State versus market: Taiwan’s trade, investment and aid policies in mainland China and southeast Asia in the post-Deng period

Abstract

For many years Beijing has sought to isolate Taiwan from the world community, threatening to sever relations with any country that tries to establish or strengthen relations with Taiwan. As a result, economic diplomacy has become a tool in conducting Taiwan’s international affairs. Political and economic considerations are thus intermingled in Taiwan’s pursuit of its foreign economic policy. This paper does not intend to go into a traditional debate on the conflict between the state (politics) and the market (economics) in conducting a country’s foreign economic relations. Rather, it attempts to coordinate the merits of both state and market and assumes that an understanding of their interaction is useful in examining Taiwan’s foreign economic relations in the post-Deng period. The empirical study of this paper will focus on mainland China and the Southeast Asian countries. Southeast Asia is a region where no country maintains diplomatic relations with Taiwan. It is difficult indeed for Taiwan to develop official political ties with Southeast Asian countries because of their geographical proximity to mainland China, which tends to make them subject to pressure from Beijing. Thus, whenever Taipei conducts its economic communications (such as in foreign trade, foreign direct investment and foreign economic assistance) with mainland China and those Southeast Asian countries, political and economic factors are always taken into account by decision-makers.