December 07, 2011

India Taiwan Strategic Economic Partnership

by Dr. Adityanjee

While the Government of India made a botched and controversial move to open the $450 billion Indian retail sector for 51 % FDI from multi-brand retail transnational corporations, the nation is sadly missing out on opportunity for serious investment into her crumbling infrastructure. Taiwan is a cash-surplus economy and a member in good standing of the World Trade Organization. Taiwan is also a democracy with the rule of common law and a respect for human rights. While India does not have formal diplomatic relations with Taiwan, it does have commercial relations. There was scant interaction between India and Taiwan from 1949 to 1995 owing to India's abnormal fear of Chinese over-reaction. China, under its “One China Policy” has opposed to Taiwan having any kind of independent relations with any country as it considers Taiwan a renegade province. Bilateral relations got some momentum from 1995 when trade representative offices of either country were set up in Delhi and Taipei. Owing to this historic absence of political and diplomatic relations, bilateral trade between India and Taiwan is too small. It stood at only $6.47 billion in 2010 accounting for mere 1.2% of Taiwan's total foreign trade. Taiwanese investment in India from 2001 through 2010 accounted for just 0.04% of Taiwan’s overall outward investment. At the same time, Indian investment in Taiwan amounted to no more than 0.05% of the nation’s total foreign direct investment.

India-Taiwan strategic economic relationship needs to be both deepened and nurtured as both economies are highly compatible and can be mutually complementary to one another in a number of areas. Taiwan’s foreign exchange reserves are still the 4th largest in the world and at the end of October 2011 stood at US$393.327 billion. India has not been very successful in attracting FDI from China, Japan and Russia, the other three top cash surplus countries. There is no existing security threat to India from Taiwan and hence investment of “clean capital” from Taiwan should be acceptable to India without the risk of industrial, defense & strategic espionage, theft of trade secrets or potential loss of intellectual property rights. India will have to take bold diplomatic steps in attracting Taiwanese government and private businesses to favor India while making investment decisions.

The Taiwanese president Ma Ying-jeou of the Kuomintang Nationalist Party (KMT) faces a serious re-election challenge from the Democratic Progressive Party (DPP) candidate Tsai Ing-wen on 14th January of 2012. The run-up to the 2012 election has been complicated by the entry of the veteran politician, People First Party (PFP) chairman James Soong, who was expelled from the Kuomintang a decade ago. If the pro-mainland China votes are split between Ma and Soong in a trilateral contest, the likely beneficiary would be the DPP candidate Tsai. Incidentally the same outcome had happened in year 2000 presidential elections when Soong ran as an independent candidate and finished just behind the winner Chen Shui-bian of the DPP relegating the KMT to third position. In the last Taiwanese presidential elections in 2008 which brought the Kuomintang Nationalist Party (KMT) back to power, President Ma Ying-jeou had won by 58 per cent of the votes against the 42 per cent obtained by the then ruling Democratic Progressive Party (DPP) candidate, Frank Hsieh. Taiwanese voters at that time were more concerned with corruption scandals during the eight years of DPP rule under the former President Chen Shui-bian who is currently in prison. Chen Shui-bian had restricted Taiwanese investment in China during his eight year rule in order to reduce the island's dependence on its giant and expansionist neighbor. Clearly, Ma has not been able to bridge the cross-straits geopolitical differences and no peace treaty has been signed during his controversial tenure. Ma is considered a trojan horse for the communist China. Taiwanese businessmen already have invested US$150 billion in the mainland China. If Ma is defeated and the DPP again comes to power, there is a possibility of Taiwanese fiscal disinvestment in view of changed geopolitical perception of China. If there is a flight of Taiwanese capital from China following the January 2012 Taiwanese presidential elections, India should strategically prepare herself as the most likely destination for the freed-up Taiwanese capital to be invested in Indian infra-structure.

