1 INTRODUCTION
Republic of China (RDC) ou Taiwan, is an island located at 200 km from the People's Republic of China (RPC), with independent government and being recognized as a country by 20 nations in the world (BARBOSA, JUNIOR from SATUR, 2016). A RPC, watch the island, as a rebel province that is part of its territory (VLADIMIR IVANOV, 2022). Russia's occupation of Ukraine, in 24 February 2022, with tacit support from China to the Russian invasion, sustained in the international system, speculation about Beijing's intentions with Taiwan (YEUNG, GAN e JIANG, 2022). For example, Thaddeus (2022) states that China's abstention from voting in the United Nations Security Council (HIM-HER-IT) in the resolution of criticism of the Russian country, raised concerns around the world over the possibility of China launching an attack on the island.
Since it is also verified that over the last decades, the United States is trying to increase Taiwan's participation in the international system in trade and security (WENZHAO, 2017). And China sees the act as an action to further energize tensions with Taiwan, in threatening the peace and stability of the island strait, possibly needing to use force to control Taiwan (HERNÁNDEZ, 2016; TRENT, 2020).
That is, the Chinese who claim the existence of a single China in the region, view this act as an infringement of their sovereignty. On the other hand, the US Congress honors its commitment to supporting Taiwan's vibrant democracy.
Therefore, b Hsu, Hsu e He (2021), the complexity of relations between the two sides of the Taiwan Strait is incapable of portraying just from a political or security perspective, thus there may also be room for an economical approach, for a better understanding of tension levels between countries. Since countries' foreign trade is strongly interconnected, with China representing more than $82 billion, United States near $40 billion from Taiwan's trade (MA, 2022).
How foreign trade and country security are closely associated, one might think that the metrics, like Pearson's linear correlation, logistic regression, spatial econometrics, assist with research sampling, to find out statistically, with high tensions on both sides of the Strait, may be increasing or decreasing, the percentage of Chinese trade investments in relation to the Taiwanese market (PIETRAFESA and SILVA, 2019). And it is understood, predominantly traditional biomass fuels, that the Chinese are being much more hostile towards the island, in view of the greater westernization of Taiwan (TIAN e LEE, 2020). Making it, in response, the percentage of the island's investments in Mainland China is also reduced(YEUNG, GAN e JIANG, 2022).
Linear correlation and the logistic model, show that Taiwan can be aggressive, even in Chinese cooperative (PIETRAFESA and SILVA, 2019). Some studies like Christensen (2006), illustrates that Taiwan is the most sensitive issue in Sino-US relations. And the studies of, Wang (2013), Huang (2017) and Rato (2020), are concerned with reporting the historical development of countries, without having a deep statistical analysis. Like this, whether there may be the possibility for a statistical approach, and have variables that can clarify, a part, of the island's political sensitivity in the relationship between China and the United States.
The spatial econometric analysis, is relevant, as it is seen how much Taiwan's greater affinity with the United States, the island's investment or trade strategies with the Chinese are changed. Basically, Taiwan's investment in China and the risk of business or market are negatively correlated, indicating that Taiwan's investment in China has been affected by the general economic relations between the two countries, with strong tensions, especially in Taiwan in recent years (GOMES, LIMA, et al., 2019). And this also impacts business strategies for companies located on the island.
In this way, The objective of this research project is to research and evaluate the levels of tension between the United States, China and Taiwan between 2012 e 2022, the reasons for the increase in tensions between these periods, addressing security relations and economic relations.
Lastly, The research project aims to research the following topics: China's economic relations, Taiwan and the United States. With the aim of verifying how much the Chinese government is willing to use political or economic force for the reunification of both sides of the Taiwan Strait and the policy stance of the Americans towards the Chinese and Taiwanese.
2 Balance of the International Economy between China, United States and Taiwan
This chapter will discuss Taiwan's foreign trade stance and the economic effects that non-adherence to the ASEAN Agreement may have on the island's economy.. After that, as China is willing to be hostile towards the island to achieve its dream of national regeneration, A spatial econometric analysis is carried out to determine how much Taiwanese investment in Chinese trade has been decreasing and is a possible response to the Chinese aggression that Taiwan has been suffering.
2.1 Taiwan Foreign Trade, dependence on China or the United States and effects with the Asean Agreement from the perspective of Krugman's trade policy
Since the study cannot have just a single political approach, for understanding tensions between China, United States and Taiwan. Therefore, Hsu, Hsu e He (2021) assert that the complexity of relations between the two sides of the Taiwan Strait is incapable of portraying just from a political or security perspective, thus being able to have space for an international economic approach.
Initially, Taiwan's international trade is strongly interconnected with the United States and China, consisting essentially of industrial goods. China represents more than $82 billion, United States near $40 billion of Taiwan's foreign trade (MA, 2022). Of 2013 up until 2021, China represents 24% and the United States with 12% do total trade in relation to Taiwan(MORNING OF TRADE, 2022). However,, between 2015 up until 2020, China recorded a trade deficit of more than 140 billion dollars with Taiwan (FIGURE 5).
Figure 5: Trade balance between China and Taiwan 2015 a 2020 (in billions of dollars)
Source: (MA, 2021).
