Government Policies and Cross-Strait Trade and Investment

Abstract

As I have argued in chapter 2, both Beijing and Taipei have tried to use trade and investment to achieve their political objectives. Beijing has offered special incentives to Taiwanese businesses in hopes that closer economic ties will undercut support for the separatist cause and forestall Taiwan’s drift toward formal independence. For its part, Taipei is attempting to regulate the pace of economic integration, fearing that deepening economic dependence on the mainland will undermine Taiwan’s political autonomy. Taipei fears that cross-Strait economic integration will allow Beijing to manipulate it to coerce Taiwan into submission to Beijing’s demands. This chapter looks at the dynamics operating between government-to-government interactions on the one hand and relations between governments and businesses on the other. My analysis indicates that state policy can affect private strategy but not determine it. This provides a modification of the hard-core realist thesis as set out in Albert Hirschman’s National Power and the Structure of Foreign Trade. Indeed, the patterns, characteristics, and trends of Taiwanese investment on the mainland suggest that the success of government efforts to influence economic actors and business activities is far from guaranteed.