By Rowland Goddard, Director of Finance
Taiwan is a small country located on an island just 130 km away from mainland China. What was referred to as the Republic of China is a fully democratic state that opposes any governmental affiliation with China. Over the past decade, relations between the two countries have deteriorated and the effects of this can be felt in business internationally. As Russia invades Ukraine, parallels between the two conflicts are seen as a warning sign for the Taiwanese people.
In 1949, the civil war in China reached its tipping point and the communist People’s Republic of China beat the nationalist Republic of China. This forced the nationalist government to Taiwan and made Taipei the temporary capital of the Republic of China. For years the western world considered the nationalist government in Taipei the head of China as it followed their democratic viewpoints. However, as the communist party grew in strength the diplomatic recognition was reluctantly shifted in 1979. The ongoing support from the U.S. has always been a significant reason why China has yet to make a serious military push on Taiwan. However, the events in Hong Kong showed a shift in power which was felt in businesses within and also outside the Chinese Area.
A prime example of this was when Lithuania showed support for Taiwanese independence by including the Taiwanese name in a political trade office. Most countries have avoided this and instead used just Taipei as a label. This insult quickly led to severe consequences. The Chinese government banned importing all goods from Lithuania and blocked any business that used products from Lithuania. Goods to China accounted for 2% of Lithuanian exports and were also the fastest growing. Taiwanese government and people have shown support by buying Lithuanian but losses are still considerable.
More unexpectedly, China also halted all exports to Lithuania, depriving manufactures of materials and components they need. This has hurt many businesses in Lithuania and forced the government to rethink its stance on Taiwan. The President has admitted that maybe it was a mistake to let the office use the Taiwan name.
Another example of the effect of China’s growing power is Beijing targeting Taiwanese companies with operations in China. These are primarily companies that have made donations to the Taiwanese political election campaigns. China does not want to allow a company to make commerce on the mainland and then donate money to political campaigns that do not align with their communist views.
This was first seen when the island’s Far Eastern Group was fined the equivalent of $13.9M US for environmental, labour and tax violations. FEG was the largest donor to election campaigns in Taiwan. This shows the increasingly uneasy workplace environment that an estimated 1.2 million Taiwanese work in China face. However, Beijing insists that the punishment is not connected to the underlying political motivation.
As Russia invades Ukraine, we notice many parallels forming between the two conflicts. Prior to Russia invading, it used many of the same tactics that China has implemented on Taiwan; cutting businesses off, making military threats to any country that comes in the middle and others.