CHINIA-TAIWAN TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP03T02547R000100310001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 20, 2016
• Document Release Date: May 8, 2007
• Sequence Number: 1
• Publication Date: December 10, 1981
• Content Type: MEMO

Approved For Release 2007/05108: CIA-RDP03T02547R000100310001-7
ILLEGIB
Trade between China and Taiwan remains economically
insignificant to each side. The two-way exchange--all indirect--
totaled some $330 million in 1980; more than 95 percent of this
trade is conducted through Hong Kong middlemen, with the
remainder handJ_ed through entrepots in Japan and Singapore.
Virtually all the growth in this trade has resulted from China's
decision to lift its ban on goods from Taiwan in 1979 and to
permit their duty-free entry. Occasional_ reports o direct
business contacts have never been substantiated. 25X1
~~Thereas Beijing has. publicized this indirect connection as
part of its reunification bid, Taipei has avoided any suggestion
that the relationship ?n+volves forward movement on Beijing's
initiatives, which include the opening of direct trade. "'aipei
acquieses to the discreet and limited flow of goods but wants to
prevent the trade from moving to a level that wou?d hint of
economic dependence on China. Under prevent policies, growth
prospects for trade depend largely on China's willingness to
import more Tai~,;anese consumer goods. Like ~.ts w~iiingness to
accept unofficial contacts with Beijing in sports, academics, anc~
other areas, Taipei's attitude toward carefully limited trade may
reflect a longer term hope that its indirect ties will promote an
eventual acceptance of the status quo between China and Taiwan.
F.ecent Trends
Despite a sharp increase in China's exports worldwide,
re-exports of Chinese goods to Taiwan--mostly specialty goods
such as Chinese vegetables, teas, hog bristles, and herbal
medicines--have been flat over the past several years (see
This memorandum was prepared b International Trade
and Relations Eranch, and Foreign Policy and
National Security Affairs Branc , C zna xternal Affairs
Division, Office of East Asian Analysis, National Foreign
Assessment Center, in response to a request from
Mr. James Li11ey, Office of the Assistant to the President for
National Security Affairs.
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In 1980, China's re-exports amounted to $80 million--less
than 0.5 percent of both total Chinese exports and total Taiwan
imports. Small amounts of mainland goods have trickled into
Taiwan since 1949, mainly because the island authorities have
been unable or unwilling to stop the import of politically
nonsensitive goods. Many of these goods are relabeled in Hong
Kong to dis uise their true origin from Taiwan customs
officials.
Until Beijing lifted its ban in ]979, however, virtually no
Taiwanese goods reached the mainland. At that time, Beijing also
decided to let local and provincial enterprises engage directly
in foreign commerce, bypassing the central Ministry of Foreign
^.'rade. This decision resulted in an upsurge in focal Chinese
demand for foreign goods. Guangdong Province quickly took
advantage of its proximity to Hong Kong to purchase consumer
goods--including Taiwanese televisions, radios, cassette tape
recorders, hand calculators, and texti.].es, which were readily
available in the Fong Rong market. In 1980, imports of Taiwanese
products reached about $250 million--about 1 ercent of total
Chinese imports and ^_'aiwan exports.
The downturn in Chinese imports of Taiwanese goods since the
first of this year probably stems in part from Beijing's move at
that time to recentralize trade and to limit purchases of
consumer goods by local enterprises. Beijing also ordered all
local enterprises that held foreign exchange balances with banks
in Hong Rong to remit those funds to the Bank of China by 1
march. These decisions resulted .in a sharp downturn in all
Chinese purchases of consumer goods in Hong Rong. Contrary to
peculation in the Hong Rong press about removing the duty-free
status of Taiwan-made products, the Chinese Customs
Administration has denied making han es in the tariff
treatment accorded. those goods.
