Protests in Taiwan Over Trade Pact With China: The Painful Challenges of Maintaining the Status Quo

Massive student protests recently erupted in Taiwan in response to a controversial trade pact with China, which critics claim could pave the way toward China's eventual assimilation of the island nation.

The pact is an extension of the tariff- and barrier-lowering ECFA (Economic Cooperation Framework Agreement) signed between China and Taiwan in 2010, and could allow citizens on both sides to work and invest in select industries. Critics claim that the deal is unbalanced and could cede local businesses to the Mainland Chinese.

In response, students stormed the Legislative Yuan (Parliament Building) in Taipei on March 18, vowing to barricade themselves inside until the pact is repealed. On March 23, another group of students and supporters stormed the Executive Yuan (Taiwan's executive branch), smashing windows and breaking into the compound, resulting in a violent brawl with riot police that resulted in over 150 injuries.

A wall of protesters block off the Executive Yuan on March 23. (Source: Author)

The pact's supporters, however, believe that it is the only way for Taiwan to remain on equal footing against stronger Asian rivals such as South Korea and Japan, which are close to finalizing an historic free trade agreement with China -- an agreement that would create a region with a GDP equivalent to 20% of the world's total, with a combined import and export volume equivalent to 17.5% of all global trade.

Evolution and revolution
Yet to truly understand this nation, which I have called home for the past decade, we should take a look back at how historical events have flowed into current ones.

Taiwan, a former colony of Japan between 1895 and 1945, was ceded to China at the end of World War II. Taiwan's early days under the rule of the Kuomintang (KMT), which retreated to Taiwan under deposed leader Chiang Kai-Shek's rule in 1949, were tense. Many Taiwanese had enjoyed a higher quality of life under Japan, but after Chiang's Nationalists lost the mainland to Mao Zedong's Communist Party, it became a rump state placed under martial law for 38 years.

Chiang Kai Shek Memorial Hall, Taipei. (Source: Author)

Chiang and his son, Chiang Ching-Kuo, served as the first two presidents of Taiwan. Their terms were marked by admirable progress in infrastructure and economic development, but also tarnished by brutal crackdowns on dissenting journalists and pro-independence factions. After Chiang Ching-Kuo's death in 1988, President Lee Teng-Hui started a localization movement that led to the first series of democratic presidential elections.

Due to this localization effort, the pro-independence Democratic Progressive Party (DPP) quickly gained ground, causing an irreparable rift with the KMT, which favored an eventual reunification with China.

Isolation and survival
Taiwan's executive and legislative branches have been dominated by the KMT since 2008. The KMT's conundrum, however, is that it is expected to maintain a status-quo relationship with China -- to never officially declare independence, but to never surrender the island either. China, in response, has boosted economic ties, in hopes that it can rein in a region that it officially considers a renegade province.

As a result of China's stance on Taiwanese independence, Taiwan has been isolated from the rest of the world. The country, once considered the official governing body of China, was expelled from the UN in 1971. Taiwan currently only has 22 remaining allies in the world -- many of them tiny nations without a military force or viable economy. Yet despite that isolation, Taiwan evolved into one of the "Asian Tigers" in the 1990s, thanks to the growth of tech giants like Taiwan Semiconductor (NYSE: TSM  ) , Asus (NASDAQOTH: AKCPF  ) , Acer, and Foxconn.

Unfortunately, that golden age didn't last. The Third Taiwan Strait Crisis in 1996, the Asian Financial Crisis in 1997, and the steady exodus of Taiwanese companies to lower wage nations like Vietnam, Thailand, and Indonesia all resulted in a stagnant economy -- one that China was eager to court with promises that economic cooperation would lead to mutual prosperity.

A partnership indeed makes sense, considering that China's annual GDP growth has slid over the past several years, dropping from 14.2% in 2007 to 7.7% in 2013. By comparison, Taiwan's GDP only grew 2.2% in 2013.

Stuck in the middle
Taiwan is currently stuck in the "middle income trap" that has trapped nations like Brazil for decades.

