Since the mid-1980s, as a result of the significant appreciation in their home currencies, the labor-intensive industries of both Taiwan and South Korea have lost their comparative advantages. Consequently, the manufacturers in these countries have found it necessary to invest abroad, seeking cheap labor to protect their existing export market and to maintain their comparative advantages, and mainland China, with its advantages of geographical proximity and cultural similarity, has emerged as the ideal investment region for Taiwanese and South Korean firms (particularly small and medium sized firms). From the outset, most of this investment has been in products which are processed or assembled in the mainland, then exported to a third country. During this early period of investment, when the host country cannot supply the necessary materials and components, it is necessary for them to buy these from the home country, with the resultant rapid growth in Taiwanese and South Korean exports to the mainland. Furthermore, since these countries each have similar motives for investing in the mainland, and the investment structure of the industries is similar, the export structures exhibited by both of these countries also bear a number of similarities; this is demonstrated in the analysis in section four of this paper. This paper explores the similarity between both import and export structures, with calculations based upon the HS two-digit classification system. The similarity of Mainland China’s export structure, as against Taiwan and South Korea’s, is around 60, which is not a particularly low number. Furthermore, according to the median test based on two sets of samples, we conclude that Taiwan and South Korea’s import and export structures towards the mainland are both quite similar. The policy implications of this are worth noting; South Korea’s (unregulated) and Taiwan’s (to some extent, regulated) import systems have very similar trade structures towards the mainland. This may indicate that policy regulation cannot effectively change economic trade behavior based on comparative advantage. Taiwan’s historical experience has shown on many occasions, that many of the goods imported into Taiwan from the mainland were in fact prohibited under the current regulations. Thus, from the point of view of whether import structures are affected, such deliberate man-made regulations are not very effective. However, from the available statistics on officially approved investment in the mainland, the regulations on investment seem more effective than those in respect of trade.