C-overnment officials i_n Taiwan cannot prevent Hong Rong
middlemen from re-exporting Taiwan's goods, and Taipei has turned
a blind eye to the activity of ]_ocal firms involved in the
indirect trade: Taiwan's exports to China are produced by _ 25X1
companies-owned by native Taiwanese, who dominate the private
sector. The government, dominated by mainland Chinese, haste
little more than order the companies to behave d~screetJy.
There have been a few recent signs, however, that Taipei may
take a more realistic public posture on the issue. In September,
Premier Sun Yun-hsuan publicly said that although such trade was
illegal, Taiwan cannot control what happens to its goods crce
they have been sold abroad. Sun's statement no doubt pleased the
Taiwanese business community, which would dike to increase
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acvantage of the China market.
Whether mainland Chinese businessmen on Taiwan hold similar
views is unknown, but at least one state-owned corporation
controlled by the mainlanders evidently is involved in the
indirect trade. Last year, the China Shipbuilding Corporation
signed a $50 million contract to build two 58,000-ton bulk
carriers for a PRC-controlled Hong Rong company. Besides profit,
Taiwan's motivation for this sale is unclear
?he only direct trade between China and Taiwan is conducted
by fishermen who smuggle goods across the Taiwan Strait. Both
sides have tried to stifle this trade, but neither appears over]_y
concerned. This illicit trade remains miniscule, and the number
en has shown little fluctuation since 1979
Prospects
In the short-run, indirect trade between China and Taiwan
will depend on Beijing's willingness to permit local enterprises
to engage directly in trade with foreigners. The Chinese zppear
~to be moving closer to a decentralized trade policy that actively
promotes initiative at the enterprise level. This may foster a
renewed interest in purchases of consumer goods. For its part,
the Taiwan government shows little inclination to ease
restrictions on imports of mainland products.
The long-term prospects for trade will depend on political
relations between Taipei and Beijing. As part of its
reunification initiative,-China has proposed that the two sides
open direct communications, postal links, and direct trade before
beginning political_ talks.":Taiwan has steadfastly opposed -even
the preliminary steps to_that.end.~_ Taipei is concerned that
direct contacts such as trade might be construed as a sign that
it is willing to move toward negotiations, and in the rocess,
tek?ard reunification. on Beijing's terms.
Chinese reunification proposals pose a di_Jemma for Taiwan.
Although they treat Beijing's proposals as propaganda, afficiaJs
on Taiwan also understand that there are political. liabilities in
failing to respond at all. Taiwan's contacts with China in
sports, academics, scientific research and, other internat?.onal
meetings demonstrate-Taipei's recognition that it must respond to
Beijing's overtures in limited ways, albeit while continuing to
reject categorically Chinese reunification proposals. Despite
Taipei's disclaimers of endorsement, such contacts have increased
dramatically in the last few years.
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expand. In contrast to the Chinese goal of using trade as an
entre to reunification, officials in Taipei apparently hope that
such moves will bring a modus vivendi and ultimately China's
acquiescence to de facto independence for Taiwan--a situation
described b one official on Taiwan as comparable to the two
Germanys.
In strictly economic terms, both China and Taiwan could see
some advantages in a direct trade relationship. In the unlikely
event that such trade were permitted, China could provide Taiwan
with some crude oil, coal, nonferrous metals, paper, rubber
products, pharmaceuticals, and plastics--items that Taiwan
currently imports. Taiwan, moreover, could supply C..hina with
synthetic textile fabrics, plywood and other wood roducts,
cement, and some types of machinery. 25X1
In many ways, however, the two economies would also be in
direct competition. Both countries export many of the same types
of foodstuffs, textiles, and light consumer goods while importing
grains, fertilizers, cotton, chemicals, steel, machinery, and
equipment. Like some countries in Southeast Asia, Taiwan would
have reason to fear that many consumer goods--currently a major
share of its exports and the mainstay of its economy--would be
subject to direct competition from the mainland. In short, a
projected balance sheet of direct trade would be insufficient to
induce Taipei to alter it o d ling with Beijing for
economic advantage alone.
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Approved For Release 2007/05108.; CIA-RDP03T02547R0001.00310001-7