This shows how much the Taiwanese island's trade is linked to one of the world's main economies.. And based on data from UN Comtrade, 62% of the total volume of United States trade with Taiwan came from imports from the island state in 2021. The majority of these goods fall within the IT and electronics sector, with companies like Apple, Qualcomm and NVIDIA relying on chips made in Taiwan's large-scale semiconductor foundries (ZANDT, 2022). This fact also highlights how Taiwanese trade is strongly associated with American trade., even adopting a policy of producing industrial goods in its territory (KING, 2022).
The phrase “producing for Americans”, on State of Union of Joe Biden addressing the international market, at the beginning of March 2022, in the National Congress (U.S. DEPARTMENT OF STATE, 2022). Shows complications in relations with China and Taiwan, since much of American industry is found on both continents. Then, is seen by Biden's speech, that the American government intends to focus on friendshoring, political parties are providing some essentials – such as bread and milk – and, to take production to countries that are aligned with its policies and produce in the region itself. For example, Macy’s announced that its production will be outside of China (BHATTACHARYYA, 2018). Or does Intel have a plan to spend $20 billion in chip manufacturing centers outside Columbus, With this, the company hopes to become the largest semiconductor manufacturing site in the world, overtaking Taiwan (KING, 2022). Therefore, foreign trade between countries will be affected.
Another factor in international trade essentially between, China e Taiwan, are import tariffs. The “ASEAN” Agreement + 1” or ASEAN (Association of Southeast Asian Nations), signed in 1 of January of 2010, would eliminate or eliminate tariffs on imports from China Agreement countries, in more than 90% of products sold (FEDDERSEN, 2020). In addition to the discussion, the possibility of “ASEAN + 3”, that is, incorporation of Japan and South Korea into this free trade zone, Taiwan remains off the Agreement list. According to Chou (2010):
The ASEAN + 1 and ASEAN + 3 arrangements prevent Taiwan’s businesses from competing effectively in the Asian market, causing its eventual marginalization in the region. In 2010, while most ASEAN goods gain tariff-free access to the Chinese market, most Taiwanese imports into China will still be subject to a 6–14% tariff. Consequently, Taiwanese businesses will be forced to leave China and invest elsewhere to avoid this disadvantage. If allowed to snowball, this problem would hollow out Taiwanese industries and severely damage Taiwan’s competitiveness. With decreased capacity, Taiwan will no longer play an important role in the Asian economy, and will appear as “the wallflower in China’s dance with regional trade partners.” Making matters worse, South Korea, one of the “Plus Three” countries, also has an export-heavy economy and has become Taiwan’s biggest competitor in recent years. Thus, if Taiwan cannot effectively reduce its costs, its role in the Asian economy may be slowly replaced by an ambitious South Korea, which enjoys open access to China and ASEAN member countries. On the other hand, if Taiwan does successfully negotiate the ECFA and therefore levels the playing field, studies show that foreign investments in Taiwan can increase from 29 –42%. Should Taiwan also manage to negotiate free trade arrangements with ASEAN, its foreign and domestic investments are projected to increase another 23–37% (CHOU, 2010).
In other words, Chou (2010), shows that the Agreement is economically unfavorable for Taiwan, as the country will not participate in the free trade zone, and not having reductions in the price of imports of goods. That is, with the non-reduction of import tariffs from the island and possible increases, whether it has knock-on effects for Taiwan's economy and trade (KRUGMAN, OBSTFELD e MELITZ, 2015).
For example, how Taiwan would not have the benefit of the free trade zone, in zeroing its import tariffs. According to Krugman (2015), Taiwan would suffer from possible increases in the price of several goods, rising production costs, Greater loss of welfare for Taiwanese consumers, increase in customs tax collection, protection acceleration for Taiwanese semiconductor producers, for example. However,, greater loss of competitiveness of exporters of various goods to Taiwan (FIGURE 6).
Figure 6: The costs and benefits for different groups can be represented as the sum of the five areas
Source: (KRUGMAN, OBSTFELD e MELITZ, 2015).
Then, the areas of the two triangles and measure the loss to the nation as a whole (loss of efficiency) and the area of the rectangle ( ) measures a compensatory gain (gain in terms of trade). The loss of efficiency arises, because a tariff distorts incentives for consumption and production (KRUGMAN, OBSTFELD e MELITZ, 2015). Producers and consumers act as if imports are more expensive than they really are. The triangle is the production distortion loss and the triangle is the consumption distortion loss (KRUGMAN, OBSTFELD e MELITZ, 2015). The gain in terms of trade arises because a tariff lowers export prices abroad.
Briefly, with Taiwan's non-membership in the ASEAN free trade zone, the tariff raises the national price from to , but decreases the foreign export price from to . Consequently, national production accelerates from , while consumption falls from . The costs and benefits for different groups can be expressed as the sum of the areas of five regions, called (KRUGMAN, OBSTFELD e MELITZ, 2015).
