Taiwan is like Hong Kong's twin, separated at birth and grown up very different.
Could the problems of Hong Kong give its own economy a shot in the arm? (thread):
bloomberg.com/graphics/2019-…
Could the problems of Hong Kong give its own economy a shot in the arm? (thread):
bloomberg.com/graphics/2019-…
It's striking how much Taiwan and Hong Kong have in common:
*Both built their post-1949 booms on the backs of refugees from the People's Republic
*Both are culturally Chinese, but neither is ruled by Beijing (I'll get to the finer points of this later...)
*Both built their post-1949 booms on the backs of refugees from the People's Republic
*Both are culturally Chinese, but neither is ruled by Beijing (I'll get to the finer points of this later...)
*Both have done well in the past couple of decades through economic engagement with China
*Both are now *much* more strongly focused on the downsides of that relationship
*Both are now *much* more strongly focused on the downsides of that relationship
Of course the biggest difference is that while Hong Kong is part of China as a matter of both law and practice, Taiwan is in all practical senses an independent nation.
As a vibrant and liberal democracy it's also a beacon to the Chinese-speaking world.
As a vibrant and liberal democracy it's also a beacon to the Chinese-speaking world.
The precise nature of its relationship with China is important for understanding why its financial sector is so small, though.
Both the Chinese Communist Party and the Kuomintang who ruled Taiwan under martial law until the late 1980s state that there's one undivided China.
Both the Chinese Communist Party and the Kuomintang who ruled Taiwan under martial law until the late 1980s state that there's one undivided China.
They agree to disagree about who's in charge of this fictional nation spanning the Taiwan Strait, and that compromise has kept the peace for decades so neither party wants to upset it.
Even the Democratic Progressive Party of President Tsai Ing-Wen, which is formally committed to independence, tries not to talk aboit it for fear of provoking Beijing.
Because Taiwan is not in a strict legal sense a separate country, no nations have diplomatic relations with both Taipei and Beijing and Taiwan isn't a proper member of any major multilateral organizations.
That's most important in relation to the IMF. If Taiwan has a balance-of-payments crisis, there's no one around who can bail it out. The only other countries in this boat are North Korea and Cuba.
To build up a vibrant financial centre you need to accept huge flows in portfolio investments -- "hot money" -- and large foreign liabilities. But those are also key ingredients of economies facing balance-of-payments crises. Taiwan can't afford that risk.
That's why as a historical and present-day matter Taiwan's financial system is more like that of Germany -- small-scale, conservative, in service of the industrial sector -- than the more vibrant capital markets of London, Hong Kong and New York.
The other issue is about Taiwan's future.
The Kuomintang still favours a closer relationship with mainland China, but the DPP looks elsewhere in the region.
Investment in mainland China is likely to fall this year to its lowest level since China's WTO entry in 2001.
The Kuomintang still favours a closer relationship with mainland China, but the DPP looks elsewhere in the region.
Investment in mainland China is likely to fall this year to its lowest level since China's WTO entry in 2001.
In a sense, the country seems to want pursue its own path without thinking about mainland China.
That's obviously impossible while Beijing remains so obsessed with "reunification" as an issue of national pride.
That's obviously impossible while Beijing remains so obsessed with "reunification" as an issue of national pride.
But it's understandable, given events in Hong Kong, that Taiwan has little desire to follow a similar path. (ends)
PS previous pieces in the series here -- on Hong Kong ... bloomberg.com/graphics/2019-…
