Why Taiwan's New Southbound Policy has failed to achieve its goals
Taiwan's government has been actively promoting the New Southbound Policy (NSP) - set as the country's overall external strategy - since 2016. The policy emphasises the building of partnerships with the Indo-Pacific region to forge extensive and deepening links and exchanges.
Besides traditional areas of cooperation such as economics and trade and manufacturing base transfer, the NSP emphasises links and exchanges in the fields of science and technology, culture, education, and human resources, in the hope of creating common interests in the region.
The Southbound Policy indeed bears important geopolitical and economic significance for Taiwan, but as Tsai's term draws to a close, it is almost certain that the NSP will not achieve its stated goals.
Twists and turns of the Southbound Policy
The geopolitical importance of the Southbound Policy for Taiwan can be gleaned from a long historical examination. In 1936, the Japanese governor Seizo Kobayashi announced the three principles for governing Taiwan: "Imperialisation, industrialisation, and base for southward expansion."
The main strategic consideration at the time was to obtain oil and other raw materials from Southeast Asia. However, it was too time-consuming to transport them back to Japan, process them and ship them back to the South China Sea front. Taiwan thus pivoted from "industrial Japan, agricultural Taiwan" to "industrial Taiwan, agricultural Nanyang (Southeast Asia)".
After WWII, Taiwan's political and economic development was reset in the orbit of the US's first island chain. Taiwan was in the East Asian "flying geese" development order, of which the economic engine was manufacturing industries aimed at the export market of the US.
However, Taiwan's manufacturing industries started moving towards China in the 1990s. The second Southbound policy, led by Lee Teng-hui in 1994, thus had multiple objectives. In addition to the appreciation of the Taiwan dollar, which put pressure on labour-intensive industries to move out of the country, there were also strategic objectives such as diversifying overseas investments, establishing an early presence in the ASEAN Free Trade Area, and enhancing Taiwan's position in the regional security system.
...the policy actively attempts to enhance the substantive relationship with ASEAN and maintain Taiwan's balanced position in East Asia.
However, after the Asian financial crisis, Taiwanese businesses who went to invest under government policy suffered considerable losses, and the post-1997 Southbound policy was changed to ease Taiwanese financing and encourage Taiwanese businesses to merge with local enterprises. However, since Taiwanese businesses moved westward to China after the Asian financial crisis, President Chen Shui-bian announced the third wave of southward policy in 2002.
'Maintaining sovereignty through economic means'
The passive side of the southward policy aims to diversify investment risks and avoid over-concentration in China, while the policy actively attempts to enhance the substantive relationship with ASEAN and maintain Taiwan's balanced position in East Asia. The specific actions are mostly government-led, with state-owned enterprises forming the vanguard, supplemented by financing, tax concessions, and assistance in factory-building.
This strategy of "maintaining sovereignty through economic means" was actually pioneered during the time of Chiang Ching-kuo, and was called "pragmatic diplomacy". When Chiang Ching-kuo's Kuomintang government faced diplomatic defeat after the normalisation of relations between the US and China in the 1970s, it successfully compensated for the ROC's loss of political representation in international politics through the economic power of the world market, thereby ushering in the era of the "Republic of China on Taiwan", which rebuilt the legitimacy of the ROC based on Taiwanese elements.
... the westward shift of Taiwanese businesses after the Asian financial crisis illustrated that political will alone is not much of a match against the appeal of low prices of productive factors.
The strategy of "maintaining sovereignty through economic means" was successful due to four factors. First, the US maintained a two-sided approach to Taiwan's sovereignty, that is, Taiwan shall maintain the "status quo", but it is the US that defines what exactly "status quo" means. Second, China did not challenge US hegemony; third, Taiwan's influence in the world economy at the time was more important than China's; fourth, the KMT authoritarian government had overwhelming power over the bourgeoisie at the time and was able to command the bourgeoisie to submit to the country's political interests.
These four factors were gradually reversed during the Lee Teng-hui era, and the westward shift of Taiwanese businesses after the Asian financial crisis illustrated that political will alone is not much of a match against the appeal of low prices of productive factors.
This is actually a reflection of government institutions labelling their daily business in Southeast Asia as part of the NSP to carve up the new and large policy budget.
Challenges of the present
It is good that the Tsai administration has noticed that maintaining sovereignty through economic means alone is no longer a viable way for the NSP and emphasises extensive and deepening links with Southeast Asian countries. The main shortcoming of the NSP, nevertheless, is that the Tsai administration has not established a strategic axis, analytical framework, and implementation process based on Taiwan's specific national conditions and overall regionality of Southeast Asia.
A review of the official website of Taiwan's new southward orientation reveals that its contents are all-encompassing: anything related to Southeast Asia can be included in the NSP. This is actually a reflection of government institutions labelling their daily business in Southeast Asia as part of the NSP to carve up the new and large policy budget. Interestingly, this phenomenon also exists in China's Belt Road Initiative to a certain extent, except that China is also competing with Japan and the US. The result is that Southeast Asian countries have room to operate in a hedging strategy.
The US has suggested that Taiwan's Southbound Policy could focus on "empowering women" and improving the economic status of women. Taiwanese officials have privately expressed their inability to understand its relationship with the NSP.
In fact, if women were to enter the market and obtain gainful employment, it would not only improve gender inequality but would also lead to a decline in fertility rates, thus moving a society from a traditional agricultural society to a modern industrial society. This is exactly how the US directed family planning implemented in Taiwan from the 1950s to 1970s, which propelled Taiwanese women toward the export processing zones and made Taiwan an overseas processing base for the US. Economic assistance, social development, and overall foreign strategy for Taiwan are all set consistently with the US's policy.
...the Taiwanese government must build their capacity to carry out integrated planning so as to effectively achieve its stated goals.
With the prices of productive factors rising in China, as well as the escalation of geopolitical conflict between the US and China, foreign and Taiwanese corporations are now diverting their investments from China to Southeast Asia. This again demonstrates the importance of a Southbound Policy for Taiwan.
Nevertheless, the Taiwanese government must build their capacity to carry out integrated planning so as to effectively achieve its stated goals. Otherwise, the NSP would simply descend into the pork barrel politics of the bureaucratic system, with no major achievement in the end.