Chapter 10: The emerging trade bloc across the Taiwan Strait in regional and global perspective
During the first three decades after the establishment of the People’s Republic of China (PRC) in 1949, economic interaction across the Taiwan Strait was prohibited and occurred illegally on a very limited scale.1 But the situation has changed dramatically since the 1980s. First, China’s economic reforms and opening of 1978–79 shifted its central command economy and autarkic trade regime toward a more market- oriented economy, still with Chinese characteristics but with increasing trade dependence on the world market.2 Next, Taipei lifted its ban preventing citizens who had emigrated from China after communists took it over from visiting their relatives on the mainland in 1987. Trade across the Taiwan Strait was gradually liberalized, progressing from indirect trade via a third place eventually to direct trade as foreign direct investment (FDI) flowing from Taiwan to China.3 After decades of development, Taiwan’s economy was undergoing its structural transformations soon after the worldwide energy crisis of the early 1970s. The changes were accelerated in the second half of the 1980s by the currency appreciation caused by the Plaza Accord of 1985. Upon losing its comparative advantage in the traditional labor- intensive, light manufacturing exports in the world market, Taiwan, along with other newly industrialized countries (NICs), most notably Korea, had to engage in a ‘comparative advantages- augmented type of foreign direct investment’ (Ozawa, 1992) to enhance its export competitiveness in the world market.
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