The current average monthly wage per employee is NT$37,938 ($1,244), but the average college graduate can only expect a starting monthly salary of NT$22,000 ($721). Meanwhile, inflation has outpaced wage growth, and company-led real estate investments have created a self-sustaining real estate bubble in which the average price of a tiny 20-ping (711 square foot) apartment in Taipei has soared to a whopping NT$13 million ($426,000).

The KMT government has done little to raise wages or lower housing prices across the board, out of fear of respectively angering companies (which are itching to relocate) and affluent, influential real estate investors. When we combine those problems with the fact that ECFA allowed Chinese businesses to boost their investments in Taiwan from $43.7 million in 2011 to $328.1 million in 2012, many Taiwanese citizens now believe that the government favors the aspirations of Chinese businesses over the needs of its own people.

Good for the big fish, bad for the small fish
That's where the disputed trade pact, which opens up 80 of China's service sectors to Taiwan and 64 Taiwanese sectors to China, comes in.

Taiwan is letting investors from China invest in the retail, hospitality, delivery, computer, and advertising industries, along with other service sectors traditionally dominated by Taiwanese citizens. A widely cited, non-official calculation claims that the pact could allow a Chinese family who invests around NT$6 million ($197,000) to immigrate to Taiwan, raising fears of a Crimea-like takeover -- a theory that the government has dismissed as faulty logic. The pact does not open up the employment market to all Chinese workers, since current cross-strait work visa standards remain unchanged.

In exchange, China opens the doors to large Taiwanese companies by allowing investments in construction contracts, private hospitals, and bus corporations. It also allows Taiwanese retailers to set up shop in China and lets securities firms set up branches in Shanghai, Shenzhen, and Fujian province. Both China and Taiwan are allowing funeral homes -- a booming business in both aging countries -- to set up shop across the strait.

The main fear is that the pact could cause Chinese-owned businesses to push out Taiwanese-owned ones across various industries, and Taiwanese citizens will end up working for bosses from Mainland China. The deal also notably benefits the biggest players in Taiwan -- construction firms, financial institutions, and funeral homes -- which all hold considerable clout in the government.

In other words, aiding the biggest fish might help the overall economy, but cause the smaller fish to go belly up -- a classic Wal-Mart versus the local grocer scenario.

The road ahead
Before pursuing a career in finance writing, I taught English in Taipei. That's why it pains me to see the country being paralyzed by its current crisis.

Many people have oversimplified the situation on Twitter via the hashtag #taiwanoccupy, claiming that policemen "violently broke up" a "peaceful" demonstration. On the contrary, breaking into a government building then subsequently attacking the police with bottles and firecrackers can hardly be considered "peaceful."

Others claim that the trade pact was "undemocratic," which is also untrue, since the pact is currently supported by a popularly elected president and the majority of the legislative body. The only real issue is the process of line-by-line bipartisan deliberation, which critics claim was skipped during the maze-like Taiwanese law-making process, although the pact was introduced over nine months ago and was under deliberation when the students stormed the Legislative Yuan.

It's understandable why the students feel rage at the country's stagnation, but it's no excuse to undermine democracy by invading government buildings to preserve it. The students have demanded that President Ma Ying-Jeou repeal the trade pact "or else," leaving no room for real negotiations. These students might be better off remembering, as Gandhi once said, that "anger and intolerance are the enemies of correct understanding."

The next step for you
Did you ever want to learn more about growing Asian markets like Taiwan, China, and South Korea? The Motley Fool is offering a new special report, an essential guide to investing, which includes access to top stocks with exposure to these markets. Click here to get your free copy today.

 


Read/Post Comments (8) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 25, 2014, at 10:18 PM, michaelturton wrote:

    This is a mix of basic economic analysis, government talking points, and just plain error. Some simple errors:

    ""Taiwan, a former colony of Japan between 1895 and 1945, was ceded to China at the end of World War II.""

