Combating Beijing’s Multifaceted Economic Coercion Strategy against Taiwan

Combating Beijing’s Multifaceted Economic Coercion Strategy against Taiwan

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Combating Beijing’s Multifaceted Economic Coercion Strategy against Taiwan

When US and Taiwan officials confirmed the visit of US House Speaker Nancy Pelosi to Taiwan in late July 2022, a number of reactions from the People’s Republic of China (PRC) were expected. Yet, even two days prior to the Speaker’s visit, it was not People’s Liberation Army (PLA) military exercises or missile launches that kicked off China’s response, but rather sweeping suspensions of imports from hundreds of Taiwanese food producers. In addition to the obvious economic costs of these restrictions—some estimates indicate a loss of NTD $620 million (around USD $20 million, less than two percent of Taiwan’s total agricultural exports to China in 2020)—such developments are part of a longer history of China’s use of economic tools to meet political ends. 

Taiwan has been at the receiving end of these tactics for quite some time, and has been the target of the PRC’s most severe and wide-ranging coercive measures. Prior to 2010, China’s use of economic tools to achieve its Taiwan policy goals depended on the strength of its economic leverage, which was more limited relative to its clout today. As a rapidly developing economy, however, China positioned itself as a promising destination for foreign investment, while also maintaining a strict position on its “One-China Principle.” Since its rise as an economic power, China has diversified its coercive methods to manipulate trade flows, use financial means to influence cultural exchange across the Taiwan Strait, lure Taiwan’s diplomatic partners, and create shifts in the cross-Strait movement of private sector capital. As China’s economic coercion grows more diverse, so must Taiwan’s responses.

The Many Faces of China’s Economic Coercion

Given China’s important role in global supply chains, shipping, consumer markets, and manufacturing, trade manipulation is arguably the most powerful tool in its arsenal. Over the past three decades, the PRC has repeatedly employed its economic leverage as a coercive policy tool. 

In 1992, for example, French firms were denied a bid to build the Guangzhou subway following Paris’ decision to sell jet fighters to Taiwan. [1] Meanwhile, China also leveraged its economic growth as a “like-minded” partner in global development projects, often aimed at Taiwan’s diplomatic partners in the Global South. One earlier example of this tactic was seen in 2004, when then-Prime Minister Roosevelt Skerritt of the Commonwealth of Dominica announced that his country would sever ties with Taiwan and establish relations with China following the PRC’s pledge to donate USD $122 million in funds to rebuild a stadium, highways, and health facilities, as well as finance scholarships.

Citing inspection breaches, such as harmful pests or chemicals, China banned the import of several Taiwanese agricultural goods in 2022, including pineapples, sugar apples, wax apples, and grouper fish. While the banning of these goods may appear random at first glance, Beijing targeted these specific imports because of their reliance on China as the main overseas market for export. Before the bans were put into place, China accounted for 91.2 percent of the total exported pineapples from Taiwan, 97 percent of sugar apple exports, 98 percent of wax apple exports, and 90 percent of grouper exports. Additionally, days prior to the visit of US House Speaker Nancy Pelosi to Taiwan, China enacted bans on thousands of additional Taiwanese agricultural products, including citrus fruit and certain types of fish. While the policy will not necessarily cause a significant economic dent, it sent a clear message. 


Image: Taiwanese grouper fish from Pingtung County packaged for sale (undated). PRC authorities declared a sudden import ban on Taiwan-harvested grouper fish in June 2022, claiming that drug residues had been found in fish samples from Taiwan. (Image source: ROC Overseas Community Affairs Council)

China has not only used this signaling strategy toward Taiwan, but has also used it against Taiwan’s international supporters, such as Lithuania. Following Lithuania’s bold stance to use the name “Taiwan” when titling the Taiwan representative office in Vilnius, Beijing announced an imposition of sanctions that took the form of denied import permits and pest management citations. In February 2022,  following a series of friendly exchanges—including Lithuania’s donations of vaccines to Taiwan that subsequently garnered immense public support—China banned the import of Lithuanian dairy products, beef, and beer, claiming documentation issues.  

At the corporate level, Chinese state-owned enterprises have also been vectors of economic coercion. Tactics within this arena usually aim at draining Taiwan’s educated workforce, infiltrating its private sector (for the purposes of property theft, propaganda disbursement, and financial leverage), and diminishing Taiwan’s own business prospects. Even Jack Ma (馬雲), once China’s richest e-commerce magnate, announced a Taiwanese-focused fund for entrepreneurs in 2015. The trend has since been encouraged by CCP policy, which includes a growing list of several dozen government incentives intended to attract high-tech companies, academics, and entrepreneurs. While the causes of Taiwan’s brain drain are complex and cannot entirely be attributed to the strategies employed by China, it is clear that Beijing views this as an opportunity for exploitation. As of April 2021, Taipei has implemented policies to combat this issue, such as requiring staffing companies to remove all listings for jobs in China and employing its own incentives for tech talent.

While China has employed various mechanisms to diplomatically isolate Taiwan and exclude it from international organizations, it has not shied away from utilizing its deep pockets to sway Taiwan’s diplomatic partners. In 2018, it was reported that the Dominican Republic’s diplomatic shift from Taiwan to China was financially influenced by the PRC. Beijing’s investment package—to the tune of USD $3.1 billion—included plans for a new freeway, infrastructure projects, and a natural gas power plant. In addition to investments and lending, the PRC has also utilized the sheer size of its market as leverage against Taiwan’s diplomatic allies. As Palauan President Surangel Whipps Jr. described in an interview for the Global Taiwan Institute’s Taiwan Security Review podcast, Beijing directed tourism away from Palau following its warming relations with Taiwan: “[B]ecause of our relationship with Taiwan, suddenly, those tourists were shut off. Marketing in China stopped.” More recently, Taiwan’s Ministry of Foreign Affairs (MOFA, 中華民國外交部) expressed concern that Honduras may be heading toward a similar fate: specifically, a meeting between Honduran Foreign Minister Enrique Reina and PRC Foreign Affairs Vice Minister Xie Feng (謝鋒) in January 2023 supposedly included talks of China’s “potential involvement in the construction of a hydroelectric dam in Honduras.”

Lastly, in an effort to shape the international narrative of Taiwan through culture, China has used economic coercion to co-opt, ban, and influence key cultural figures. Recently, Taiwanese music artists Ouyang Nana (歐陽娜娜) and Angela Chang (張韶涵), who both performed for China’s televised National Day program in 2020 and were later featured in an advertisement promoting cross-Strait unification, were fiercely criticized on Taiwanese social media and even faced fines of up to USD $17,000. Ouyang’s popularity in China—having performed 116 concerts over 10 years—has brought about significant financial success. Chang, similarly, found more success in China’s music industry than in her earlier career years in Taiwan. 

Additionally, the mere risk of losing financial opportunities in China is often enough to incentivize pro-Beijing stances in entertainment. For example, American actor and professional wrestler John Cena issued an apology to the people of China on social media for using the term “country” to describe Taiwan during a promotional campaign for his film Fast and Furious 9. [2] The same boycotting mechanism has also been used to sever Taiwan celebrities’ brand deals and endorsements from China, including the Taiwanese television host Dee Hsu (Xiao ‘S,’ 徐熙娣)—who, after publicly supporting Taiwan’s Olympic athletes, lost endorsements from Shanghai-based Shou Quan Zhai and others.

Developing a Multi-Faceted Approach to China’s Economic Coercion

There are several steps that can be taken by Taiwan, the United States, and the international community to mitigate the risks posed by China’s economic coercion:

I.   Add cushion to Taiwan’s economy and supply chains through bilateral and regional trade agreements, building ties with other targets of Chinese coercion, and encouraging Taiwan’s participation in international organizations.

