Indirect trade between Taiwan and Mainland China via Hong Kong has grown rapidly, thus increased their interdependence, since China adopted the open-door policy in 1979. The author, however, has found that there is a special unstable factor in the emerging economic relations of Taiwan with China, especially in the aspect of Taiwan’s exports to China. For example, the growth rate of Taiwan’s exports to China fluctuated drastically during 1979-88, while its imports from China have grown in a relatively more stable manner.
The instability of cross-the-strait trade may be explained by the following factors:
(1) The properties of commodities in the trade flow; For example, elasticities of manufactured consumer goods are greater than those of raw materials or agricultural products.
(2) The economic sizes of trade partners; Taiwan, as a small country, bears much more susceptibility in trade with a big country.
(3) The zigzaging trade policy and macroeconomic policy of China. The author estimates that the policy manipulation of China could have a negative effect of 30-40 percent on the growth trend of Taiwan’s exports to China.
(4) China’s trade policy toward Taiwan, which has always been very politically motivated, therefore, unlike those toward other countries, is not made on the non-discrimination principle.
Moreover, comparisons of dynamic changes in the two-way trade patterns also show that China’s exports to Taiwan have boon diversifying at a greater pace than Taiwan’s exports to China, and a sign of horizontal trade is looming during the past three years. It implies that the complementarity of the two-way trade during the early years has gradually declined while the competitiveness has increased. A further analysis of the major commodities in two-way trade by the classification of SITC subgroup (4 digit) or item (5 digit) also confirms that. The behavior of Indirect investment on the Mainland China by Taiwanese businessmen may have direct impact on trade patterns across the Strait, especially the performance of textile and apparel in 1988. However, strict modelling analysis and forecast regarding the dynamic changes of trade patterns have not yet been done in this paper due to data shortage.
Though the aggregate degree of dependence ensuing from Indirect trade across the Strait is not significant as of 1988, there are big differences in the performances of Individual Industries. For example, man-made fibre, chemical, footwear, handbag and textile industries have played major roles in bilateral economic relations. With cross the strait contacts becoming increasingly close, new Interest groups will emerge in Taiwan which may represent PRC interest in a circumlocutory way.
