Strait talking

Transhipment traffic between Taiwan and mainland China through Hong Kong is almost certain to exceed US$7bn this year on the back of 43 per cent growth to US$5.8bn last year. Pharmaceuticals, cars, consumer durables and food products will be the main output from this latest round of investment with factories producing textiles, garments, footwear and electrical and electronic goods already established in considerable numbers.

Most of the increase in 1991 consisted of Taiwan machinery and raw materials moving to equip new factories in China; the increase in traffic moving in the opposite direction was not that great, mainly because much of the Taiwan-funded production in China is earmarked for domestic consumption or export to world markets other than Taiwan.

Some observers believe around 12 per cent of the output of Taiwan-funded factories on the mainland finds its way across the strait to Taiwan.

However, two-way traffic is expected to rise sharply this year as Taiwan relaxes its restrictions on imports of semi-finished goods from the mainland spurred by strong domestic demand in the construction sector.

However, mainland China is beginning to sense some major shifts in the fundamentals governing the indirect trade across the straits between China and Taiwan ? a trade that is expected to be worth_ around US$8bn this year.

The so-called "guerrilla forces" that spearheaded Taiwan's large-scale investment in mainland production facilities have long since given way to the "regular troops", as mainland sources see it. In other words, the pioneering days are over ? Taiwan investors have dipped their toe in the water and tested the market; they are now consolidating their positions and looking to the long term.

As a consequence of this, the scale of investment is rising and now typically ranges from tens to hundreds of millions of dollars per project.

However, the Taiwan government remains nervous about the rapid rise in trade with, and dependence on, the mainland and, with effect from the second half of 1991, now requires proof of higher Hong Kong local content for semi-finished goods exported to Taiwan from mainland China. This would suggest that trade growth could slacken from July on although, predictably, Taiwan industrialists are lobbying hard to minimise the effect of these new trade regulations directed at imports from the mainland.

The downside of all this economic activity on the mainland for Taiwan is that Taiwan's own exports appear to have stalled this year, largely due to lower consumer demand in Europe, Japan and North America. While Taiwan's overall exports were flat (-0.2 per cent) for the first nine months of this year compared with the same period of 1991, exports to the US were down 0.3 per cent, Japan was down 8.4 per cent and Europe down 8.7 per cent.

One of the few bright spots for Taiwan was its exports to Hong Kong (mostly bound for mainland China) which topped US$10bn from January to end-September this year. But while China was the driving force behind booming Taiwan exports to Hong Kong, it is also a prime factor in Taiwan's sluggish export performance since much cargo originally shipped to world markets from Taiwan is now shipped direct from Taiwan-owned factories in China (showing up as China exports and/or Hong Kong re-exports rather than Taiwan exports).

Much of the cargo moving from Taiwan to Hong Kong comprises raw materials or semi-finished products destined to be made or assembled into end-products in mainland factories. However, even excluding the "China factor", Taiwan's economic growth has stalled in real terms this year (not helped by the recent severing of trade and diplomatic ties with South Korea) and will fall a long way short of the 7.3 per cent GNP growth registered last year.

Mainland China has managed to buck the downward trend this year and, as party general secretary Jiang Zemin noted in his report to the 14th Party Congress recently, the country expects economic growth of 8 or 9 per cent this year while Taiwan sources predict GNP growth of 10 per cent for mainland China and 6.5 per cent for Taiwan next year on the assumption that the world economy picks up in 1993 and Taiwan exports grow by between 5-10 per cent; quite an assumption…

When one adds up all the cargo moving between China and Taiwan and the extra cost of moving it indirectly (via Hong Kong, Korea or Japan) due to the absence of direct transport links across the Taiwan Strait, one would imagine it could only be a matter of time before direct air and shipping links are established. But, unfortunately, the political will just is not there and despite the end of the Cold War, the collapse of communism in the former Soviet Union and Eastern Europe, and the establishment of diplomatic relations between China and former enemies such as Indonesia and ? more recently, South Korea ? there doesn't appear to be any thawing of the frostly relationship between China and Taiwan.

And yet there is an awful lot of talk about the likelihood of imminent direct official shipping and air transport links between mainland China and Taiwan.

The reality is that direct transport links across the Taiwan Strait are still a long way off ? maybe even as far away as the turn of the century ? despite all the pundits who insist that "they're just around the corner."

Airline sources in Hong Kong suggest that direct flights between the two may be six to eight years away, based on a report recently concluded by the Taiwanese government. Airlines who have seen the report say Taiwan has put off further negotiations on air traffic rights to the mainland by another three to four years. "Negotiations usually take two to three years," said one aviation expert, "but difficult negotiations such as those between the two Chinas can take up to four years; this means no flights for up to eight years…"

On the shipping side, where things are less regulated, progress may be faster, but not much. Rumour has it that small ships already do sail unofficially across the strait but, if so, such services are "a drop in the ocean" compared with the capacity needed to significantly lower the cost of moving goods between China and Taiwan direct.

Direct shipping services are unlikely to be unofficially launched until at least the second half of the 1990s. *