New Southbound Policy Offers New Prospects for 2022

Although the New Southbound Policy has increased exchanges between Taiwan and its partner countries, formal mechanisms like free trade agreements are needed to drive the economic relationships forward and better engage key partners, such as India. Graphic: Executive Yuan

Five years after its implementation, the Tsai government’s flagship policy initiative aimed at boosting engagement with South and Southeast Asian countries has delivered some encouraging economic results. But observers say that to fulfill the policy’s goal of developing more comprehensive relations, a greater focus on people-to-people ties is needed.

Taiwan’s Executive Yuan reported this September that overall trade between Taiwan and the 18 countries targeted under its New Southbound Policy (NSP) reached US$68.4 billion in the first half of 2021, a 32.14% increase from the same period last year. Trade in agricultural goods also experienced significant growth of 12.3%, which included a 31.7% rise in Taiwanese exports of fertilizer, pesticides, and farm machinery and equipment to the NSP countries.

In addition, approved or planned investment by Taiwanese businesses in NSP markets saw major increases between January and June this year. Sixty projects totaling US$2.24 billion were applied for or given the green light during that time, a year-on-year increase of 58.8%. Government-approved investments from NSP countries in Taiwan came to US$297 million; while a comparatively small amount, it represented a 57.5% increase from the first half of 2020.

For Taiwan and the Tsai Ing-wen administration, whose stated purpose for the NSP was in part to reduce economic overreliance on a single market, China, these numbers appear to indicate that the policy has been a smashing success. Of note is that the impressive growth in trade and investment has occurred despite a global pandemic that continues to impede economic recovery around the world.

Much of that growth can be traced to the consistent movement of Taiwanese business operations out of China due to issues such as the U.S.-China trade dispute, the emergence of COVID-19, and the Chinese government’s increasing hostility toward foreign and Taiwanese business interests. While a significant portion of capital has been directed toward Taiwan, Southeast Asian countries – particularly Vietnam, Malaysia, and Indonesia – have been the recipients of an increasing amount of investment by Taiwanese businesses.

According to Alan Hao Yang, a professor at the Center for Southeast Asian Studies at National Cheng Chi University, this movement is part of a global trend, as countries look to diversify their supply chain networks as a way to mitigate risk and increase resilience to shocks like another pandemic. “The idea is not to terminate their Chinese factories but rather to set up another network in neighboring countries like Vietnam due to [its status as an] emerging market and its abundant labor force,” he says.

Yang, who also serves as executive director of the Taiwan-Asia Exchange Foundation (TAEF), a think tank that focuses on Taiwan’s relations with ASEAN and South Asian countries, says that while this year’s trade and investment numbers have indeed been impressive, they’re not large enough to meet the goal of weaning Taiwan off of the Chinese market. And in any case, the aim of the NSP is not solely to bolster commercial ties with the program’s countries.

Taiwan-Asia Exchange Foundation Research Fellow Sana Hashmi (left) and the foundation’s Executive Director Alan Hao Yang (right) co-chair a session at the Yushan Forum, an annual event to discuss Asia-Pacific regional issues. Photo: TAEF

“As President Tsai has mentioned, it is imperative to engage comprehensively with neighboring countries,” he says, referring to the NSP’s four pillars of promoting economic cooperation, conducting people-to-people exchanges, enhancing resource sharing, and forging regional links.

Educational cooperation

Over the past five years that the NSP has been in effect, Taiwan has made significant efforts to engage its regional partners in a number of different areas. Considerable effort has gone into talent training, particularly in attracting students from NSP countries to study in Taiwan. The Ministry of Education (MOE) in late November reported that while the total number of international students enrolled in Taiwanese schools fell by 30,000 in 2020 due to the pandemic, those from NSP countries decreased by only 2,000. Furthermore, such students constituted 56% of the foreign student population in Taiwan last year, a nearly 30 percentage point increase from 2016, the year the NSP was launched.

In addition, the Chinese-language Liberty Times reported that 75% of students that came to Taiwan in 2017 through the MOE’s International Programs of Industry-Academia Collaboration in Taiwan continued on in Taiwan after their studies. The scheme, which combines targeted degree programs with internships in related industry areas, is available exclusively for students from NSP countries.

Yet while a growing number of students from ASEAN and South Asian countries are choosing to come to Taiwan to pursue educational and career opportunities, the reverse cannot be said of Taiwanese students. Huynh Tam-Sang, a lecturer at Ho Chi Minh City University of Social Sciences and Humanities and research fellow at Taipei-based think tank Taiwan NextGen Foundation, cites MOE data showing that last year fewer than 1,000 Taiwanese students chose to pursue a degree at Southeast Asian universities. In comparison, 23,700 went to the U.S. for their studies and 9,500 to Japan.

In order for Taiwanese to gain a deeper understanding of Southeast Asia and vice versa, Huynh says that the government needs to better incentivize its students, researchers, and scholars to engage in academic exchanges with educational institutions in NSP countries. “These can be short-term programs, around six months, or they can be one to two years,” he says, adding that cultivating a pool of young Taiwanese that are familiar with the local customs and bureaucracy around the region can also help Taiwanese firms minimize the costs and challenges of doing business in NSP markets.

Another issue is that the vast majority of international students and aspiring talent coming to Taiwan through the NSP’s flagship education programs are from Malaysia, Vietnam, and Indonesia, countries that are home to substantial ethnic Chinese populations and with which Taiwan already maintains deep ties. However, some say that more needs to be done to engage those countries that have not traditionally been on Taiwan’s radar but have nonetheless been identified as key partners under the NSP.