A simple way to think about these gains and losses for Taiwan is as follows, according to Krugman, Obstfeld e Melitz (2015):
“The triangles symbolize the loss of efficiency that arises, because, a customs tariff distorts incentives to consume and produce, while the rectangle represents the terms of gain from trade that arise because the customs tariff lowers foreign export prices. The gain depends on the ability of the country's customs tariff imposition to reduce foreign export prices. If the country cannot affect world prices, the region and, which represents the terms of gain from trade, disappears and it becomes clear that the customs tariff reduces well-being.” (KRUGMAN, OBSTFELD e MELITZ, 2015).
That is, the customs tariff increases the price in Domestic, while decreasing the price abroad. When a country is of lesser importance in world GDP, like Taiwan, the price of imports of industrial or agricultural goods will increase ( for ) and the quantity demanded of imports decreases ( for ).
A customs tariff increases the price of a commodity in the importing country and reduces the price in the exporting country.. As a result, consumers lose in the importing country and gain in the exporting country. In other words, the price will increase for the consumer with Taiwan not having its imports reduced, for not participating in ASEAN and will have a reduction in consumption and an increase in national production. Therefore, producers tend to earn more in the importing country than in the exporting country. Besides that, the government earns revenue by imposing a customs tariff. Krugman's note, Obstfeld e Melitz (2015), confirms this hypothesis:
“Customs tariffs distort incentives for both producers and consumers by inducing them to act as if imports are more expensive than they really are.. The cost of an additional unit of consumption to the economy is the price of an additional unit of imports, also because the customs tariff increases the national price above the world price, consumers reduce their consumption to the point at which the marginal unit yields them good that is equal to the national price of the included tariff. This means that the value of an additional unit of production to the economy is the price of the unit of imports it saves., even if national producers expand production to the point at which the marginal cost is equal to the price of the tariff included. Therefore, the economy produces additional units of the commodity nationally that it could purchase more cheaply abroad.” (KRUGMAN, OBSTFELD e MELITZ, 2015).
Logo, Taiwan, will suffer from producer surplus and government revenue, having disincentives for the consumer and greater loss of competitiveness in exports and insertion in the international market (KRUGMAN, OBSTFELD e MELITZ, 2015) (TABLE 9). What it shows, also that the ASEAN Agreement may attempt to reduce, increasingly, Taiwan's participation in international affairs.
in your vision 9: Summary of the effects of international trade policies
| Policy | Import Tariff (customs) | Subsidy Export | Quota of Import | Restriction of Voluntary Export |
| Producer Surplus | Increase | Increase | Increase | Increase |
| Consumer Surplus | Reduce | Reduce | Reduce | Reduce |
| Government Revenue | Increase | Reduce (expenses of government expand) | No Change (rent to license owners | No Change (rent to foreigners) |
| Good – Be | (Ambiguous) decreases for small country | Reduce | (Ambiguous) decreases for small country | Reduce |
Source: (KRUGMAN, OBSTFELD e MELITZ, 2015).
Lastly, even though the United States is inserting Taiwan into trade or international affairs. It is seen that, in the coming decades, the island may not have such interconnected trade with the United States, for American investment in the production of semiconductor chips in Columbus (KING, 2022). And from China try, increasingly, isolate Taiwanese from regional trade and the rest of the world (FEDDERSEN, 2020). And one of Taiwan's possible responses is also to try to reduce its investments in Mainland China, that is, It is seen that low Taiwanese investments for Chinese trade, because it has a not very significant Moran correlation in some regions.
2.2 Spatial econometric modeling and the relationship between Chinese and Taiwanese trade
How the test of the correlation matrix and dichotomous probability of the logistic model was performed, Xi Jinping's most aggressive attitude towards the Taiwanese, is linked to the country's economic growth and participation (%) of China in the island's economy (TABLE 4) (PIETRAFESA and SILVA, 2019). Since China wants to increase Taiwan's dependence on Chinese trade, from that, the logistical values found, show how hostile the Taiwanese can be towards the Chinese (TABLE 5). Therefore, the chance of Taiwan's diplomatic action being hostile when Chinese diplomacy is 53,10 times greater than the chance of Taiwan's action being hostile when China's attitude is more cooperative (PIETRAFESA and SILVA, 2019). As the analysis shows, if Xi Jinping continues to pressure the Taiwan government for hostile actions, the answer is more likely not in the direction China would like it to be.
Then, with this data, Now another important measurement is to carry out econometric modeling, to find out how much the Taiwanese are changing their commercial and investment stance, in the last two decades, with the Chinese, since also, essentially under Tsai Ing-wen's government, has had a greater affinity for the West (TIAN e LEE, 2020).
The Moran index, helps to identify the impact factors of Taiwan's investment strategy in Mainland China in recent years 20 years, and the values show characteristics of uneven distribution in the eastern regions, central and western.
In the first place, Moran’s I is applied to determine whether or not spatial heterogeneity exists. Moran’s I has a significant advantage in studying the relevance of spatial variables. Reflects the degree of similarity between the properties of the unitary attribute values of adjacent regions to analyze the spatial autocorrelation coefficient between variables (GOMES, LIMA, et al., 2019).