    Taiwan has never been ceded to China. The only relevant legal doc is the San Francisco Peace Treaty, which strips it from China but does not award it to anyone. That was a deliberate decision of the powers. To this day the US 'one China' policy does not include Taiwan, a position held by most of the major powers, including Japan, but not Russia (of course) or France. The correct position is that the status of Taiwan remains undetermined. No internationally recognized legal document assigns the sovereignty of Taiwan to China.

    """esulting in a violent brawl with riot police that resulted in over 150 injuries.

    ....policemen "violently broke up" a "peaceful" demonstration. On the contrary, breaking into a government building then subsequently attacking the police with bottles and firecrackers can hardly be considered "peaceful."""

    A violent "brawl"? The violence was entirely due to the riot police assault on the protesters. There is copious video and still photography of the police assault, as well as literally thousands of eyewitnesses. A windows were broken in the Executive Yuan when the protesters broke in, but the damage often shown in post-attack stills is all imagery taken after the police attacked the protesters. There were journalists inside the EY and none reported that. There were lawyers in robes out there helping the students who came out of the EY, who reported numerous injuries.

    The protesters did throw water bottles at the water trucks, which the police left unguarded with the usual police incompetence: the protesters were able to slash their tires. According to witnesses -- see political scientist nathan batto's discussion at the blog Frozen Garlic -- they did not do violence to human beings.

    The writer here at The Fool also omitted mentioning that the riot police, after clearing the EY (arguably legal) then water cannoned and cleared protesters on the street in front of the Executive Yuan, who were both perfectly legal and perfectly peaceful. That action was utterly illegal, especially since the highest Court here declared the assembly and parade law unconstitutional last week.

    Two other things should be noted. First, the police generally handled the protesters gently, it was the riot police who did the assaulting. Second, there were firecracker tossing, violence-inducing thugs at the protest, but they are pro-unification gangsters who have been harassing the crowd since the protest began. The crowd has been calling on the police to protect them from the gangsters, who are a constant presence at pro-Taiwan protests. It's incredible to me that the regular presence of gangsters is never mentioned in media reports or reports like this one.

    ""'In other words, aiding the biggest fish might help the overall economy, but cause the smaller fish to go belly up -- a classic Wal-Mart versus the local grocer scenario.""

    This is often true, but in this case the pact is supported only by big business, big finance, the Chinese Communist Party, the KMT, and cross-strait organized crime, the last being a major beneficiary of the previous and failed ECFA pact. It's not a classic Wal-Mart versus the local grocer scenario -- it's a rape and run that will help neither the overall economy nor small businesses, but simply provide (even more) subsidies to large businesses.

    Thanks to the opening to China since the mid 1990s, Incomes have regressed to 1998 levels and workers are experiencing the same fall in incomes that American workers have experienced, with productivity gains going to the wealthy, who pay low to no taxes. The taxes on real estate are so low that it has become a tax shelter for the wealthy.... the Ma government was voted in by the 1% to preserve this state of affairs, which is why the public is so suspicious of its economic actions. And why the President enjoys approval ratings of around 10%.

    Since ECFA, the previous pact for which this one is an add-on, has done little for the island's economy and nothing for local SMEs, the public has concluded that this one is crappy. And they are correct....

    To get a sense of how awful the pact is, the NTU Economics Dept Chair has an analysis available in English:

    http://www.slideshare.net/ntuperc/englishok

    ""'The only real issue is the process of line-by-line bipartisan deliberation, which critics claim was skipped during the maze-like Taiwanese law-making process, although the pact was introduced over nine months ago and was under deliberation when the students stormed the Legislative Yuan.""

    This is incorrect. It is precisely because the pact was NOT under deliberation that the students stormed the legislature. The line-by-line review was agreed on, and was scheduled to begin. The DPP occupied the podium, and then the KMT Chair of the Committee simply announced that the review had been held and the session was over (hilariously, the LCD screen in the legislature was still announcing it had not begun). The President then congratulated the KMT Chair on getting it out of committee. It was this cynical, scamming sequence of events which triggered the occupation of the legislature, and the larger, cynical "public review" that took place after the negotiation in which the KMT held "Public hearings" with short announcement, or in places not accessible to the public, etc. See journalist J Michael Cole's report at The Diplomat:

    http://thediplomat.com/2014/03/taiwanese-occupy-legislature-...

