Beijing Ratchets Up Economic Coercion Against Taiwan with Selective Regulatory Enforcements

Beijing Ratchets Up Economic Coercion Against Taiwan with Selective Regulatory Enforcements

Beijing Ratchets Up Economic Coercion Against Taiwan with Selective Regulatory Enforcements

On November 22, the spokesperson for the Taiwan Affairs Office (TAO, 國台辦) of the People’s Republic of China (PRC) State Council—the government agency charged with implementing the Chinese Communist Party’s (CCP) Taiwan policy—stated that China “will never allow those who support ‘Taiwan independence’ and undermine cross-strait relations to make money on the mainland [sic] and […] ‘eat from [China’s] bowl and break its pot’ (吃飯砸鍋).” The strong statement made by the spokesperson follows a news report that Chinese regulators had fined subsidiaries of the Taiwan-based Far Eastern Group (遠東集團) 474 million yuan (USD $74.2 million) for alleged regulatory violations. This seemingly arbitrary and capricious enforcement of regulations is raising concerns that Beijing may be shifting gears in its approach to Taiwan, and will increasingly utilize more economic levers of power to translate its economic ties into political leverage by deterring businesses and the public from supporting the ruling government in Taiwan.

The comments made by the TAO spokesperson, Zhu Fenglian (朱鳳蓮), sparked a wave of anxiety in Taiwan’s business community over whether Beijing might begin to arbitrarily target companies that make financial donations to Taiwan’s two largest political parties—a common practice among many savvy businesses on the island. At a follow up press conference on November 24, the TAO spokesperson restated her earlier comments and added: “Taiwanese companies that have investments in the mainland [sic] are well aware of this, and I believe that the heads of these companies have a clear understanding of whether or not to donate to obstinate ‘Taiwan independence’ elements.”

The director of the Cross-Strait Exchange and Regional Development Institute of East China Normal University, Qiu Changgen (仇長根), recently pointed out that the regulatory fines and the official statement serve as a severe warning to businesses and individuals that support “Taiwan independence.” Qiu also emphasized that he sees this move as only the beginning and that further measures are going to be taken against “Taiwan independence diehards.” The professor warned Taiwanese businesses not to bet on both political parties by supporting the Democratic Progressive Party (DPP, 民進黨) and the Kuomintang (KMT, 國民黨) in order to obtain political and economic benefits for themselves—suggesting that they should only donate to the KMT, or else the bear the risks.

While Beijing has never renounced the use of military force in its ambition to unify Taiwan with China, senior Chinese leaders continue to maintain that they are committed to utilizing peaceful means to resolve the cross-Strait issue. While there have been few examples of this peaceful intent in recent years, Beijing’s commitment in this regard is generally demonstrated through the economic measures that the Chinese leadership would offer in the form of economic enticements that aim to promote economic integration between the two sides. Since cross-Strait opening up in the 1980s—with people from Taiwan permitted to travel to China in 1987—the CCP has rolled out the red carpet to cultivate businesses from Taiwan. This was done in part out of the CCP’s own need to promote national development, but also as a strategy to promote economic integration that would in turn promote political integration. According to a seminal 2007 RAND study on economic coercion:

Beijing has openly proclaimed that its key goals for expanding economic relations with Taiwan include encouraging ‘peaceful reunification’ and ‘using business to pressure politicians.’ Over the years, Chinese leaders and analysts have often argued that cultivating economic ties with Taiwan might contribute to reunification in many ways, from the magnetic to the highly coercive.

Beijing has maintained this dual-pronged approach to Taiwan, characterized by a mix of carrots and sticks that are intended to entice and intimidate. What is somewhat different now is that even as the hard measures appear to be getting still tougher (as demonstrated by the ramping up of air intrusions), some of the softer approaches seem to be turning harder as well. Although neither explicitly confirmed nor denied—and while the cited regulatory infractions may be valid—the unstated reason for the enforcement measures against Far Eastern Group appears to be the company’s contributions to the ruling DPP in previous elections. Indeed, according to the TAO spokesperson, “Businesses and financial sponsors associated with supporters of Taiwan independence will be penalized according to the law.”

Against the backdrop of deteriorating cross-Strait relations, Beijing appears to be drawing a brighter line around the political activities of the Taiwanese businesses operating in China, and selectively enforcing regulations for political purposes. The timing is particularly interesting since the recent string of actions come just prior to the upcoming Cross-Strait CEO Summit (紫金山峰會) to be convened from December 6 to 8 in Nanjing. Wang Yang (汪洋), deputy head of the CCP Central Committee’s Taiwan Affairs Leading Small Group (中央對台工作領導小組) and chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), will be headlining the meeting this year.