In general, the selection criterion is I fall within the range -1 ≤ I ≤ 1 (LUZARDO, SON and RUBIM, 2017). When the economic behavior of the two regions is positively correlated, I is positive. When behavior is negatively correlated, I is negative. Se I for 0, the economies of these two regions are independent. Using global and local Moran indices can reveal the spatial correlation of the global region and the surrounding area (BALTAGI, 2009).
The spatial correlation test, is mainly based on testing the maximum likelihood estimation hypothesis through Wald statistics, LR e LM, Moran's spatial correlation index, and of Geary C (BALTAGI, 2009). Thereby, in this research project, Moran's I was adopted to measure the spatial distribution of Taiwan's investment in Mainland China in recent years 20 years, and the block matrix is used as a spatial weight matrix.
The spatial panel data model is divided into a lag space and in a model of error space. LMerr e LMsar, its shape-stable spatial correlation test can provide insight into the model definition, identify the selectivity of the spatial lag model and the spatial error model. See LMs (LMerr) is more significant than LMerr (LMsar), then the spatial delay model (model of error space) is appropriate (ALVES, 2017). This study obtained LMerr (0,2144) > LMsar (0,0742) based on the result, therefore, the model of error spatial model was more appropriate than the lag space. Based on global spatial correlation, the spatial autoregressive model showed that all explanatory variables for the economic growth of a region act on other areas through a spatial transmission mechanism. The model of error spatial analysis shows that the impact of regional spillovers is the result of random shocks. The adopted model of error space (WHICH) is the following:
O is the dependent variable, is considered the vector of independent variables (including a constant term), is the variable coefficient, and are spatial autocorrelation coefficients and is the error component. In the one-dimensional error decomposition model, or and in the two-dimensional error decomposition model , , e … considering the temporal dimension and the cross-sectional dimension, respectively. is the matrix of the T-dimensional unit, e is the n × n spatial weight matrix (n is the number of regions). Thereby, can determine the matrix of spatial weights and some factors that can influence investments from Taiwan to Mainland China.
This research project will use spatial panel data to analyze Taiwan's investment patterns in China. According to the geographic distribution of Taiwanese investment with the Chinese, published by the Investment Commission of the Taiwan Ministry of Economic Affairs, was chosen 21 provinces in Mainland China that are autonomous regions, as statistical samples (ALVES, 2017). These include Heilongjiang, Jilin, Liaoning, Hebei, Beijing, Shanxi, Tianjin, Shandong, Jiangsu, Anhui, Sichuan, Hubei, Chongqing, Shanghai, Zhejiang, Hunan, Jiangxi, Yunnan, Fujian, Guangdong, e Guangxi. Or algorithm K-nearest neighbor (KNN), as independent variable, was used to estimate the results of the Moran index test, I base it on a spatial weight matrix, cited above (TABLE 10).
in your vision 10: Regional impact factors of Taiwanese investment in Mainland China
| Independent variables | Abr. | |
| Investment Environment | Geography | ENVI |
| Infrastructure | INFR | |
| Environmental Social | SAY | |
| Legal Environment | DROP OFF | |
| Economic Environment | ECEN | |
| Market Environment | MARKE | |
| Innovation Environment | DESCENDING | |
| Social Risk | SORI | |
| Investment Risks | Legal Risk | RUN |
| Operational Risk | MARI | |
| Economic Risk | ECRI | |
| The degree of Taiwan appreciation | The degree of preference of investments in Taiwan | RECO |
Source: Adapted by the author.
According to Taiwan's TEEMA report, published annually, the factors that affected Taiwan's investments in Mainland China in 2008, 2009 e 2010 included twelve indices (TABLE 10): geography, infrastructure, social environment, legal environment, economic environment, market environment or business, innovation environment, social risk, legal risk, operational risk, economic risk and degree of appreciation of Taiwan, which means the preference degree of Taiwanese businesspeople would like to recommend Mainland China to other Taiwanese businesspeople as investment regions.
Then, data were obtained by an independent assessment of sample data, and not real economic data, these variables must be independent (TABLE 11) (BALTAGI, 2009). Yet, the data obtained from the model's multicollinearity test had a high degree of correlation between these indices. This characteristic can increase the standard error of the regression coefficients, thus changing the significance level and direction of the coefficients and (ALVES, 2017). However, the collinearity of the econometric model would not affect the size of the regression coefficients. Therefore, a collinearity test is performed to re-analyze the independent variables (GOMES, LIMA, et al., 2019). Significant regression coefficients can be obtained, that show the characteristics of correlations.
