new economy"-style policies designed to attract foreign capital; (5) construction of a system that will fuse human resource development with foreign-funded and local businesses, coupled with the pursuance of policies to increase technology absorption capabilities.

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