One such country is India. Relations between Taiwan and Asia’s largest democracy have warmed significantly since they established representative offices in each other’s respective territory in the mid-1990s. Sana Hashmi, a visiting fellow at the TAEF and an expert on Taiwan-India relations, cites such developments as the establishment of the Taiwan-India Parliamentary Friendship Association in 2016, as well as activities organized by the Taiwan External Trade Development Council (TAITRA) in India, as demonstrating the two sides’ desire to further institutionalize their relationship.

Hashmi says that economic and commercial development has long been the focus of relations between India and Taiwan. However, she noted in a recent report for the French Institute for International Relations that several previous attempts to accelerate that development were less than successful. As a result, bilateral trade and investment between the two sides have remained relatively low compared with other countries in the Indo-Pacific. In her report, Hashmi noted that overall trade between India and Taiwan in 2020 totaled US$5.6 billion, a small fraction of the approximately US$89 billion in trade Taiwan conducted with ASEAN last year.

One issue she raises is that while the work of TAITRA and other organizations set up to foster better commercial relations between Taiwan and India is important, formal mechanisms like a free trade agreement are needed to really drive the economic relationship forward.

Furthermore, Hashmi notes that the traditionally risk-averse approach of Taiwanese businesses has caused them to invest in places they are more familiar with, namely China and Southeast Asia. She suggests that these companies look to the examples of Singapore and Japan, whose firms have been making inroads in India for several years.

Although on paper the NSP has not yet garnered the kinds of economic results that Taiwan and India might have hoped for, Hashmi explains that the policy and the outreach it encourages have succeeded in expanding the breadth and depth of cultural and people-to-people ties. Given the increased attention paid to Taiwan by the Indian government and public in recent years, thanks in no small part to Taiwan’s skillful handling of the COVID-19 pandemic and its offers of medical equipment and assistance to India, the time seems ripe for the two sides to build on their mutual goodwill.

Elephant in the room

Most observers agree that the main impediment to Taiwan further deepening ties with its NSP partners is intervention by China, whose expansive Belt and Road Initiative (BRI) allocates significant resources toward economic development projects in South and Southeast Asia. Furthermore, the desire of regional leaders to avoid antagonizing China has caused them to take a more cautious approach to dealing with Taiwan.

“China is paying attention to Taiwan’s every move,” says Yang of the TAEF. “They target the areas where we have an advantage. And because they are a larger economy, they have a lot of resources to fully promote those areas and then squeeze our diplomatic and other space in the region.”

Joyce Juo-yu Lin, professor emeritus of the Graduate Institute of Southeast Asian Studies at Tamkang University, says that China’s 14th Five-Year Plan, released this March, seeks to incorporate Taiwanese overseas businesspeople (known in Mandarin as Taishang) into the BRI, but that is not easy to accomplish.

“Chinese state-owned enterprises are huge in scope and have lots of power,” she says. “But the Taishang are overwhelmingly small and medium-sized enterprises,” which makes it much harder to compete in the targeted markets. “So now these Taiwanese businesses that want to diversify their overseas investment are increasingly looking to the American market. [U.S. President] Biden’s infrastructure bill, which was recently passed by Congress, makes the U.S. very attractive for the Taishang.”

Tamkang University’s Joyce Juo-yu Lin (center) has studied South and Southeast Asia for over 30 years. This year, she founded the South and Southeast Asia Association Taiwan, which seeks to increase various kinds of collaboration between Taiwan and its regional neighbors. Photo: Joyce Juo-yu Lin

In addition, Lin says, Taiwan’s exclusion from the China-led Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), trade pacts that combined include virtually every other Asia-Pacific country, has further discouraged Taiwanese enterprises from expanding into those markets.

In spite of the challenges, Lin is determined to put her three decades of observing the region, including a stint in the early 1990s as Southeast Asia correspondent for the China Times, to use in bolstering engagement. Earlier this year, she founded the South and Southeast Asia Association Taiwan, a nonprofit that aims to promote industry, government, education, and research ties between Taiwan and its regional neighbors through the integration of area research, political and economic development, trade and investment, and social and cultural resources.

“I think we can enhance mutual understanding between Taiwan and the ASEAN member states, as well as South Asian countries,” Lin says. “Because the more relations that are established – and the deeper they become – the more important that understanding will be.”

The global shortage of semiconductors also presents opportunities for Taiwan in NSP countries. India, for example, has expressed interest in working with Taiwan to develop its own chipmaking capabilities. In November, Indian media reported that the country was in talks with the Taiwan Semiconductor Manufacturing Co. (TSMC), as well as other major chip producers, to invest in India under a massive incentive program coordinated by Prime Minister Narendra Modi’s office.

The TAEF’s Yang says that while developing economic engagement can be considered the “main theme” of the NSP, “it spills over into other dimensions, including social resilience and other areas where Taiwan has comparative advantages.” He says that over the past few years, the TAEF has promoted the notion of Taiwan’s “warm power” – its willingness to share knowledge, experiences, and resources with NSP countries – which has endeared them to Taiwan.

“As these countries continue to refer to Taiwan and increase their curiosity about Taiwan and Taiwanese people, they will learn more about our position and challenges, which are common to their countries as well,” he says. “Our suffering and responses are quite useful for their reference.”