in your vision 11: Moran index test for provinces (1992-2010)
| Years | Moran | E(I) | WITH | P |
| 1991 | 0.1848 | -0.0500 | 2.3133 | 0.0290 |
| 1992 | 0.0518 | -0.0500 | 1.5217 | 0.0760 |
| 1993 | 0.1336 | -0.0500 | 1.9165 | 0.0560 |
| 1994 | 0.1663 | -0.0500 | 1.8711 | 0.0470 |
| 1995 | 0.1531 | -0.0500 | 1.6580 | 0.0680 |
| 1996 | 0.0992 | -0.0500 | 1.2300 | 0.0900 |
| 1997 | 0.0836 | -0.0500 | 1.5321 | 0.0780 |
| 1998 | 0.0519 | -0.0500 | 1.0922 | 0.1370 |
| 1999 | 0.0167 | -0.0500 | 0.6624 | 0.2036 |
| 2000 | 0.0064 | -0.0500 | 0.5465 | 0.2250 |
| 2001 | 0.0762 | -0.0500 | 1.1951 | 0.1230 |
| 2002 | 0.1675 | -0.0500 | 1.9454 | 0.0550 |
| 2003 | 0.1228 | -0.0500 | 1.5897 | 0.0810 |
| 2004 | 0.2012 | -0.0500 | 2.3281 | 0.0310 |
| 2005 | 0.1659 | -0.0500 | 2.1419 | 0.0320 |
| 2006 | 0.1166 | -0.0500 | 1.7463 | 0.0670 |
| 2007 | 0.1216 | -0.0500 | 1.7386 | 0.0630 |
| 2008 | 0.1417 | -0.0500 | 2.2606 | 0.0240 |
| 2009 | 0.1300 | -0.0500 | 1.9956 | 0.0400 |
| 2010 | 0.1012 | -0.0500 | 1.6154 | 0.0700 |
Source: Adapted by the author.
No total two 20 years of Taiwanese regional investment in Mainland China show the characteristics of a positive spatial correlation. The data from 1991, 2004, 2005, 2008, e 2009 were significant at the level of 5%; 1993, 1994, 2002, 2006, e 2007 were significant at the level of 10%. The positive correlation for the other years was not significant (TABLE 11).
It is seen that, 1991, 2005, e 2009 as years with significant characteristics of spatial concentration, as well as 2010 (year in which the Economic Cooperation Framework Agreement (ECFA)). And even so, having a non-significant positive correlation, some other regions present better results. The Pearl River Delta region has become Taiwan's main investment region. Fujian, Guangdong, e Shanghai are the three main areas of investment and represent, mostly, labor-intensive industries (FIGURE 7). Taiwan's investment in these three regions shows a positive correlation with space (first quadrant).
Figure 7: Spatial correlation plots of the global Moran’s I index
Source: Adapted by the author.
Taiwan's investment was low in the regions of Guangxi, Jiangxi, Zhejiang, and precise geospatial distributions were positively correlated with these three regions. Taiwan's investment in the remaining provinces was relatively small. In 2005, Taiwan's investment pattern in China had changed (FIGURE 7). There were significant positive spatial correlations between Jiangsu, Shanghai, Zhejiang, e Fujian. Guangdong, with a large volume of investment from Taiwan, showed a negative correlation with surrounding provinces and a small investment from Taiwan. Shandong, Anhui, e Guangxi had little investment in Taiwan and showed a negative spatial correlation (BALTAGI, 2009).
The remaining provinces that have low investment from Taiwan, showed a positive spatial correlation. In 2009, Jiangsu, Shanghai, e Zhejiang showed positive spatial characteristics. Shandong, Anhui, e Fujian showed a negative spatial correlation. Guangdong, a province with heavy investment from Taiwan, showed a negative correlation with the surrounding areas (BALTAGI, 2009). However, Guangxi showed strong spatial independence. In 2010, the spatial heterogeneity of Taiwanese investment in China was not significant, while the spatial distribution of investments was homogeneous.
The spatial concentration plot of the Local Spatial Association Index (LISA) measured using the Moran index, shows that the distribution of Taiwan's invested region since 1991 and has two significant characteristics (FIGURE 8). Firstly, a significant positive correlation was indicated between low-value areas in Sichuan (level of 1%) e Yunnan (5%). The spatial correlation of the remaining provinces was not significant. In 2005, in the province of Anhui and surrounding areas showed a significant negative correlation (1%). Zhejiang and the bordering regions showed a positive correlation at the level of 5%. Sichuan e Yunnan showed a low positive correlation at the level of 5%. In 2009, the provinces that showed a low-value positive correlation (5%) they were Yunnan, Sichuan, Hubei e Chongqing. In the province of Anhui showed a negative correlation at the level of 5%, and the province of Zhejiang showed a positive correlation of 5%. In 2010, in the province of Anhui showed a low negative correlation – at the level of 5%, While Zhejiang showed a high-value positive correlation – at the level of 5%. The spatial correlation of the remaining provinces was not significant (BALTAGI, 2009).
Figure 8: The spatial concentration of the Moran index
Source: Adapted by the author.
Like this, Taiwan's investment in China in recent 20 years was the highest in the province of Zhejiang, which had the strongest spatial correlation and the greatest homogeneity with the surrounding areas, while the province of Anhui and its surrounding areas showed little significant spatial heterogeneity. The investment pattern of Taiwanese in Mainland China presents polarization and the lack of an appropriate inter-regional cooperation mechanism, which resulted in weak spatial correlation between regions (ALVES, 2017). The interregional distribution of Taiwan's investment has not resulted in a more interactive development situation between both sides of the Strait(YEUNG, GAN e JIANG, 2022).
