Taiwan Market Share in China Dropping: ECFA effect?

Former Presidential advisor Huang Tien-lin argued in the Taipei Times the other day that ECFA has led to a drop in Taiwan's share of the China market because Taiwanese businesses are undertaking a new wave of movement to China in the wake of the liberalization of trade:

South Korea’s market share in China rose from 9.6 percent in 2001 to 9.9 percent last year. It is not a significant change, but the small rise shows that South Korea’s market share has approximated the growth in its trade with China during the past decade. On the other hand, Taiwan’s market share fell from 11.2 percent in 2001 to 10.6 percent in 2007 and 8.6 percent last year. The main drop occurred after President Ma Ying-jeou (馬英九) came to power and embarked on improving relations with China. The largest drop occurred after the ECFA took effect, from 8.6 percent last year to 7.5 percent in the first five months of this year.

So why is this happening?

The answer is simple: It is happening because Taiwan signed the ECFA. After liberalizing trade, the manufacture of products for the Chinese market has been moved to China, meaning that those goods are no longer imported from Taiwan. This trend has been accelerated by the recent ECFA-related relaxation of restrictions on Taiwan’s core high-tech industries.

If the ECFA, a framework supposed to connect Taiwan with China, is carried out in its entirety, a “center-periphery effect” — the attraction of a smaller market to a much larger market — will occur and production of semi-finished products and other Taiwanese products will move to the “center” — China — and Taiwanese businesses will grow roots there. Taiwanese exports to China would stagnate, before beginning to decrease. This implies that the items on the ECFA early-harvest list would be the only ones to have benefited from the agreement, while the harm caused by the ECFA on the overall economy would greatly outweigh the benefits.

Huang closes by noting, correctly, that the tourism surge from China is simply a way of making locals too besotted with money flows to notice their industries are slipping away and their living standards are falling.

If Huang's assertion is correct, what we should see is a dramatic rise in Taiwanese investment in China.  AFP reported in Dec 2010:

TAIWANESE companies have invested US$13.3 billion (S$17 billion) in China this year, up 119.8 per cent from the previous year, a report said on Friday.

However, remember that China's demand for imported goods has been rising for most of the first half of the year, which means that the South Korean share is a larger, faster growing share of a growing pie -- Taiwan's exports to China are not falling. But a problem here is that 2009 was a down year from 2008's economic crisis, meaning that the dramatic rise may merely be a resumption of trends extant prior to 2008 -- and Taiwan's investment in China was rising under Chen as well. A second issue is whether the trend reflects superior South Korean competition rather than Taiwanese industry moving to China. A third issue is the validity of the statistics -- China announced numbers for 2010 that were half Taiwan's, saying investment was only $6.7 billion. That same article reported that Taiwan firms invested in China saw a threefold rise since 2007 in reinvestments in Taiwan.

I would like to see more numbers that can clearly delineate this trend, whatever it may be. I wish Taipei Times commentators would use more numbers.....
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