Launched in 2013, the Cross-Strait CEO Summit is billed as the highest level non-governmental economic and trade exchange platform involving businessmen on both sides of the Strait. The summit aims to promote cross-Strait business cooperation and conduct cross-Strait economic and trade strategic dialogues, with two coordinating bodies stacked with political heavyweights—one in Taiwan and the other in China. On the Taiwan side, Vincent Siew (蕭萬長), the former vice president, serves as the honorary chairman, and Liu Chao-shuian (劉兆玄), a former premier, as the chairman. Steve Chen (陳瑞隆), a former minister of economic affairs, and Terry Gou (郭台銘), founder of FOXCONN, are both vice chairmen. Memberships include a total of 25 conglomerates and 131 individual corporations—some of the largest in Taiwan (Far Eastern New Century [遠東新世紀] is a member). On China’s side, Guo Jinlong (郭金龍), a former CCP politburo member, is the chairman; Zhang Ping (張平), former chairman of the State Council’s National Development and Reform Commission, is vice chairman; and Lin Jun (林軍), former chairman of the All-China Federation of Returned Overseas Chinese (中華全國歸國華僑聯合會), serves as the secretary-general.

The CCP’s efforts to translate its economic influence into broad political leverage over Taiwanese businesses is of course not new. In the 2000s during the Chen Shui-bian (陳水扁) Administration (2000-2008), the CCP focused the brunt of its attacks against Hsu Wen-long (許文龍)—the former chairman of the Chi-Mei Group (奇美實業), who was known as a staunch supporter and major donor to the DPP, and whose company had sizeable investments in China. While never publicly confirmed by Hsu, the open secret is that overwhelming Chinese pressure is widely believed to have resulted in Hsu issuing a widely reported public letter in 2005 in which he expressed his support for the CCP’s controversial Anti-Secession Law (反分裂國家法). There is a long-list of companies and entertainers who ran afoul of China’s growing nationalism, sensors, and regulators,  because China considered them supporters of the DPP or “Taiwan independence”—businesses such as the 85°C Bakery Cafe (85度C) and Hai Pa Wang (海霸王), and entertainers like Chou Tzu-yu (周子瑜) and Vivian Sung (宋芸樺), just to name a few.

In response, President Tsai Ing-wen (蔡英文) has accused Beijing authorities of using the mandatory public disclosures of political donations required by the Control Yuan (監察院)—the investigatory and auditing branch of Taiwan’s central government—in an attempt to interfere with the development of Taiwan’s democracy. According to the Liberty Times, Tsai Ing-wen said that Taiwanese businessmen have made great contributions to China’s economic development, social employment, and cross-strait exchanges for a long time. Tsai emphasized that in Taiwan, which political party and which issue to support is the free choice of the people of Taiwan and should be  respected; this is the value of democracy and freedom. Beijing’s intimidating treatment of Taiwanese businessmen operating in China through means of selective law enforcement will only make the distance between the two sides of the strait farther and farther, worsen the investment environment in China, and accelerate the shift in corporate investment.

It is worth noting that 2021 is not 2005. The asymmetries across the Taiwan Strait have grown wider and Beijing’s economic leverage stronger over Taiwan and many countries across the world as dependencies are created. Beijing’s arbitrary and capricious regulatory enforcement ought to raise concerns about which businesses could be targeted next, and this could potentially have a chilling effect not only on Taiwan’s investment into the People’s Republic of China (PRC) but also for the world.

For its part, Beijing appears to have only one immediate objective in mind. As election season kicks into gear in Taiwan with the island democracy poised to have its next local elections in late 2022, the recent moves appear aimed at deterring Taiwan businesses from donating to the DPP’s political campaign for fear that Beijing may target these companies and utilize its selective enforcement of regulations to curtail their business interests in China.

Beijing may have had difficulty transforming its economic influence into broad political leverage over Taiwan in the 2000s (the case of Chi-Mei is an outstanding counter-factual); but the fears of those in Taipei who thought that, because of the growing asymmetry, that it was time then to push for independence or imminently risk absorption also did not pan out. Yet, if Beijing is not careful—with the reverberating effects of Hong Kong—such moves would alienate the one remaining constituency in which it still appears to have some support within Taiwan, and provide fuel to those in Taiwan who see only the growing risks of economic dependency on the PRC. As the RAND study indicated: “When Beijing uses high-profile, high-pressure economic tactics, they have tended to backfire, creating powerful opposition in Taiwan and undermining the political effectiveness of those with a stake in closer cross-strait economic and political ties.”

The main point: News of Chinese regulators fining a Taiwanese company for alleged regulatory violations is raising concerns that Beijing may increasingly utilize economic levers to deter businesses and the public from supporting the ruling government in Taiwan.