And within this pattern of Taiwanese investments in China, There are the main sectors that were impacted by the change in the island's strategic posture(YEUNG, GAN e JIANG, 2022). The results show that regional differences were not taken into account, and the most important factors in Taiwan's investment in Mainland China in the past three years (2007, 2008 e 2010) are the improvement of the natural environment, infrastructures, and economic risk (TABLE 12) (ALVES, 2017).
in your vision 12: Results of the overall panel model analysis
| Variables | Coefficient | Std. Error | t- Statistic | Prob. |
| ENVI | 0.437815 | 0.465588 | 0.940349 | 0.0372 |
| INFR | -1.134638 | 0.601653 | -1.885869 | 0.0595 |
| SAY | 2.189960 | 0.485041 | 4.514996 | 0.0000 |
| DROP OFF | -6.714128 | 0.597710 | -11.23308 | 0.0000 |
| ECEN | 4.732710 | 0.400019 | 11.83122 | 0.0000 |
| MARKE | 8.004338 | 0.634303 | 12.61315 | 0.0000 |
| DESCENDING | -0.831210 | 0.417115 | -1.992758 | 0.0465 |
| SORI | 2.888208 | 0.534176 | 5.406851 | 0.0000 |
| RUN | -6.854205 | 0.750625 | -9.131328 | 0.0000 |
| MARI | 4.887199 | 0.805937 | 6.063994 | 0.0000 |
| ECRI | 0.001636 | 0.739322 | 0.002213 | 0.0982 |
| RECO | -3.817749 | 0.426538 | -8.950542 | 0.0000 |
| R² | 0.386220 | Average dependent var | 11.79129 | |
| Adjusted R² | 0.381071 | S.D. dependent var | 1.806638 | |
| S.E regression. | 1.421319 | Soma residual dos R² | 2648.415 | |
| Try Durbin Watson | 1.393557 | Second Stage SSR | 2648.415 | |
| Instrument Rank | 13.00000 | |||
Source: Adapted by the author.
The results indicate that some variables significantly affected Taiwan's investment in the Chinese market at the level of 5%. Among these factors, or social environment, the economic environment, and the market environment had significantly positive impacts. The legal environment and the innovation environment had significantly negative impacts. Social and market risk have had significantly positive impacts on investment in Taiwan. Legal risk had a significantly negative impact. The degree of preference for Taiwan had a significantly negative impact. It can be concluded from these results that the factors that effectively promoted Taiwan's investment in Mainland China in recent 3 years mainly include the social environment, or economic environment, the market environment, and the lowest legal risk.
And the results presented econometric fixed-effect spatial error model (WHICH), show that the 21 sampled areas that received investment from Taiwan in 2008, 2009 e 2010 had effects on both the model 2 of spatial fixed effects and in the model 3 in temporal fixed effects (TABLE 13). Geographic environment and market environment showed a significant positive relationship with Taiwan's investment at the level of 1%; infrastructures and the legal environment showed a significant negative correlation at the level of 1%; business risk (business) and the degree of appreciation of Taiwanese businesspeople showed a significant negative correlation to the level of 5%.
in your vision 13: Fixed Effect Spatial Error Model (WHICH)
| Variables | Coefficients | |||
| Model 1 | Model 2 | Model 3 | Model 4 | |
| Intercept | 11.7995 | |||
| ENVI | 1.3662 | 2.441638*** | 1.947974 | 2.946701*** |
| INFR | -2.1184 | -4.711658*** | -2.075676 | -5.252975*** |
| SAY | 3.0410 | 1.912495* | 3.760813* | 1.856820* |
| DROP OFF | -7.4177*** | -4.003429*** | -8.309495*** | -4.377563*** |
| ECEN | 4.5272** | 0.969862 | 4.874697*** | 0.843587 |
| MARKE | 7.1753** | 4.465349*** | 6.916222** | 5.001891*** |
| DESCENDING | -1.2589 | -2.188730** | -1.527832 | -2.250578** |
| SORI | 1.7089 | 0.783276 | 1.417288 | 1.431297 |
| RUN | -6.6332** | -0.882737 | -7.455075** | -0.703268 |
| MARI | 3.3069 | -4.182716* | 3.404127 | -5.666034** |
| ECRI | 0.6318 | 1.579397 | 1.568447 | 2.009705 |
| RECO | -4.4494** | -1.883895** | -4.853772** | -2.048145** |
| car bed. | -0.1790 | -0.210969 | -0.233976* | -0.312971** |
| R | 0.4145 | 0.9296 | 0.4075 | 0.9289 |
| F | -110.08523 | -43.476101 | -110.68627 | -44.30271 |
| Total Time | 0.4810 | 0.1220 | 0.0970 | 0.1140 |
Use: *p < 0,1; **p < 0,05; ***p < 0,01. Model 1: No fixed effects; Model 2: Spatial fixed effects; Model 3: Temporal fixed effects; Model 4: Spatial and temporal fixed effects.
Source: Adapted by the author.
The results of the spatial error model (WHICH) showed that the difference in geographic environments, inter-regional market developments and the gradual improvement in each region of these two factors, have had a significant positive impact on Taiwan's investments in Mainland China over the past three years (2008, 2009 e 2010).