    Why did the KMT not want a review and a vote? Simple. They wanted to claim that the pact had been passed by administrative loophole -- essentially executive branch fiat -- so that they could avoid voting on it. This move was illegal and dictatorial. This pact is such a dog that its own supporters, who are facing elections at the end of the year, don't want to be seen voting for it. Hence the end around of democratic procedure in the hope they can make it become law without a public vote. The ruling party also fears that some of its legislators may bolt and support the opposition.

    The latest poll from the Chinese-owned, pro-KMT TVBS has support for renegotiation of the pact at 63%, with only 18% supporting. Since the students started highlighting the pact, support has fallen from a tepid 32% (TISR http://www.taipeitimes.com/News/taiwan/archives/2014/03/14/2... to 18%. A majority of the public supports the students, and disapproves of the actions of the police in attacking the protesters, though they also disproved of the occupation of the Executive building.

    The public also understands that the formal agreement of the pact is only part of the problem. Each time Taiwan opens a little to China, smuggling increases massively, something never mentioned in international media reports. For ordinary people who must purchase fruit and vegetables in the local markets knowing that many are illegally imported and full of toxins, this is a serious problem (vendors often hasten to assure buyers that their stuff is not from China). Personally I have grown to bitterly resent all the outsiders far from Taiwan who tell me how great it is that Taiwan is opening to China -- they do not have feed toxic Chinese foodstuffs to their children. People smuggling in various guises is also a severe problem -- a major local organized crime figure here has opened schools just so he can bring in gangsters from China on "scholarships" for training for his "hospitality" enterprises. A pact in Services will only lead to more of this, since services are an area where gangsters have a powerful presence. The locals are also well aware that Chinese investment elsewhere in the world has lead to floods of Chinese workers. They know what the CCP and the KMT want for Taiwan -- annexation to China, and they know that China hates Taiwan's democracy and longs to gut its economy, the main pillar of its independent existence.

    Note that support for Taiwan's protests is widespread in Hong Kong, where they know that Taiwan's freedom is what keeps China from mistreating them too badly. Once China annexes Taiwan things will go ill for Hong Kong.

    A friend put it very well, I'll close with his words:

    "The reason why analysts (and politicians) cannot understand this event, and the ones leading up to it, is because this new breed of students doesn’t follow the old paradigm of political action in Taiwan. According to the old paradigm, political parties were behind the scenes, rounding up large numbers of protests by organizing buses, promising box lunches and sometimes outright paying cash. And gangsters were always involved because they are enfranchised in the party system here in Taiwan. Look at the administration's brownshirt-like "White Wolf" muscle. According to the old paradigm, the protests were always split neatly along partisan lines.

    These young people don’t share that worldview – the first thing I’d hear from many people (who are keen to talk to a foreigner about what they’re doing and why!) is “I’m not Blue, and I’m not Green.” They are motivated by social justice issues, not pork. They have the audacity to believe that their democracy (in which they grew up, not knowing what came before, God bless them!) is actually something that works, and is worth preserving. Because they are also well-travelled and well-informed: they have been to Hong Kong, many to China. And they don’t want Taiwan to become that."

    These students are the cream of local university students. They are the future of Taiwan. Some of them are from my university, some are my own students. I admire them and respect them and love them.

    Michael Turton

    The View from Taiwan

  • Report this Comment On March 25, 2014, at 10:22 PM, michaelturton wrote:

    Argh.. should be "strips it from Japan" (!) LOL.

    Michael

  • Report this Comment On March 26, 2014, at 12:17 PM, TMFSunLion wrote:

    Hi Michael, thanks for reading --

    Let me address the issue of "ceding" first. You're over-complicating things and using traditional DPP-influenced rhetoric.

