China, Taiwan Start Tariff Cuts as Relations Warm

China and Taiwan will lower import taxes on more than 800 products under the first trade treaty between the former civil-war foes, an accord that the island called a “vitamin” for its economy.
China will cut duties from today on 557 items imported from Taiwan including fish and bicycles, an increase from 539 when the agreement was signed in June, China’s Ministry of Commerce said in a statement on its website on Dec. 29. Taiwan will lower tariffs on 267 items such as tea and cement from the mainland as part of the “early harvest” accord.
A batch of incense from China to Taiwan and a shipment of fruit from Taiwan to China became the first imports and exports deals today under the treaty, China’s commerce ministry said on its website.
Cross-strait tensions have eased since Taiwanese President Ma Ying-jeou took office in May 2008 and dropped the pro- independence stance of his predecessor, making economic relations with the mainland the government’s priority. The island has signed 15 deals with China since 2008, most recently an agreement on medical and health cooperation in December.
“Taiwan’s economic growth is very likely to overshoot in 2011 because of the agreement with China,” Aidan Wang, an economist at Yuanta Securities Investment Consulting Co., said by phone from Taipei yesterday. “More significantly, Chinese tourists and capital will contribute to Taiwan’s domestic demand and help the island to be less export dependent.”
Tariffs
Ma, who described the so-called Economic Framework Cooperation Agreement as a “vitamin” in July, is betting that strengthening commercial ties with China, the island’s biggest trading partner and investment destination, will bolster Taiwan’s economy. The “early harvest” list includes items that will enjoy preferential tariffs first under the EFCA, a treaty that also includes the opening of industries.
Taiwan’s benchmark Taiex index has climbed 21 percent since the accord was signed and closed at a 2 1/2-year high yesterday. China’s Shanghai Composite Index jumped as much as 30 percent since the signing and pared the gain to 16 percent after two interest-rate increases, amid concerns the government may impose more measures to ease home prices.
China will also open markets in six service industries starting today, including banking, securities, insurance, hospital services, design services, and civil aircraft repairs, the mainland’s Ministry of Commerce said on Dec. 29.
Market Value
Taiwan’s Giant Manufacturing Co., the world’s largest bicycle maker by revenue, counts China as its third-largest market behind the U.S. and Europe, according to a company presentation. Shares of Far Eastern New Century Corp., Taiwan’s largest textile producer by market value, have climbed 49 percent in Taipei, double that of the broader benchmark, since the deal was signed.
The seventh cross-strait talks this year will continue to discuss an investment protection accord, Zheng Lizhong, vice chairman of the Beijing-based Association for Relations Across the Taiwan Straits, told reporters in Taipei last month.
Taiwan’s push for closer ties with China faced obstacles when the opposition rallied tens of thousands of people in the capital in June to protest the trade accord, saying it will damage the local economy and undermine the island’s sovereignty. The agreement also didn’t include a number of items some Taiwanese companies had wanted, such as polyvinyl chloride, or PVC, one of the island’s top exports.
Overseas Shipments
Taiwanese-run factories in the mainland make about a 10th of China’s electronics exports, including iPhones and Playstations, according to the Taiwan Institute of Economic Research. About 29 percent of the island’s overseas shipments head across the Taiwan strait, government data show.
Cross-strait negotiations resumed in 2008 after a nine-year halt. China views Taiwan as part of its territory as the two split after a civil war in the 1940s, and has threatened to invade if the island declares formal independence. The two sides have been ruled separately since Chiang Kai-shek’s Kuomintang, or Nationalists, fled to the island after being defeated by Mao Zedong’s Communists in 1949.