Taiwanese investment in India is very low at $1 billion. The investment of 70 Taiwanese companies in India is under 0.3 per cent of Taiwanese investment in China. The India-Taiwan trade target is 10 billion dollars by 2013-2015 compared to the 60 billion dollar India-China bilateral trade in 2010. Taiwanese investment in India has been limited to the manufacturing and technology sectors and most of this investment has been made in the state of Tamil Nadu. India's private sector needs to explore ways as to how Taiwanese capital could be tapped in Indo-Taiwanese business joint ventures. Indian IT giants can explore joint-ventures between Indian High-tech sector and the Taiwanese hardware companies. In a hypothetical scenario, if Ma is defeated and DPP’s Tsai is elected new President of Taiwan, one of the fall-outs will be Taiwanese disinvestment of US$150 billion from the Peoples Republic of China. Should this become a reality India needs to exploit that opportunity for investments into its physical infra-structure that needs approximately US$400 billion of new investment. Taiwan has also toyed with the idea of starting a new Sovereign Wealth Fund (SWF) or add more money to its existing executive development fund. This will pave the way for Taiwanese government investment in India. Though not generally known, Taiwanese businessmen have complained about arrogant attitude of their mainland business partners from the PRC who control their investment capital using dubious and deceptive business and legal practices.

The processed food industry is a major component of the Taiwanese economy. In 2009, this sector posted revenues of $17 billion. In fact, four of the top 10 food companies in China are Taiwanese. Taiwanese agricultural technology isn't capital intensive, it focuses on small efficiencies to boost productivity. Taiwan is a leader in the food processing sector and can help India modernize our capacity in the food processing this sector. India should ask for transfer of food processing technologies from Taiwan and joint collaboration in research and development. Taiwan has made heavy fiscal investments in the processed food sector in China. Taiwanese should be thinking of diversifying from China to India. Taiwan imports seafood worth US $ 500 million annually from India and is keen to import seafood from the state of Orissa. Taiwan is also interested in investing in cold storage, refrigeration and seafood processing to increase the Indian seafood export potential. Other areas for Taiwanese investment include production of instant noodles and cooking oils.

A second “Green Revolution” in India would be possible only through industrialization of the agricultural produce and agro-business in India. Taiwan can become the catalyzing agent that can help India feed the world. Indian farmers still fail to get right compensation for their produce owing to lack of proper ware-housing and cold storage facilities. Taiwan has organized retail stores which serve not only to procure and market products but also as places where consumers can deliver goods, buy tickets and pay utility bills. This Taiwanese retailing model is suitable for India's vast rural areas. Instead of welcoming multi-brand retail corporations, India should on a limited scale invite Taiwanese investments. This would reduce food inflation without loss of millions of jobs in small, family owned retail stores in India.

Taiwan currently hosts the APEC SME (small and medium enterprises) crisis management center (SCMC). Indian businesses would benefit immensely from linkages and collaboration with Taiwan’s robust small and medium enterprises. Taiwan revolutionized the whole concept of contract manufacturing - a product is broken down into many smaller assemblies which are manufactured separately at independent locations before being reassembled. At each stage, manufacturing is optimized, thereby, reducing the overall cost of production. One very important lesson for India would be how to develop a globally competitive manufacturing industry. As the Chinese factories close down owing to increasing labor costs and recession in the West, Indian factories can start manufacturing in the global chain with Taiwanese investment in joint ventures.

Over 30,000 Taiwanese Buddhist tourists visited India in 2010. Majority of them went to Bihar to visit Bodh Gaya & Sarnath. Indian tourism sector can get a tremendous boost if we can promote the Buddhism and other Indic religious tourism circuits to the cash-surplus Taiwanese tourists analogous to the Japanese tourists. Other religious tourist destinations like Karnataka, Orissa and Tamil Nadu could be attractive to Taiwanese religious tourists. Indian travel and hospitality industry must aggressively court Taiwanese tourists. For the Taiwanese nation, India is truly incredible in terms of its diversity, culture and languages. There are many Indian dance troupes in Taiwan promoted and staffed by locals who perform Odissi, Bharatanatyam and Kathak.

Taiwanese are also interested in Yoga and meditation that is associated with India. Indian tourism sector needs to leverage the "soft power" of India and her civilizational assets in forging strong people to people as well as economic, and mercantile relationships with Taiwan. Let us not forget that China is trying to control India's soft power by launching the World Buddhist Forum. China's attempts to control the Buddhism tourist circuit include offering investments in Nepal's Lumbini project; offering seed money for India's Nalanda University revival project and by trying to dictate to India about hosting of the pan-Buddhist conference by Asoka Mission. Higher education is another area where joint collaboration could be beneficial mutually. Indian students are willing to go anywhere if there is an opportunity for excellent international education followed by significant job potential. Taiwan can offer scholarships to Indian students for vocational and advanced technical education. Bilateral student exchange programs can help in the areas of linguistics, liberal arts, culture, and educational technologies.

