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TAIPEI: Historic talks aimed at moving Taiwan closer to China have raised hopes on the island that by linking its fortunes to the giant on its western flank, its own sluggish economy will receive a vital boost.
Talks on Tuesday are expected to set up direct shipping links, expand air and cargo flights, further relax restrictions on Chinese tourists visiting the island and promote financial cooperation.
Officials said Monday the two sides had reached agreement in preparatory talks on tripling direct passenger flights to 108 per week and expanding services to 16 more Chinese cities, taking the total to 21.
Chen Yunlin, head of China's Association for Relations Across the Taiwan Strait (ARATS), became the most senior Chinese official to visit Taiwan when he arrived on Monday, leading a delegation of 60 officials and business people.
Optimism has marked the weeks leading up to Chen's arrival with major transport and tourism shares outperforming the broader market in anticipation of closer trade ties with China.
On Tuesday, profit-taking weighed in to push the weighted index down 1.48 per cent as the market moved closer to the psychologically crucial 5,000-point mark following Monday's 2.55 per cent surge.
"I expect some volatility down the road but better cross-strait ties are positive in the long run," Taiwan International Securities analyst Eric Lee said.
Taiwan's shipping industry has urged the government to establish direct marine links with China since direct weekend flights were launched in July.
"Once the direct shipping links are established, I expect the move will produce about NT$100 billion (US$3.05 billion) in business in the sector over the next three to five years," chairman of leading Yang Ming Marine Lu Feng-hai told reporters.
Cheng Cheng-mount, chief economist at Citibank Taiwan, said direct shipping and cargo flights could save hundreds of millions of Taiwan dollars each year for Taiwanese manufacturers eyeing the China market.
"The benefits (from cargo flights) will be obvious and direct compared with mere passenger air links," Cheng said.
In the first half of this year, China remained Taiwan's largest market, accounting for 28 per cent of the island's total exports, up from 27.4 per cent at the end of 2007.
Market observers said Taiwan's dependence on the China market would increase as investments in China grew.
Since the early 1990s, Taiwanese investors have pumped an estimated US$150 billion into China, taking advantage of its abundant human and natural resources.
Trade between the two sides reached US$104 billion in the first nine months of 2008, up 16.7 per cent on the same period last year.
But the island's export-oriented economy, heavy on such consumer items as laptop computers and other digital products, has been hard hit by falling global demand as Western economies sink towards recession.
The government has lowered its 2008 economic growth forecast to 4.3 per cent from the previous estimate of 4.78 per cent, while some economists have predicted even lower growth.
Citibank's Cheng forecast 2008 GDP growth at four per cent and Yuanta Securities Investment Consulting economist Aidan Wang predicted 3.6 per cent.
"Taiwan needs comprehensive economic interaction with China, not just the launch of weekend charter flights," said Wang.
In addition to transport links, Wang said, Taiwan is seeking to set up a banking clearance mechanism with China and sign reciprocal taxation and investment protection agreements.
"With such closer business relations, Taiwan is expected to attract more mainland visitors not only for the island's scenery but also for commercial purposes. That is absolutely positive to the tourism industry," Wang said.
Chang Han-wen, head of the Association of Taiwan Investment on the Mainland, which has about 20,000 members, said he hopes Taiwanese banks can open branches in China as soon as possible.
"Funding is the most important need to investors. The presence of Taiwanese banks is expected to meet the demand," Chang said.
- AFP/yb
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