Venerated credit rating firm Moody’s Investors Service sounded a warning this week about Taiwan because its biggest trading partner China officially killed dialogue last month. Talks between the political rivals of 70 years were zombie-like even before that as China tried in vain to make Taiwan accept its condition that both negotiate as parts of one country. Moody’s isn’t threatening to lower Taiwan’s credit rating of “Aa3 stable” at the moment but says silent treatment between the two sides will eventually hurt the export-reliant island’s trade. The rating now, however, is based partly on Taiwan’s “competitive economy” in spite of “geopolitical risk related to its relationship with China with periodic tensions.” Shipments of goods from this port, in the Taiwan city of Keelung, have declined as more traffic... [+] moves to China. Taiwan's trade with China reached a record $130 billion in 2014 after the governments signed a series of deals since 2008 to ease restrictions on imports and investment. They reached those deals because Ma Ying-jeou, the former president in Taipei, had agreed to Beijing’s one-China condition, just subject to different ideas on each side about what “China” means. Current Taiwan President Tsai Ing-wen, who took office May 20, disputes that condition and her resistance is angering the other side's Communist leadership. She advocates rebalancing Taiwan’s trade to other countries, particularly in Southeast Asia where Taiwanese investors are exploring investments as manufacturing costs rise in an ever slower-growing China. Value of imports and exports between the two sides fell to $115 billion last year, but China – still attractive because of its market size and 40-year history of Taiwan investment – kept its lead on Taiwan’s roster with 22.7% of all trade. Taiwan risks a decline in trade as its other partners fear offending China by joining hands formally with Taiwan, Moody’s believes. “Uncertainty about the nature of the relationship between Taiwan and China could dampen corporates’ willingness to engage in trade and investment,” says Marie Diron, senior vice president of the Moody’s sovereign rating group. “Moreover, we think that there is a risk that the effectiveness of Taiwan’s diversification policies could be undermined if Taiwan’s potential new partners prioritize their relationships with China.” China had asked before relations improved under the old president that other countries avoid free-trade agreements with Taiwan. Beijing would see those deals as signs of state-to-state relations with Taiwan, which it claims as part of its own turf despite decades of self-rule on each side. China, which has more than 170 diplomatic allies compared to Taiwan’s 22, may use its clout as well to bar Taiwan from membership in regional trade blocs such as the U.S.-led Trans Pacific Partnership or the 16-member, Beijing-backed Regional Comprehensive Economic Partnership. Direct investment may also decline because of “sentiment” among companies that prefer stronger China-Taiwan ties, says John Brebeck, senior Taipei adviser with the Hong Kong investment consultancy Peace Field. Cuts in trade might not even be subtle. Chinese customs turned back 100 metric tons of Taiwan-grown pineapples after Tsai was elected, citing tighter anti-pesticide rules, some local media reports say. “It’s like the same pineapple, but this time it didn’t pass,” Brebeck says. “In their view of the world, they rewarded Taiwan for choosing a pro-China government (under the former president), so now they need to punish it.”
Moody’s Investors Service has warned that continued lack of communication between Taiwan and China will eventually damage Taiwan’s export-reliant trade. With Taiwan’s trade with China having dropped from $130bn in 2014 to $115bn last year, Moody’s expressed concerns that the uncertain relationship between the two countries could dampen co-operates’ willingness to trade and invest in Taiwan, as they may choose to prioritise their relationships with China. The Straits Times