The difference in interregional infrastructure and legal environment has significantly constrained Taiwan's regional investment strategy. The model results 4 indicate that business risks and the degree of appreciation of Taiwanese businesspeople most significantly (level of 5%) restricted the choice strategy of Taiwanese investment in Mainland China. If regional differences were not taken into account, of the most important factors relating to Taiwan's investments in Mainland China over the past three years, or social environment, the economic environment, the market environment, social risk and market risk could have greater significantly positive impacts. The legal environment, the innovation environment, legal risk and the degree of appreciation of Taiwanese businesspeople have had significant negative impacts on investment in Taiwan.
In a simple way, Taiwan's major political events have affected the desirability of investing in China, and a more democratic government returned to power, which gradually reduced the positive message that was favorable to economic interaction between the two sides of the Strait (MA, 2021). It also affected and changed confidence, behavioral strategies and regional distribution of Taiwanese investments in Mainland China.
And the question that remains is whether even with some Chinese areas or regions that Taiwan may be investing more, others with investment reductions, China with greater hostile behavior towards the Taiwanese, because they believe they are sovereign in the Strait, is whether China will really invade Taiwan and whether the Americans will protect the Taiwanese? And what could be more important in this conflict, is it the political or economic side? Since Taiwan is closely associated economically with China and the United States, and how it was shown, that over the last few 20 years, has been reducing its investments in Mainland China (PIETRAFESA and SILVA, 2019) e (MA, 2021).
3 China will invade Taiwan? Americans will protect the island? In this conflict, politics or economics will stand out?
After all the qualitative and statistical discussion, It is seen that China is increasingly close to having an offensive against Taiwan. And from that, it is possible to prepare 6 topics on Chinese motivations in the event of an invasion of the island:
1 – Taiwanese westernization
As already discussed, the relationship between Taipei and Beijing is already in a very tense and hostile climate, since the election of President Tsai Ing-wen, in January of 2016 (HERNÁNDEZ, 2016; TRENT, 2020). Like this, Xi Jinping sees Taiwan's new democratic government, having a greater alignment with American politics and distancing itself from the politics of One China, as a threat to destabilize cross-strait peace and the dream of Chinese national regeneration (SUNG, 2021). Different during the period of Ma Ying-jeou's government, that even adopting the policy of One China, had high levels of military purchases with the United States (USA), in a way, trying to modernize militarily to protect itself from China (TABLE 2 e 6) (PIETRAFESA and SILVA, 2019).
2 – Taiwan's military modernization
Then, One way to continue threatening the Chinese dream is the continued export of weapons from the US to Taiwan, causing the feeling of society that already considered itself independent from China, expand the desire to establish its sovereignty in the region. And possibly being a way for the Taiwanese not to feel afraid of the Chinese threat, as they may attempt to retaliate in the event of a greater threat in the Strait (TABLE 6) (CARVAJAL, It's STROBEL, 2020). That is, It is a way of going against the Chinese national regeneration policy.
3 – President Tsai, contrary to the policy of One e Dream China, that is, of the dream of national regeneration
To President Tsai, is known for refusing the policy of One China and refuses to recognize the Consensus of 1992, which safeguards that both Taiwan and the mainland agree to be part of “one China”. Tsai also states that the Taiwanese should now be considered an independent state, logo, does not need to formally declare its independence. (TIAN e LEE, 2020). And your desire to be sovereign in the international system and seek greater recognition from countries, is an alignment with the thoughts of Taiwanese citizens. Where, 72,7% of the population, do not agree with the policy that both sides of the Strait belong to “one China” (CHAI eHUANG, 2016). And another factor in your government is expanding American access to the island. For example, between 2020 e 2022, The highest-ranking US officials visited the island more than in the previous four decades, to demonstrate strong support for Taiwan's democratic government, including the Under Secretary of State, Keith Krach, health secretary, Alex Azar and the president of the chamber of deputies, Nancy Pelosi (SUNG, 2021). And this highlights a greater affinity between Taiwan or Tsai with the Joe Biden government, what infuriates Xi Jinping, who has already said that there is no possibility of the island being independent (HERNÁNDEZ, 2016; SOUSA, 2022).
4 – Western support for Taiwan
Thereby, Americans' first priority in the event of a Chinese invasion is to support Taiwan, as has been the case in recent decades (BECKLEY, 2020). The clearest examples of this support from the West, is military modernization, greater insertion in Taiwan's international affairs and public speeches of support for the Taiwanese against Chinese aggression. Of course if China took over Taiwan, China could free dozens of ships, hundreds of missile launchers and fighter planes to further protect against the possible American invasion to try to retake the island, in this way, escalating the cost of war much further (BECKLEY e BRANDS, 2021). May discourage the US from defending Taiwan, same as Joe Biden, declare strong military support for the island in the event of a Chinese invasion (HAKIM, 2021). And the US could lose a lot in access to the world's leading semiconductor industry, which is located in Taiwan (BECKLEY e BRANDS, 2021). The US economic loss on the island, makes this political side of the countries' tensions, also be reflected on the economic side (HSU, HSU e HE, 2021).
