ECFA's Early Harvest Toll on Taiwan

After the rain, I went to get some pics.

Commonwealth scores with another great piece on the ECFA early harvest list (kudos also to the translator for a very readable translation, all their translators are great). Another failed policy, which goes a long way toward explaining the widespread public opposition to the services pact. This piece is based on Chinese export data obtained by the magazine. Commonwealth notes:

On the surface, since coming into effect in 2011 Taiwan's exports of items to China on the early harvest list have grown by a sizable 35 percent, outpacing overall growth of exports to China of 6.3 percent. This seems to indicate that ECFA has had a positive impact on boosting the export of Taiwanese products to China.

However, increased sales cannot be equated with improved competitiveness. According to PRC Customs statistics obtained by CommonWealth Magazine through exclusive channels, the market share of the 539 Taiwanese cross-strait export items on the reduced tariffs list has declined in each successive year since ECFA, only showing a slight uptick late last year.

It then notes:

The situation is much different among the 267 items Taiwan opened to China on the "early harvest list." Although over the past three years the growth rate of China's exports to Taiwan (25.8 percent) is lower than the overall growth rate of Taiwan's exports to China, the market share of Chinese products in Taiwan has leapt from 24 to 30 percent since ECFA went into effect.

In other words, the critical truth behind all the statistics is that it is an unrealistic illusion to look for China to "yield benefits" to Taiwan via free trade. In the face of intensifying international competition, the lowered tariffs that free trade agreements bring have never been a panacea for "saving exports" or "rescuing the economy."

This is of course what many of us have been saying. The services pact will only exacerbate this problem. I'm getting a little tired of commentators 12,000 kms from my market saying how wonderful ECFA and the services pact are -- they don't have to shop in local markets and worry about giving toxic produce from China to their children. They don't talk to the taxi drivers and coffee shop owners who once ran their own factories.

Observers should also note that even though ECFA opened "more" of China's market to Taiwan than Taiwan's market to China, China gained by far the greater benefits. D'oh. You can't say the services pact opens X sectors to Taiwan but only Y sectors to China. It's hogwash to make primitive comparisons like that. You have to look at which sectors will be affected and how.

The article goes on to describe the effect of Chinese steel on the local producers (destructive, of course):

"A behemoth like Yieh United Steel Corp. (YUSCO, whose operations span mid- and upstream hot rolling and mid-stream cold rolling), with facilities abroad, is able to get by," an industry insider reveals. However, before Taiwan's anti-dumping bill was passed early in the year, a handful of mid-size, publicly listed cold rolling mills – whose capacity utilization rate plummeted at one point below 20 percent – "barely made it back from a tour in hell."

"Early harvest turned out to be early harm. To be honest, it was really unexpected," remarks Tseng Wen Sheng, director-general of the Kaohsiung City Economic Development Bureau. Stainless steel is a key industry in Kaohsiung, leading to expectations of a windfall from ECFA, however only the opposite occurred under the sweeping changes of the international and Chinese steel industries.

"To be honest, it was really unexpected." Not by this blog! The article also looks at the petrochemicals sector, deeply harmed by Chinese competition. Its decline may also explain why the naptha cracker in Changhua got killed -- it could never survive in the new business environment. Read the whole piece -- don't miss also how Taiwan's bread and butter machine tool and textile industries have been badly harmed by ECFA.

One of my favorite topics, grouper, also came up:

However, actually surveying the situation in Pingdong, where grouper aquaculture has been practiced for a quarter century, one does not see all the businesses benefiting and earning stacks of renminbi as once imagined. Rather, the "grouper kings" with their technology, large scale, political and business connections in China, and established distribution channels, dominate the sector. In the meantime, the average small- or medium-size aquaculture operation, lacking the key technology to open direct channels with China and facing a surplus of competition as operators swarm in looking to profit, is caught in the middle struggling to survive.

The article also covers the "political orders" of Taiwanese fruit, an issue I've linked to before. Chinese products sold in Taiwan are not ordered by the Taiwan government -- but Chinese orders of Taiwan fruit in many cases are simply orders made for political purposes, to support the Ma government.

Taking the example of oranges, a case of imported oranges sells for the wholesale price of around 35 renminbi in China. Even if oranges were acquired for free at the orchards in Taiwan, such a price would not even cover the cost of shipping to China. However, since China's Taiwan Affairs Office has budgeted subsidies for their wholesalers to purchase oranges from Taiwan, businesses still stand to make a profit. This has in turn led to the illusion of sales growth for oranges and other fruit in the wake of ECFA's passage.

Such a market will last only as long as the subsidy does.

You can see how this will play out. These subsidies for Taiwan fruit purchases can easily be rescinded in the case of Taiwan doing something that Beijing doesn't like, such as electing a DPP President, such actions being one of the many ways China can cause disruptions great and small to Taiwan's economy.
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Daily Links:

• Obama's half pivot to Asia/Kurt Campbell interviewed on the Pivot/An Aussie view: Obama is being tested
• A few thousand elderly showed up for "protest" in support of KMT in Taipei today. Pathetic. No link or pics. Just this overhead view. LOL.
• River tracing in Nantou
• Another developmentalist state scam, the Taoyuan Aerotropolis, now requires rivers too.
• This youtube link to George Carlin with Chinese and English subtitles (!). Sidebar has many other comedians, troll around to find Louis CK and Chris Rock, for example, with Chinese subtitles. 
• Ketty Chen reflects on the Sunflower Movement
• I linked to this a few days ago, but this KMT take on Okinawa is worth a second link just for the hilarity factor alone.
• Pettis shows why the claims that China's economy is bigger than the US by PPP are so absurd.
• Excellent: Jon Sullivan of CPI recommended this brilliant piece on the Disneyfication of China.
• My condolences to President Ma, whose mother passed away this week.

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