With a stronger India-Taiwan strategic economic partnership, India can harvest secondary benefits. India is not a member of the Asia Pacific Economic Cooperation or the APEC. APEC has 21 members currently. Both China and Taiwan simultaneously joined the APEC at the same time along with Hong Kong on 12-14th November 1991. Expansion of membership in APEC is frozen on grounds of procedural objections from China. The 9th APEC Ministerial meeting had laid down guidelines for APEC membership that included geographical location in the Asia-pacific Region; broad based economic linkages with other APEC members in terms of size and share; significant integration with the world economy, and broad liberalization and deregulation policies designed to encourage external linkages. India meets all these criteria without any doubt and must be invited to the APEC membership. If direct access is not coming India will have to use a crowbar to secure access to the APEC markets.

In order for India to participate in the trade opportunities in the APEC, having an economic foot-hold in Taiwan would be strategically helpful for India’s trade and mercantile interests in this globalized world. Even if India acquires indirect access to APEC, it can be transformed eventually into Indo-Pacific Economic Cooperation by 2020 when the APEC attempts to realize its Bogor goals, namely the establishment of the free trade area of the Asia-Pacific (now re-characterized as the Indo-Pacific), promising to achieve free and open trade and investment in APEC. India, like Peoples’ Republic of China has not been invited to join the US-led Trans-Pacific Partnership, a proposed free trade area. Taiwan is a member of the proposed TPP. Whereas there is bilateral Taiwan-China business, economic and mercantile relationship allowing People’s Republic of China to participate indirectly in the TPP process; India does not have that luxury. Building a strategic economic partnership with Taiwan gives India access to TPP block of countries.

After two years of international arrogance, China is very defensive internationally having lost to India in the IMF elections by a majority of 107 to 77. China is feeling the international heat in the South China Sea and in the recently concluded East Asian Cooperation (EAC) meeting in Bali, Indonesia 15 out of the 18 countries singled out China for its hegemonic tactics in South China Sea. India wisely chose not to rake the issue in the Bali meeting. However, India strongly held her ground stating that she has strong economic interests in the South China Sea that she will not forego her economic interests. China is also miffed at strong resurgence of the US interest into the Asia-Pacific region in the form of TPP from which China has been excluded. China will also undergo transfer of power in 2012 with a new CCP leadership team that may not be prepared to open yet another front with India on latter’s economic relationship with Taiwan.

China continues to deepen its all-weather relationship with Pakistan and has PLA presence in the POK. There is no reason for the Government of India to listen to the likes of MK Bhadrakumar, BS Raghavan and N. Rams from the Planet of the Panda Huggers. Nor is there any reason for the Government of India to worry about possible Chinese economic retaliation if India were to develop deeper strategic economic partnership with Taiwan. India-China bilateral trade currently is $60 billion and is heavily in favor of China. China would be the loser if takes retaliatory measures. It would risk losing an emerging market of prosperous Indian middle class at a time when the purchasing power of the US and Euro-zone consumers is going down.

China has strong economic relationship with Taiwan which has been institutionalized for more than two decades in the form of Taiwan Straits Exchange Foundation (SEF) set up in 1990; and the Association for Relations Across the Taiwan Straits (ARTS) set up in China in 1991. In June 2011 China and Taiwan signed the Comprehensive Economic Cooperation Agreement. Both these countries had traded indirectly through Hong Kong route and other third parties prior to establishment of direct commercial and trade relationships. If China can accept FDI from Taiwan and trade directly with Taiwan, so should India. If India can attract flow of "clean" capital without "geopolitical" strings attached. It will be welcomed by Taiwan which currently has surplus of it. It will be a win-win game for both India and Taiwan. Taiwan will get a good and trust-worthy economic partner with rule of law in lieu of China, should Taiwanese businessman decide to disinvest from China.

Taiwan is a ripe candidate for India to do business with. Taking the overall geopolitical situation while China is on the defensive, time has come now for further consolidation of India-Taiwan strategic economic partnership (IT-SEP). Further steps to promote bilateral relationship must include development of a CEO's forum, cultural and academic exchanges, bilateral student exchange programs and an annual Ministerial level strategic & economic dialogue alternating in New Delhi and Taipei. IT-SEP can become a reality in the next five years (2012-2017) bringing dividends to both the countries and their economies, if India plays her economic and trade cards well and woos the Taiwanese FDI without bothering about Chinese reaction.


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