5 – Reduction (%) of China in Taiwan's economy
Taiwan, along with American support, has been trying to raise its share (%) not international market, but its trade still depends heavily on China, being its main commercial partner (MA, 2021). With the non-adoption of the policy One China by Tsai, it can also be seen that Taiwan wants to try, political parties are providing some essentials – such as bread and milk – and, delink its economy from China. For example, there is a reduction in 1,49% between 2017 up until 2019, do share (%) Chinese in the Taiwanese market (TABLE 3). Even though it is a “symbolic” value, there is a pattern, even if you enter 2000-2008, China has expanded its economic power on the island of 445,73%, after that, greater stability is seen in Chinese access to the Taiwanese economy and in Xi Jinping's government, not growing at the same level, always maintaining a degree close to 20% (PIETRAFESA and SILVA, 2019). That is, in a way, Taiwan is trying to no longer be so dependent on the Chinese market.
Still focusing on international trade on both sides of the Strait, problems are perceived regarding the import tariff. The Agreement Association of Southeast Asian Nations (ASEAN), would eliminate tariffs on imports from China Agreement countries, in 90% of products sold (FEDDERSEN, 2020). As Taiwan is one of the only countries in Asia that is not part of the agreement, for Krugman (2015), the island will suffer from a loss of well-being, high production costs, loss of export competitiveness, consequently harming the country's semiconductor trade (FIGURE 6). In response to the adversities that the Taiwanese have been suffering, It is also seen decreases in Taiwanese investments in Mainland China.
6 – Reduction of Taiwan's investment in Chinese trade
Taiwan's investments in Mainland China and trade risks are negatively correlated, indicating that Taiwan's investments in Mainland China have been affected by the general economic or political relations between the two countries, especially in Taiwan in recent years (ALVES, 2017). That is, tensions between countries being political or economic, also affected and changed the behavioral strategies and regional distribution of Taiwan's investments in Chinese trade. Which could mean that both sides of the Strait, has very high voltages, that affect the political and economic side, whether within the region or with the rest of the world (FEDDERSEN, 2020).
Lastly, with these topics analyzed, even so, it is difficult to estimate that in the short term Taiwan will be invaded, because China has much more to lose than to gain from a possible conflict. For example, as its trade is also strongly associated with Japan or Korea, not Asian continent, It can be seen that as these countries have broad Western influence, may try to retaliate with the Chinese market, causing internal economic difficulties for China (FEDDERSEN, 2020). Or even the Americans carrying out military cooperation between states with Western policies in Asia to prevent the Chinese advance on Taiwan, causing, even more, the costs of a war against the island rise (TIAN e LEE, 2020). That is, It is still difficult to predict that Xi Jinping will wage war against the Taiwanese, essentially because costs escalate, which has already been occurring due to the zero covid policy, in a way, that it will become much more difficult to retake Taiwan by force. (TIAN e LEE; FEDDERSEN, 2020).
But, It is a fact that the PCC leader has been taking more aggressive stances towards the island, and how the doctrine of the Chinese state is the use of force (BURKITT, SCOBEL and ROOT, 2003). It may be that if Taiwan continues with Tsai's policy, in the coming periods, it is possible that the Chinese do not have another school, of not being, invade and take Taiwan by force.
4 Final considerations
In this research project, tension levels were examined, both in terms of security, economic and econometric between the United States, China and Taiwan.
Empirical studies have shown divergent results on this topic. The results of the project showed that clearly the United States (USA) since the Obama administration, maintains a policy of dual alignment with both sides of the Taiwan Strait. In addition to China being motivated to use force to achieve reunification with Taiwan,, if it continues to enter further into Western politics (HUANG, 2017).
These observations have important implications for the Chinese offensive for the region and the United States. The continued U.S. commitment to the security of Taiwan and, in particular, continued arms sales to Taiwan, represents one of the main sources of tension in the broader Sino-American relationship. In the last years, Analysts in both Washington and Beijing have proposed new approaches to the issue (HATE SACKS, 2020). US United States, some have suggested that the country end arms sales to Taiwan and consider backtracking on its commitment to the island more broadly.. On the RPC, some have suggested that a rising China take a tougher line in response to US arms sales (HATE SACKS, 2020).
Of course, the project sees that both proposed policy changes carry significant risks.. In the case of the USA, The end of arms sales or trade relations to Taiwan could contribute to an increased likelihood of cross-Strait conflict, helping to shift cross-Strait relations from a dynamic of deterrence to a dynamic of competence (LEE e SIU, 2019). In the Chinese case, A tougher approach to US arms sales and trade could backfire, revealing a stronger US commitment to Taiwan's security than might currently be assumed (PANDA, 2019).
In other words, Taiwan's growing rapprochement with the United States (Western), angers the Chinese, who try to isolate the island from the rest of the world (WENZHAO, 2017). Since the dream of national regeneration involves unification with the island and that no power will separate both sides of the Strait (SILK, 2013; XINHUA, 2014).
Lastly, the research design shows that although the United States is trying to insert Taiwan into more participation in international affairs, being political, security or commerce (WANG, 2020). A China, remains unchanged about this behavior and thinks about the offensive against the rebel island, because to achieve the Chinese dream, Firstly, there must be reunification with the rebel society, that is, Taiwan (HUANG, 2017).
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