China's tactics of intimidation and isolation directed at Taiwan as pro-independence sentiment on the island grows have sent relations between them to a two-decade low. As Taiwan nears a January election with the ruling party enjoying a strong lead in opinion polls, it's been speculated that Beijing could step up its pressure against Taipei by threatening a key economic pact. Ending the deal, however, would eliminate a tool the mainland has long relied on to manage relations with Taiwan.
Rising discord between Taiwan and China as crucial elections approach in Taiwan has raised the idea that Beijing could threaten the island's economy by terminating the Economic Cooperation Framework Agreement (ECFA). The pact, signed in 2010 when cross-strait relations were more cordial, offers a range of preferential policies giving Taiwanese manufacturers and exporters duty-free access to the otherwise restrictive mainland market and establishes the possibility of extending that access to trade in services. With the agreement, China hoped to increase integration of the cross-strait economy, thus giving Beijing more influence over Taipei and creating an atmosphere on the island less hospitable to thoughts of independence.
Although the deal as a whole is set to expire in June, neither the government in Beijing nor in Taipei has made any move to extend or renegotiate it. Negotiations over the services portion of the agreement, which were suspended in 2014 in the wake of mass protests in Taiwan, remain on hold. The declining efficacy of the deal and Taipei's growing tendency to dissociate politically and economically from the mainland gives Beijing the incentive to rethink it altogether. The pact's expiration — or even merely the idea that it would be allowed to expire — could provide political ammunition to the Taiwanese opposition Kuomintang — which Beijing arguably would prefer to win Taiwan's January elections over the governing Democratic Progressive Party (DPP). The economic harm to Taiwan's economy of ending the ECFA gives China a lever that it can use to try to rein in Taipei's hawkish cross-strait policies ahead of the election.
The cross-strait cooperation agreement expires in June. Neither China nor Taiwan has made any move to extend or renegotiate it.
A news conference held Oct. 30 by the Taiwan Affairs Office of the State Council, which holds responsibility for Taiwanese affairs, did little to refute the idea that the ECFA's days might be numbered. Ma Xiaoguang, a spokesman for the agency, stressed the frozen nature of the cross-strait dialogue while evading the question of whether China would exercise its option to terminate it. Beijing’s recent moves to ramp up economic pressure against Taipei, including an August ban on individual Chinese citizens making trips to Taiwan, make the chances of further economic escalation plausible, and the ECFA gives Beijing a potent cudgel to hold over Taiwan's head.
Trade with China accounts for 40 percent of Taiwan’s total exports, and the loss of preferential duty-free policies would add further drag on the Taiwanese economy, which has suffered under the weight of the global trade storm and sluggish semiconductor demand. Specifically, the ruling government, with an intent to minimize the cost, calculated that losing the ECFA would shrink Taiwanese trade at least 5 percent. An industrial assessment suggested the loss would hit industries such as chemicals, textiles, machinery and agriculture particularly hard.
But with the DPP's popularity on the upswing since Hong Kong's crisis erupted, potential economic threats may not have a significant political impact. Furthermore, there's a strong chance that they could backfire, feeding a DPP campaign narrative that focuses on Chinese intimidation. Besides, cross-strait economic linkages are a key part of China's strategy for managing its relations with Taiwan, so ending the ECFA would undercut Beijing's ability to influence Taiwan. It would also risk driving Taiwan to more aggressively pursue alternative economic partners, including the United States. And none of those outcomes would serve Beijing’s interests.