How dependent is Taiwan on China? | Business | Economic and financial news from a German perspective | DW

China flexes its muscles against Taiwan. Beijing leaders responded to US House Speaker Nancy Pelosi’s visit to Taiwan with military maneuvers and missile launches.

Now China has imposed sanctions on the self-governing island. Initially, only citrus fruit, mackerel fillets and other fish products were affected. Even before Pelosi’s visit, Beijing halted imports from over a hundred Taiwanese food producers.

In addition, Taiwan can no longer import sand from China on which the construction industry depends. Later, China even imposed sanctions on Pelosi herself. An important industry has been left out: electronics such as microchips or optical components, which the Chinese economy cannot afford to do without. How integrated are the two economies?

Nancy Pelosi’s visit angered not only China, but also some Taiwanese citizens

A power plant off the coast of China

Taiwan is slightly larger than the US state of Maryland, about half the size of Scotland, and has 23 million people, just over a quarter of Germany’s population. And like Germany, Taiwan is known worldwide for its industrial manufactures.

Its highly developed semiconductor industry is as important to Taiwan as the automotive industry is to the German economy. And a comparison with Germany shows how export-dependent Taiwan is. Around 70% of Taiwan’s economic output is attributable to its exports, in Germany it was 47% in 2021.

But, while gross domestic product (GDP) per capita in China in 2021 was $12,259, in Taiwan it was almost three times higher, at $33,775, according to data from the International Monetary Fund.

A photo of the Vanguard Semiconductor Corporation building in Hsinchu Science Park

Industrial parks like Hsinchu are centers of research and technological know-how

Swap the mass product for semiconductors

Overall, China is Taiwan’s largest trading partner, followed by the United States. More than 42% of Taiwan’s exports go to China, from where Taiwan derives about 22% of its imports. In 2020, goods and services worth $166 billion were traded between the two countries.

Taiwan is also among the mainland’s main investors. According to the Taipei government, between 1991 and the end of May 2021, Taiwanese companies invested around $194 billion in a total of 44,577 Chinese projects. One of the best-known examples is the factories of chipmaker Foxconn. The subcontractor manufactures iPhones for Apple, Galaxy smartphones for Samsung and game consoles for Sony at factories across China.

And the fact that semiconductors and other computer technologies account for more than half of all Taiwan exports shows how important the country is to the rest of the world, including China.

A TSMC technician at work in a factory in Taiwan's Hsinchu Industrial Park

Taiwanese chipmaking giants such as TSMC still maintain a technological edge over their Chinese rivals

Put simply: China supplies critical raw materials such as rare earths and mass-produced low-end electronic components, while Taiwan exports high-end semiconductors and optical components to the mainland to make up for the lack of Chinese know-how.

China’s central goal is to achieve the ability to produce high-end chips. Party leaders have repeatedly emphasized this in programs such as “Made in China 2025”. So far, however, they have failed to catch up.

Is an invasion imminent?

Once that goal is achieved, however, some experts believe things could get tough for Taiwan. Chinese leader Xi Jinping could finally act to reunite the island with the mainland. China has repeatedly affirmed its goal of uniting Taiwan with the mainland by the centenary of the founding of the People’s Republic in 2049 at the latest, if necessary by force.

But it will probably happen much sooner, said Roderich Kiesewetter. The security expert is chairman of the foreign affairs committee of the German parliament, the Bundestag, and deputy chairman of the parliamentary oversight committee, which oversees the German intelligence agency.

Kiesewetter made his opinion clear in a recent TV interview. “So far, our parameters have been such that we say: if China is able to produce semiconductors with the same precision, speed and quantity – and it probably wouldn’t be until 2027 – then an attack is likely”, did he declare. “But there are schools of thought in China that say: right now the West is very busy with the war against Russia and support for Ukraine.”

According to Beijing, the Americans do not have the strength to fight two wars on two fronts. Kiesewetter still thinks China is not ready for an invasion. However, there are warning signs. “We need to prepare for an escalation faster, but not in the next few months,” he said.

Business is China’s top priority

Kishore Mahbubani said it was clear that China would pursue its interests more and more ruthlessly in the future. His book “Has China Won?” explores what will happen when China overtakes the United States as the world’s largest economy.

Mahbubani does not believe that Beijing will use military force to take control of Taiwan just yet. The Chinese are much more interested in business than in ideologies. For policymakers in Beijing, the risks clearly outweigh the opportunities, the Singaporean political scientist, diplomat and former president of the UN Security Council said in an interview with Bloomberg TV.

Chinese officials don’t think in terms of years, Mahbubani said: They think in terms of decades. The Chinese make sure they have a bigger economy than the United States – and they will remember everything that happened in the past. “That’s when all the real retaliation, the real responses will come,” he said. “When will China eventually become the world’s largest economy.”

This article was originally written in German