    Fact: Japan left Taiwan in 1945 after the end of World War 2. The KMT, then the acting government of China, sent a provincial governor to Taiwan, resulting in the 228 incident. After Chiang lost to Mao, he retreated to the island in 1949 and formally continued the "Republic of China" on the island.

    All things considered, that fits the definition of ceding, whether official or unofficial -- Japan left, the Republic of China moved in. The DPP brings up the San Francisco treaty repeatedly to try to assert that Taiwan was never part of China, and "could" be part of Japan or even the U.S. It's an unhelpful conflation of facts that doesn't help current issues at all.

  • Report this Comment On March 26, 2014, at 12:21 PM, TMFSunLion wrote:

    Second, I agree with your view on China's negative influence during the 1990s. However, your view of "gangsters" running the government is again typical DPP rhetoric.

    The "gangsters" were directly descended from the original KMT's (under Sun Yat-Sen) efforts to overthrow the Qing Dynasty. They were the rich families that eventually lent their aid to Chiang Kai-Shek and fled with him when the Nationalists fell.

    To think that you can separate the two is an oversimplification of a very complex, symbiotic relationship.

    That being said, you fail to address the fact that both occupations were illegal invasions of government buildings. Therefore, they cannot be mentioned the same breath as Tiananmen or other peaceful demonstrations.

  • Report this Comment On March 26, 2014, at 12:24 PM, TMFSunLion wrote:

    Meanwhile, a request for a line-by-line deliberation is a clear stall tactic from the DPP to attempt to label the pact "undemocratic". But the KMT was popularly elected for both the executive and legislative branches, and have the power to ratify the pact, democratically.

    Lastly, I commend you for standing up for your students, but you have to understand -- if not the trade pact, then how is Taiwan supposed to survive in China's shadow? I welcome your suggestions.

    Cheers,

    Leo

  • Report this Comment On April 06, 2014, at 2:32 AM, CakeEng14 wrote:

    Taiwan has been the most weird place in the world since the end of WWII. Taiwan has been under the administration of the Republic of China (ROC) after 1945. But Taiwan is NOT legally a part of China.

    In the Peace Treaty with Japan of 1951 Taiwan was separated from Japan. According to the UN Charter Taiwan's future would be determined by a plebiscite. But the plebiscite has never been held. The textbooks in Taiwan have never mentioned both the UN Charter and the Peace Treaty with Japan. Both Chinese regimes, ROC and PRC, know that Taiwan's status has not been determined.

    This "Service and Trade Agreement" was mainly designed to bring in Chinese immigrants to boost Chinese votes to defeat Taiwanese will so that Taiwan can be easily annexed legally by China through a plebiscite as promised by the UN Charter. In other words, this Agreement is a "trade" for the KMT to benefit itself from selling Taiwan to China.

  • Report this Comment On April 06, 2014, at 3:21 AM, CakeEng14 wrote:

    "The KMT was popularly elected." False!

    Before 1977, the KMT used so called "make votes" to win elections. They voted for those who did not show up at the pooling stations. After 1977, the KMT staged a full scale effort on "buy votes." They forced the "village managers" to distribute money with candidate's name to every house. It could be prosecuted by law. But no one has the guts to take the "manager" (a neighbor) to court. This "buy votes" technique became quite advanced in 2008 and 2012 presidential elections: they staged a "quota" system that involved payment or punishment to "brokers" after election. This was how Ma and his KMT candidates got "popularly" elected.

  • Report this Comment On April 06, 2014, at 11:48 AM, TMFSunLion wrote:

    CakeEng14 -- Let's be realistic. The KMT and DPP both "buy" votes. I've seen red envelopes being handed out by both parties regularly, and I've been here a long time. I've even seen DPP members accept large "donations" at my company functions here.

Add your comment.

DocumentId: 2888487, ~/Articles/ArticleHandler.aspx, 7/31/2014 1:36:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement