China’s Influence on India-Taiwan Economic Dynamics

China’s Influence on India-Taiwan Economic Dynamics

Jaishankar Masthead
China’s Influence on India-Taiwan Economic Dynamics

Five years ago, the burgeoning economic relationship between India and Taiwan, as observed today, would have appeared implausible. It is, however, noteworthy that contrary to the popular perception, the People’s Republic of China (PRC) is not the primary catalyst for the growing closeness between India and Taiwan. Both India and Taiwan are actively working to minimize the influence of the China factor while furthering their economic partnership within the realm of their unofficial relations.

In fact, rather than serving as a restraining factor, China has inadvertently enabled the fostering of economic ties between India and Taiwan. India’s recalibration of its Taiwan policy can be attributed to several factors. Chief among them is the reevaluation prompted by the 2020 Galwan clashes, which compelled India to reassess its relationship with China and reject unrealistic redlines imposed by Beijing. Moreover, Taiwan has emerged as a key economic partner for India in developing its semiconductor ecosystem. India views itself as a viable destination for the “China plus one” model, positioning itself as an alternative supply chain hub and bolstering its manufacturing sector. Taiwan could play a pivotal role in helping India attain these goals.

Under the Democratic Progressive Party (DPP, 民進黨) administration in office since 2016, Taiwan’s external outreach has expanded, extending beyond the constraints of the narrow China-centric narrative. The suspension of cross-Strait dialogue by China, coupled with Taiwan’s desire to reduce economic overreliance on the PRC, prompted the Tsai Ing-wen (蔡英文) Administration to seek closer ties with other countries, leading to the launch of the New Southbound Policy (NSP, 新南向政策) in 2016.  India has emerged as a pivotal focus for Taiwan’s external engagement efforts. Over time, India-Taiwan relations have undergone a significant transformation, driven by various factors, compulsions, and motivations from both sides. Despite India’s traditional hesitance to openly engage with Taiwan, there has been a noticeable shift in its approach, further catalyzed by Taiwan’s proactive outreach initiatives toward India and the latter’s deteriorating relations with China. Chen Chern-chyi (陳正祺), deputy minister of Taiwan’s Ministry Economic Affairs (MOEA, 經濟部), said, “A decade ago, people kept saying India is a potential rising star. Now we [Taiwan] are starting to realise it.”

Several factors have driven Taiwan’s interest in strengthening ties with India. India’s rising stature, both strategically and economically, and its ability to counterbalance China have played a decisive role. Taiwan also recognizes the impact of US foreign policy choices on its external relations, particularly in the context of its heightened engagement with India. Given India’s growing prominence in the Indo-Pacific region, its role as a key member of the Quadrilateral Security Dialogue (Quad), and the United States’ prioritization of engagement with India, Taiwan saw the logic in bolstering its engagement with India.

The launch of the New Southbound Policy provided a structured framework for engagement and helped to reassure India that Taiwan was earnest about deepening its ties with the South Asian country. Previously, Taiwan’s efforts were sporadic and inconsistent. This was complicated by India’s historical hesitance to cooperate with Taiwan. Under former President Ma Ying-jeou’s (馬英九) administration, Taipei’s excessive focus on China caused a number of countries, including India, to divert their attention away from Taiwan. At the time, India harbored a  perception that the Kuomintang (KMT, 國民黨) leaned more toward China, potentially hindering progress. The New Southbound Policy aimed to diversify Taiwan’s external relations, reduce dependence on any single market (i.e., China), and encourage Taiwanese businesses to explore opportunities beyond China, particularly under a “China plus one” strategy. Strengthening ties with the New Southbound Policy countries, especially priority countries like India, was paramount. These priority countries were also viewed as alternatives to China, adding a strong economic rationale to Taiwan’s external outreach.

The Role of China’s Coercion: Status of the Economic Ties

Economic ties serve as the cornerstone of India-Taiwan relations, with the foundation laid over two decades ago through the establishment of representative offices (de facto embassies) in each other’s capitals. Over the decades, there have been attempts to make these efforts more institutionalized. Institutional engagement between the two countries has become relatively consistent, including regular CEO roundtable meetings and economic consultations between the economic agencies of the two countries. Delegations from various Indian states frequently visit Taiwan to attract investments.

Recently, multiple factors contributed to the readiness and convergence of approaches between India and Taiwan. Both countries experienced a simultaneous deterioration in their relations with China, sparked by Beijing’s use of tactics such as economic coercion, the weaponization of supply chains, assertive “wolf warrior diplomacy,” and disregard for the rule of law. This led to a realization on the part of both Taiwan and India that excessive deference to China’s red lines would be counterproductive to their respective economic and strategic interests. Rather than serving as a deterrent, China’s aggressive posture prompted India and Taiwan to seek cooperation, particularly in unofficial domains. This recognition prompted India and Taiwan to seek alignment, acknowledging the need to counter China’s assertiveness while pursuing their own interests.

Recent developments indicate that India is overcoming its hesitancy, and is increasingly inclined to augment its economic ties with Taiwan. In November 2023, India’s Minister of External Affairs S. Jaishankar, during a conversation with a journalist at the High Commission of India in London, stated that “We have substantial technology and economic and commercial relations with Taiwan and certainly Taiwan has a reputation when it comes to electronics and of course, more recently with semiconductors. So, there has been an upswing in the levels of cooperation.” This was potentially the first time that an Indian cabinet minister publicly spoke about Taiwan’s status and importance as an economic partner for India.

Both India and Taiwan have been actively working to enhance their commercial ties. In a significant milestone, the bilateral trade volume between the two countries surpassed USD $10 billion for the first time in their history. [1] Taiwan’s investments in New Southbound Policy countries are on the rise, now comprising over 50 percent of Taiwan’s total outbound investment. As of February 2024, Taiwanese companies, comprising roughly 228 firms, have invested approximately USD $4.46 billion in India, generating around 170,000 job opportunities in the country.

Screenshot 2024 04 26 at 11.37.26 AMChart: India-Taiwan trade, 2018-2023 (in USD $billion) (Source: Ministry of Commerce and Industry, Government of India)

Screenshot 2024 04 26 at 11.32.23 AM

Graphic: India-Taiwan trade, 2018-2023 (in USD $billion) (Source: Ministry of Commerce and Industry, Government of India)

India is keen on expanding cooperation, particularly in the semiconductor sector, and is seeking partnerships with countries like Taiwan and Japan to aid in establishing its semiconductor industry. Taiwan, a prominent semiconductor powerhouse responsible for 90 percent of advanced chip production, holds a top spot on India’s priority list. India has actively reached out to Taiwan, with Young Liu (劉揚偉), the chairman and chief executive officer of Taiwan’s Foxconn (鴻海精密工業股份有限公司), making regular visits and meeting with the Indian Prime Minister Narendra Modi. Liu was also the chief guest at the 2023 Semicon India event, where he emphasized, “Taiwan is and will be your most trusted and reliable partner. Let’s do this together.” Foxconn has been working to expand its presence in the Indian market, leading to Liu being conferred with India’s third-highest civilian award, the Padma Bhushan. On February 29, 2024, India’s Tata and Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC, 力積電) announced plans to jointly construct India’s first 12-nanometer wafer fabrication plant in Gujarat’s Dholera, expected to generate over 20,000 local job opportunities upon completion. Furthermore, this year will witness the opening of Taiwan’s third representative office in India, located in Mumbai, complementing the substantial presence already established by the Taiwan External Trade Development Council (TAITRA, 中華民國對外貿易發展協會) in India.

IndiaTaiwan Mismatch

India is interested in attracting investment from the Taiwan Semiconductor Manufacturing Company (TSMC, 台灣積體電路製造股份有限公司) to set up operations in the country, which could potentially transform the government’s stance toward Taiwan. Delhi has long sought such an investment, though TSMC has primarily focused on the United States, with no current plans for greenfield fabrication investments in India. This is broadly perceived in India as an indication of a lack of interest and commitment from Taiwan’s side. However, the collaboration extends beyond TSMC and semiconductors, with increasing cooperation evident in the electric vehicle sector as well. In this context, the entry of Taiwanese e-scooter company Gogoro (睿能創意股份有限公司) into the Indian market is worth noting.

Nevertheless, significant challenges and limitations still cast a shadow over positive progress. While positive developments and progress are evident, there remains a discrepancy between expectations and actions. India and Taiwan are not consistently aligned in their approaches. An illustrative example is the divergence in focus between India, which primarily emphasizes economic aspects, and Taiwan, which seeks to inject political momentum. One notable instance of this dissonance came in the early 2010s, when India signaled its readiness to negotiate a Free Trade Agreement (FTA) with Taiwan, which the Ma Administration perceived as provocative to China. Since then, India has maintained a somewhat cautious stance on a potential FTA. While Taiwan has been eager to initiate FTA negotiations with India for several years, India has exhibited a lack of enthusiasm toward pursuing such an agreement. India seems to view it more as a political rather than an economic pact, and concerns over trade balance, particularly in favor of Taiwan, could also be key reasons behind India’s reluctance.

Additionally, the recently signed India-Taiwan labor pact sparked a backlash, leading to a shift in attitudes among some Indians toward Taiwan. Moreover, the disparity in operations between the government and the private sector presents another obstacle. Despite government motivations, much of the Taiwanese business community has shown reluctance toward engaging with India. Some are reluctant due to unfamiliarity and perpetuated stereotypes. This underscores the distinction between governmental interests and operational nature within the industry.

India and Taiwan under the New Administration 

The period since the DPP’s first administration and the Modi Administration has witnessed both positive developments and missed opportunities in India-Taiwan relations. Overall, progress has been commendable, particularly in terms of economic engagement, reflecting a willingness from both sides to enhance cooperation. With new governments poised to assume office in both Taiwan and India later this year, continuity in India-Taiwan relations seems likely.

However, sustaining momentum will be paramount. While India may exhibit caution in taking overtly political steps, there is a clear recognition of the mutual benefits across various sectors, including commerce, technology, culture, and education. The advancement in economic ties has been crucial for maximizing the mutual complementarities and benefits for both India and Taiwan. However, the future direction will depend on the depth and extent of commercial linkages, which will also shape India’s response to any potential Taiwan contingency. While economic relations are progressing favorably, they have not yet reached a level where India would consider political measures regarding Taiwan. This dynamic will significantly influence the overall trajectory of the bilateral relationship.

Given the ongoing deterioration of cross-Strait relations, maintaining a steadfast focus on countries like India will be imperative for Taiwan. The depth of India-Taiwan relations will hinge on Taiwan’s willingness to offer economic incentives, coupled with China’s inflexible stance toward India. Crucially, India’s outreach to Taiwan signifies more than a mere response to strained relations with China; it represents an opportunity for India to reassess its approach toward Taiwan. India’s proactive engagement has already yielded dividends, emphasizing the importance of strategically separating its ties with Taiwan from those with China.

Both sides should place emphasis on advancing traditional areas of cooperation, such as continuing the New Southbound Policy and bolstering Taiwan’s Indo-Pacific strategy. By prioritizing mutual interests and continuing with existing policy frameworks, India and Taiwan can maximize the utilization of available resources and further expand the scope of their economic relations.

The main point: In recent years, India and Taiwan have made significant strides in expanding their unofficial relationship, particularly in the economic realm. However, both sides will need to be proactive and tactful in order to further solidify their partnership going forward.

[1] Ministry of Commerce and Industry, Government of India, https://tradestat.commerce.gov.in/. Although there has been an increase, the trade figure between India and Taiwan remains only a fraction of their overall trade volume. Furthermore, concerning trade, it also remains comparatively low. For more information on the current status and the reasons for the underutilized trade and investment potential, please refer to Hashmi, Sana (2023), “The Role of Commercial Ties in Advancing India-Taiwan Relations”, Special Report No. 213, Observer Research Foundation-Taiwan Asia Exchange Foundation, August, https://www.orfonline.org/wp-content/uploads/2023/08/ORF_SpecialReport_213_India-Taiwan.pdf.