NEW DELHI: Taiwan, a powerhouse in manufacturing, can aid India’s integration into new global supply chains.
In recent months, India and Taiwan, formerly known as Formosa, have been endeavouring to revisit their bilateral relations. India is seeking Foreign Direct Investment (FDI) and state-of-the-art technology from the island nation, which covers 36,000 sq. km and was established by Guomindang leader Chiang Kai-shek after fleeing Mainland China in 1949. In return, Taiwan looks forward to securing greater legitimacy as a separate and independent nation through more government-to-government dealings. This expectation is driven by the prevailing trend of strengthening international cooperation to face the aggressive and expansionist People’s Republic of China (PRC), as well as the global effort at risk mitigation in commercial matters through a China Plus strategy.
SEARCH FOR SECURITY REMAINS TAIWAN’S MAIN CHALLENGE
The security challenges to Taiwan from the PRC, which threaten its very existence, have persisted with varying intensity since its inception, and it is worth highlighting its nuanced history. These challenges stem from Chiang Kai-shek’s ambitions to reclaim Mainland China and unify the country under his leadership. Even after his death in 1978, the desire for reunification persisted but was overshadowed by a louder, state-sponsored call from the PRC to take over the island and merge it with the mainland.
Earlier, declining pro-unification sentiments in Taiwan were supported by its Han population, who currently make up almost the entire population of 25 million residents and have emotional and cultural ties with Mainland China. The Qing Dynasty rulers from Manchuria, who captured Peking in 1644 and ruled over Taiwan from 1683 to 1894, sought to keep the island quiet and posed little threat to coastal defense. After being defeated by the Imperialist Japanese in early 1895, the Taiwanese briefly asserted their own identity as distinct from the mainland by establishing an independent Republic of China. This assertion was short-lived but nonetheless initiated a search for a new identity that continues today. While most residents agree that their fate is closely linked with the mainland, they are divided on the nature of this linkage. A few still see themselves as an indelible part of the mainland. However, a much larger and expanding group seeks significant autonomy, if not complete independence, for their island.
The PRC’s stance against Taiwan has grown increasingly bellicose since Xi Jinping began his third five-year term as President in March 2023. More recently, this hostility has taken a menacing physical form, with the vastly superior Chinese Navy periodically encircling the island and military aircraft conducting threatening manoeuvres in the nearby seas. Understandably, these actions have contributed to the polarization of the small nation and accentuated assertive nationalism, culminating in the election of its leader, La Ching-te, as the new President. The persistent Chinese belligerence has led Taiwan to constantly seek allies to support its cause and help deter a possible invasion from the mainland.
After the Western world and the former Soviet Union opted to make the PRC a permanent member of the Security Council in 1971, Taiwan’s isolation in the international order has distinctly intensified. To gain legitimacy in the eyes of the free world, Taiwanese leaders in the post-Chiang Kai-shek era objectively assessed the emerging global situation and abandoned the pipedream of returning to the mainland. Instead, they began accelerating democratization and strengthening their military capabilities.
Simultaneously, the country focused on economic modernization through the development and deployment of modern technology in manufacturing, alongside an export-led growth strategy similar to Japan, South Korea, and Hong Kong. This approach has succeeded in making Taiwan a developed nation with a per capita income of US$36,000 and strong economic and social indicators. Nonetheless, with the backdrop of a complex history, the primary pillar of its foreign policy remains the search for security.
In 1979, the US Congress enacted the Taiwan Relations Act (TRA) to supply sophisticated arms and modern technology to enable Taiwan to build its self-defence capability. Since then, the USA has been equipping Taiwan with state-of-the-art military hardware and has stationed its nuclear-powered Seventh Fleet in the vicinity of East Asia. Taiwan looks forward to similar substantial armed support from other Western nations and QUAD members, Australia and Japan, and also expects their active involvement in military initiatives against the mainland.
DEALINGS BETWEEN TAIWAN & INDIA
From India, a rapidly emerging influential global player, Taiwan seeks more active support in various forums, particularly the Security Council and multilateral institutions, in addition to its committed role as a Quad member. As the emerging leader of the Global South, Taiwan hopes to have India rally other developing countries to be more considerate of its cause against China, which has never renounced the option of taking military action to annex Taiwan. To this end, Taiwan has begun leveraging its resources and is offering financial and technological support to least developed countries (LDCs). Many of these countries have allowed Taiwan to open trade and cultural offices, besides visa centers, although not full-fledged embassies. Majorly, Taiwan seeks more government-to-government interactions with these nations.
