ABSTRACT

One of the most striking features and contentious issues of the cross-Strait political economy in the past 25 years has been the economic impact of Taiwanese capital investment on China’s economic modernization, and the political repercussions stemming therefrom. Since the mid-to-late 1980s, when Taiwan’s economy was forced into structural change by rising labour and capital costs, Taiwanese entrepreneurs (Taishang) have started to shift their production facilities to China and invest in new factories. The Pearl River Delta in southern Guangdong province and the Jiangzi-Delta in eastern Jiangsu province developed successively into regional hubs of Taishang manufacturing and high-tech industries, mostly producing goods for foreign brands. These were labour-intensive for the most part in southern China and increasingly capital-intensive in the East. While the pioneers of this strategic move still operated in illegality, as cross-Strait trade was strictly prohibited by the KMT government, the outflow of Taiwanese capital to China gained momentum after the launch of a new policy in 1987 which allowed Taiwanese to visit their relatives on the mainland. Although there was no explicit link between this policy and Taiwanese capital investment in China, relaxing cross-Strait relations in the late Chiang Ching-kuo era and after the inauguration of Lee Teng-hui as new ROC president and KMT leader in 1988 encouraged ever more Taiwanese entrepreneurs to turn to China and escape the economic bottleneck of decreasing profits back home. Capital was sent to China clandestinely, via Hong Kong or international offshore financial centres, in violation of official restrictions on Chinese investment – both in scope and sort – decreed by the Taiwan government. 1 Over the 1990s and 2000s, Taiwanese entrepreneurs became a major driving force of China’s capitalist transformation, and local Chinese governments competed fiercely for their money in order to push their development agendas. Only in the mid-2000s, when the Chinese economy had matured and begun to undergo structural change itself because of rising production costs and the consolidation of an indigenous entrepreneurial sector (including both private and state actors), investment on the mainland became less profitable for Taishang and less important for local Chinese governments. Today, many of them leave the China market and resettle in countries with more competitive prices for labour and land. Others do upgrade their production lines in accordance with Chinese economic policy, increasingly squeezing out industries with high levels of pollution or low technological input. Whereas Taishang enjoyed numerous advantages in the early days of ‘reform and opening’ on the mainland because of their economic clout and China’s need for external capital (Lee 2012) they face a much less 219privileged reality today, though Taiwanese capital investment remains important, also for political reasons.