Academic journal article Indian Foreign Affairs Journal

India-Taiwan Economic Partnership: Building a New Growth Model

Academic journal article Indian Foreign Affairs Journal

India-Taiwan Economic Partnership: Building a New Growth Model

Article excerpt

A dynamic democracy and home to the world's leading ICT technology and knowledge-based services, Taiwan is now looking beyond its traditional trading partners and investment destinations in China and Southeast Asian countries, towards India as one of its most strategically important economic partners in its expanded "Go South" policy, for the next decades. Business interests in Taiwan, starting with the ICT industry and expanding to other sectors, have driven considerable Taiwanese business delegations to visit India to explore emerging trade and investment opportunities.

India adopted a Look East policy since 1991. Despite this, the compound economic GDP growth rate between 1990 and 2010 reached only 6.6 per cent. Thus, the total trade linkages and economic integration between India and the Southeast and East Asia have yet to meet the business community's expectations. Being an active player in the region, Taiwan has all the potentials to be India's strategic economic partner in the "Era of Asian Economic Integration". It is, therefore, of timely significance to review India--Taiwan trade and economic relations, and provide new directions for Indian policy makers and business leaders for enhancing bilateral economic relations.

The Taiwan Economy

Taiwan has enjoyed a significant economic growth rate between the 1970s and the 1990s, and is recognized as one of the four "Asian Tigers", along with Singapore, South Korea and Hong Kong. During this period, real GDP growth rate has averaged about 8 per cent. However, Taiwan had also faced increasing land and labour costs. Exports also suffered due to the appreciation of the New Taiwan Dollar against the US dollar.

Since the 1980s, Taiwan has been forced to undertake industrial re- structuring by off-shoring its labour intensive manufacturing industries to Southeast Asia and China, while promoting technology industries and more value added services at home.

Being a small island country, with a population of 23 million, Taiwan has been an outward economy, highly dependent on global demand for its own economic growth. With the continuous expansion of Taiwanese investment in Southeast Asia and China, the rapid development of the electronics and machinery industries, and strong exports has not only fuelled Taiwan's economic development in the 1990s and 2000s but has also led to the establishment of regional production networks and value chains centered around Taiwan.

The first "wave" of substantial overseas investment by Taiwanese firms began in the late 1980s, beginning in Southeast Asian countries, and then expanding to China. According to the Investment Commission, the Ministry of Economic Affairs (MOEA) of Taiwan, government-approved outbound investment projects amounted to a total of US$ 77.4 billion from 1952 to 2012. The foremost destination was Asia, receiving more than one third of the total investment.

However, this official data does not include Taiwan's investment in China. Due to political rivalry across the Taiwan Straits since 1949, the Taiwan government did not opened investment in China until 1992, when the then President Lee Tung Hui decided to officially relax bans on cross straits economic exchanges, and allowed trade with and investment in China.1 During 1990--2012, the government had approved more than 40,000 investment cases in China, with a total investment of US$ 124.5 billion. It is informally estimated that, if unreported or indirect investment is included, investment in China by Taiwanese firms may well reach US$ 250 billion, accounting for more than 70 per cent of Taiwan's total overseas investment. This high concentration, together with the fact that exports to China comprise around 40 per cent of Taiwan's total exports, makes the issue of Taiwan's economic dependence on China more acute.

India-Taiwan Economic Relations

India and Taiwan did not have strong economic and commercial relations until the late 1990s, after the governments of both countries decided to mutually designate representative offices, the India-Taipei Association (ITA) in Taipei, and the Taipei Economic and Cultural Center (TECC) in New Delhi -- in March 1995 to promote trade, investment, and other aspects of bilateral cooperation. …

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