More significantly, Taiwan would like India and other countries to move away from their One China policy and recognize it as a separate, independent nation with traditional bilateral relations. So far, only about 50 nations, mostly from the West, have accorded Taiwan this status, though multilateral institutions such as the Asian Development Bank, GATT, WTO, and the Asia Pacific Economic Conference (APEC) have over the years admitted it. However, Taiwan’s attempts to gain entry into the UN and its agencies have been invariably blocked by the PRC and Russia.
Interestingly, Mainland China has not been too hesitant in allowing economic ties with Taiwan to grow. Over the years, billions of dollars have been invested by Taiwanese businesses in China, and there exists a thriving bilateral trade between the two countries. For the enterprising islanders, the mainland represents a huge market with vast opportunities to expand their businesses. It is fairly easy for them to procure land to set up manufacturing facilities, hire a disciplined and productive workforce, source raw materials and intermediates locally at competitive prices, and sell finished products to the large and prosperous Chinese middle class. Many also undertake their international trading operations from the highly efficient logistical arrangements on the PRC’s east coast.
This economic interdependence between the two otherwise “warring entities” is extensive and mutually beneficial. Similarly, Japan and South Korea maintain significant and diversified investments, production, and trade with both Mainland China and Taiwan, despite increasingly aligning geopolitically with Taiwan. All four prosperous nations stand to suffer significant losses in the event of a military conflict erupting over Taiwan, potentially disrupting decades of collaborative partnerships and economic ties.
The majority of sensible minds in both Taiwan and the Mainland hope that matters will not escalate to such a point, viewing the recent belligerence from the PRC more as a deterrent to prevent Taiwan from becoming overly assertive. Such an optimistic outcome relies realistically on a moderate Taiwanese leadership that avoids provocation beyond a point. Currently, with its own economy facing considerable pressure and the emergence of alliances like QUAD and AUKUS, along with defence arrangements among Japan, South Korea, and USA, the PRC can be expected to act with caution. Already, it has disputes with the Philippines over Scarborough Shoal and Spratly Islands, while US forces in the Indo-Pacific region remain vigilant against such actions of territorial expansionism.
In matters aimed at Taiwan’s economic improvement, opposition from the PRC is unlikely to be significant as it benefits from Taiwan’s prosperity. However, India should proceed cautiously in its dealings with Taiwan. It should prioritize strengthening economic ties without making major changes to its foreign policy regarding Taiwan. Minor adjustments, such as the recent bilateral agreement by the Indian Commerce & Industry to facilitate trade in organic food and medicinal plants, are unlikely to greatly upset the PRC, aside from the customary objections raised.
To successfully engage in more significant economic partnerships with Taiwanese businesses, Indian counterparts and government agencies must present proposals for collaborative advanced manufacturing that are sufficiently attractive. Currently, major Taiwanese entities like Taiwan Semiconductor Manufacturing Corporation (TSMC), a global leader in chip-making, Foxconn, a prominent electronics assembler specializing in smart mobiles, SYNergy, a major lithium-ion battery producer, and others are exploring the establishment of new facilities in India. This move is part of their strategy to diversify away from China. India offers these companies a large and expanding market, affordable workforce, and significant political stability. TSMC, in particular, holds a dominant position in high-end chip fabrication, with major US tech companies like Nvidia, Intel, and Apple relying on its products. Such factors make it and other Taiwanese firms highly desirable partners from the Indian perspective.
For the semiconductor makers, India is offering substantial financial and physical support at the new Dholera Economic Zone in Gujarat. To succeed, Indian policymakers must maintain flexibility in their approach, and similar facilitation is needed at other locations from federal and provincial institutions to attract overseas manufacturers. The coverage under the existing Production Linked Incentive (PLI) scheme could be extended to incentivize all ventures in advanced manufacturing and other segments to enhance Indian competitiveness. Additionally, import tariff slabs should be aligned with those in competing manufacturing nations, particularly in advanced semiconductor manufacturing countries like USA, South Korea, Japan, and Germany. It’s worth noting that the PRC is peeved because, while Taiwan Semiconductor Manufacturing Corporation (TSMC) has invested in Japan and Germany, USA has prohibited entities under its Chips Act from sharing technology and expertise with semiconductor related businesses located or dealing with the PRC. India’s integration into emerging global supply chains could become more likely under such conditions.
The forthcoming Budget presents a good opportunity to demonstrate official concern for ensuring higher domestic value additions, particularly in labour-intensive electronic industries, advanced semiconductors, electric mobility, and large-scale chemical batteries crucial for both existing and new electricity grids, especially in accommodating the renewable energy sources like solar power. Careful attention must be paid to ensuring policy continuity across these critical segments. Such an approach is crucial for creating long-term manufacturing capacities and capabilities in India, which could significantly reduce dependence on Chinese products.
Dr Ajay Dua, a development economist by training, is an ex Union Secretary, Commerce & industry.