Considering the threat of Taiwan’s dependence on China as a market, giving Taiwan the space to reduce this dependence should be a priority. These efforts should include working toward a US-Taiwan free trade agreement (FTA), continuing progress toward Taiwan’s inclusion in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and further developing its bilateral and regional trade agreements. Using pre-existing platforms, the United States should work to overcome current trade disputes so as to strengthen Taiwan’s position as an alternative to China as a trading partner when possible. Taiwan’s focus on its New Southbound Policy (NSP, 新南向政策) will be essential in that regard. Of course, several legal questions must be answered before this goal is realized, but such developments would allow Taiwan to focus on building partnerships rather than competing for the international market’s attention. 

Perhaps the most contentious measure to achieve such goals would be to work toward greater accountability at the corporate level. While it may eventually be necessary to tackle this issue using regulations, incentives could be a vital feature in lessening economic dependence on China, thus reducing the impact of its coercive measures in the meantime. This, of course, will have to take several industry-specific forms. Overall, a continuation of tax incentives for manufacturing on US soil, investments in automation technologies, and education on Chinese intellectual property theft are all necessary for any industry with ventures in China. Additionally, grants for the entertainment industry to produce content without fear of Chinese retribution, both in the United States and in Taiwan, would provide a buffer to China’s control of the entertainment industry.

Similar to the space provided to Taiwan to lessen its dependence on China, other nations that have been pulled into its orbit must also have such economic security. The United States and Taiwan should fulfill their promises to provide valuable economic assistance and partnerships to countries seeking to sever ties with China. Additionally, Taiwan’s official development assistance (ODA) strategy should focus on implementing long-term, non-predatory programs with non-allies to build relationships built on mutual, sustainable support.

The international community’s investment in Taiwan’s sovereignty is also partially dependent on its perceived value to international organizations. While it is undeniable that Taiwan has been largely successful in the fields of public health, democratic development, technological innovation, and human rights, its official participation or observership status in the UN system will be a key step in its recognition as a valuable alternative to the PRC. 

II.    Ensure Taiwan’s economic strength from the inside out.

Taiwan should focus on developing employment schemes that bring educated Taiwanese back to Taiwan. China’s manipulation of Taiwan’s brain drain poses a danger to the future of its educated workforce, which is becoming increasingly intertwined with the Chinese economy. It is thus important to provide incentives and employment initiatives in an effort to bring educated Taiwanese back to Taiwan.

III.    Diversify Taiwan’s role in the global supply chain.

In addition, the Taiwan government should focus on diversifying its role in the supply chain—particularly in the semiconductor industry. Not only does its over-emphasis on manufacturing pose a risk to its natural resources and its ability to respond to economic shocks, but it also simplifies Taiwan’s job market. In relation to the previous recommendation, educated Taiwanese have the ability to play a role along the supply chain, be it through research and development or logistics, and should also be guaranteed competitive wages to do so.

As exemplified by the cases above, China’s implementation of an economic coercion strategy to exert its foreign policy goalsnamely, the isolation and subjugation of Taiwanis diverse in scope as well as effectiveness. Due to its sheer economic might, China has been able to tug diplomatic strings, build economic dependence, manipulate flows of tourism, and control entertainment industries. Due to the multifaceted nature of China’s strategy, a comprehensive response would have to include both corporate and governmental entities, as well as bilateral and multilateral partnerships. 

The main point: China’s economic coercion of Taiwan has diversified in scope in the past few years. Due to the nature of this evolving threat, Taiwan and its partners must develop comprehensive measures to respond to such tactics in all forms. 

[1] David M. Lampton, The Three Faces of Chinese Power: Might, Money, and Minds (University of California Press), 2008: 67.

[2] This installment in the film franchise has generated USD $135 million at the Chinese box office alone, a market widely acknowledged by Hollywood as a whole.