Economic Management in Taiwan and Mainland China: Why and How They Have Been Politicized

Abstract

This paper investigates the causes and consequences of politicized economic management in the cross strait. The first half of the paper briefly reviews the cross-strait political and economic environment. The passage of the anti-secession law by Mainland China in March 2005 marked a new high in the political tension in the cross strait. From the economic standpoint, cross-strait relation has registered a more positive outlook. But this is merely on the surface. As the second half of the paper shows, politicians from both sides are still exerting much influence on how firms are to conduct their business with their counterparts. Hence, economics are highly politicized. The result is destructive. Firms face a high degree of vulnerability and uncertainty in the conduct of their business because political tension makes it difficult for them to make economic decisions independent of politics. As long as political differences remain unresolved, it would not be easy for full economic integration between Taiwan and the Mainland. Military confrontations cannot be ruled out in spite of greater economic integration when future economic outlook between the two economies remains uncertain.