China’s options to punish Taiwan economically are limited

In retaliation for President Nancy Pelosi’s visit to Taiwan last week, China conducted large-scale military exercises around self-governing island democracy and suspended some exchanges between the parties.

The drills caused some shipping disruptions, but they did not affect traffic at Taiwanese or Chinese ports, analysts said. And the trade bans were notable primarily for what they did not target: Taiwan’s increasingly powerful semiconductor industry, a crucial supplier to Chinese manufacturers.

Bans imposed by Beijing – on exports of its natural sand to Taiwan and on imports of all Taiwanese citrus fruits and two types of fish – were hardly an existential threat to the island off its southern coast than it claims as Chinese territory.

“China’s citrus ban hasn’t really affected us,” said Syu Man, manager of a southern Taiwanese fruit exporter that ships a type of pomelo across East Asia, mainly in Japan. “We are not dependent on the Chinese market.

China is Taiwan’s biggest trading partner, but Beijing’s options for punishing the island’s economy are somewhat limited. Indeed, the most extreme measures he might take – such as a semiconductor ban or a complete blockade of Taiwanese ports – would surely backfire on the Chinese economy.

Despite all of Beijing’s “ventilations” about Ms Pelosi’s visit, China’s relations with Taiwan could well be back to normal within two to three months, said William Choong, a political scientist at the ISEAS-Yusof Ishak Institute. from Singapore.

“For China to apply punitive economic measures and sanctions on Taiwan would be like cutting off your nose to upset you,” he said.

The trade bans announced last week reminded Taiwanese exporters that doing business with China during times of heightened geopolitical tension is risky. Recent bans have targeted Taiwanese pineapples, wax apples and grouper, among other products.

Still, the latest measures are unlikely to be particularly painful for an economy roughly the size of Switzerland with a sophisticated manufacturing base.

“The political message is more important than the economic blow,” said Chiao Chun, a former Taiwanese government trade negotiator.

Although about 90% of the gravel and sand imported from Taiwan comes from China, most of it is manufactured. China accounted for only about 11 percent of Taiwan’s natural sand imports in the first half of this year, according to the Bureau of Mines.

The two types of Taiwanese fish exports that China restricted last week – chilled white striped horsetail and frozen horse mackerel – are collectively worth around $22 million, less than half the value of the grouper trade. Taiwanese which was banned earlier this year. They are also less dependent on the Chinese market.

As for Taiwan’s half-billion-dollar citrus industry, its shipments to China account for just 1.1% of the island’s total agricultural exports, according to the Taiwan Council of Agriculture. A popular theory is that Beijing chose the citrus growers because most of the orchards are in southern Taiwan, a stronghold of the ruling Democratic Progressive Party, a longtime target of Beijing’s ire.

Future bans could become more targeted at punishing industries in counties that are DPP strongholds, said Thomas J. Shattuck, a Taiwan expert at the University of Pennsylvania’s Perry World House. There could also be less retaliation against counties ruled by the opposition Kuomintang party “in an effort to put their finger on the ladder in local or even national elections in Taiwan”, he added.

The citrus and fish bans are part of a Chinese crackdown on Taiwanese food products that has accelerated this year. Last week, Chinese authorities suspended the export licenses of about two-thirds of more than 3,000 Taiwanese food producers licensed to export to China, according to a review of official customs data. Several exporters said in interviews that many of the suspensions took place in late June.

But not all of these companies are terribly worried.

A company hit by China’s export restrictions, ChiaTe Pastry in Taipei, said it never sent products to that market in the first place. Another company, Huang Yuan Sing Pastry in New Taipei City, said its license to export products – including its five-nut cake – was among those recently suspended. But China only accounted for a small fraction of its profits anyway, an employee said, and the share has shrunk during the pandemic.

In the seafood sector, the export licenses of half of the 84 companies in the Taiwan Frozen Seafood Industries Association have also been suspended since July, said Tzu-zung Wu, the group’s general secretary. But many of them had registered on the mainland only because they wanted the opportunity to expand their business there at some point in the future, she added.

“That doesn’t mean they depend on the Chinese market,” Ms Wu said.

China’s decision not to ban Taiwanese manufacturing exports, particularly semiconductors, is in line with a “very selective” strategy of economic retaliation, said Christina Lai, a researcher at Academia Sinica, China’s top academy. Taiwan research.

“For now, China’s coercive measures appear symbolic in nature,” Lai said.

The island’s semiconductor industry is an increasingly indispensable node in global supply chains for smartphones, cars and other key elements of modern life. One producer, the Taiwan Semiconductor Manufacturing Company, makes about 90% of the world’s most advanced semiconductors and sells them to both China and the West.

Mr Shattuck, an analyst at the University of Pennsylvania, said Beijing would view the industry as “off limits” in future crises or bouts of economic retaliation for one simple reason: China needs Taiwanese semiconductors as much as it does. ‘other countries.

“If Beijing truly believes that it can force Taiwan to reunite through military pressure and barring an invasion, then a strong and healthy Taiwanese semiconductor industry would boost the Chinese economy in an eventual ‘unified’ PRC” , he said, referring to the People’s Republic. from China.

The limits of China’s economic pressure campaign were exposed last week as its military conducted four days of drills simulating a blockade of Taiwan.

Even though some of the exercises took place in the Taiwan Strait, a key artery for international shipping, they did not disrupt access to ports in Taiwan or southern China, said analyst Tan Hua Joo. at Linerlytica, a Singaporean company that tracks data. on the container shipping industry. He added that port congestion would only develop if the strait was completely blocked, access to the port was restricted or port operations were hampered by a shortage of labor or equipment.

“None of that is happening right now,” he said.

Ships that chose to avoid the Taiwan Strait last week due to “chest-pounding” Chinese military activity would have faced a 12-6 hour delay, an inconvenience that would generally be considered manageable. , said Niels Rasmussen, chief shipping analyst at Bimco, an international shipping association.

If Beijing were to escalate tensions in the future, it would indicate that it was prepared to jeopardize China’s own economy as well as its trade and relations with Japan, South Korea, Europe and the States. United States, Mr. Rasmussen said by telephone from his office near Copenhagen.

“It’s just hard to accept that they make this decision,” he added. “But again, I didn’t expect Russia to invade Ukraine.”

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