When I began doing the research for my dissertation, I initially intended to use actual profit and loss and repatriation of profit data from American companies with operations in China. From my research in the business press it was already obvious that in fact most US businesses with operations in China were not making all that much to begin with, and that they were apparently repatriating virtually none of their profits.
However, when I went began to try and obtain the actual data I was looking for, I discovered that in fact most US companies with business in China do not publish any easily discoverable data on how their Chinese operations are progressing. In some cases companies were on record as literally refusing to disclose what was going on in regards to their Chinese operations. The overall paucity of data on the subject led me to abandon that line of inquiry into the effects on the US of trade with China.
Although I could not find the kind of information I wanted to use to demonstrate the low level of economic benefit the US was deriving from trade with China, I knew that in fact the US was not taking away any great benefit for that trade relationship. So I chose to essentially go on to the next step and examine why the US had bound itself so tightly to the notion that expanded economic links with China were so vital and beneficial to the US. This led to the conlcusion which can be found in my thesis. I must say this conclusion surprised me, but the explanation I offer seemed the most plausible based on the evidence.
Even after the change in the empahsis of my research, I continued to feel that gap- the idea that I had "skipped a step" on the way to the first lines of my dissertation. Although the arguments in my dissertation are all supported by evidence given in the thesis, I still would have preferred to be able to point some hard economic data showing the lack of benefit to American companies. But, as mentioned above, I was not able to do that. So I necessarily had to work around that issue, partly by trying to demonstrate what I knew was the case by inference or triangulation rather than by direct presentation of numbers. For me personally, that has always been a bit of a bother.
So that was how things stood until November 9, 2002, when I happened to read this story in the Asia Times Online: "Machiavellian moves on Cross-Strait links" By Laurence Eyton.
In it, I noticed the following paragraph:
"No explanation has been given for Chen'sturnaround. But one factor that has probably played a decisive role is that more data have become available in the past few months as to exactly how beneficial Taiwan's economic relationship with China is. In particular, a report issued by the Control Yuan, Taiwan's highest government watchdog, censured the cabinet in mid-September for not safeguarding Taiwan's interests effectively in the development of cross-Strait trade and investment. The most damning statistic contained in the report was that companies that have invested in China have repatriated less than 2 percent of the money invested. The evidence, the report showed, suggested that once money left Taiwan for China, it left for good, there was no flow of repatriated profits making Taiwan wealthier or contributing to its economy."
(emphasis added)
This report from the Taiwan Control Yuan sounded like it made very similar point to what I had been trying to demonstrate in my original dissertation idea. Of course, I waned to have a look at the actual report, but all I had to go on was the above passing reference.
At length I was forced to write directly to the Control Yuan, and they generously mailed me the actual report. So I would like to thank them for that. Then my next problem was reading the report, which was printed in non-simplified Chinese characters- up to down and right to left on the page. This was a little beyond my abilities, so I also have to acknowledge the assistance of Hsiao-ling Lin who was able to find and read for me the section of the report I was interested in. So thanks also to her.
The following is an excerpt of the translation of the relevant passage from the report:
The Control Yuan of Taiwan, ROC 2002
The Survey Report of "Given that the investment environment in Taiwan
has changed in recent years, and the number of industries moving to Mainland
China is increasing, with a big impact on Taiwan's economy, is the solution
of Government agencies appropriate or not?"
Taipei, Taiwan
"According to the data from the Ministry of Finance, there were 975 stock corporations [or "publicly traded corporations"] in Taiwan at the end of March, 2002. 490 of those 975 corporations invest in Mainland China. In total, NT$197,780,000 was sent out from Taiwan [to China, that is that amount was invested in China], but just 27 corporations out of 490 sent capital back, in the amount of NT$23,420,000 and this is only 1.18% of the total capital that was sent out. Since the process of capital moving across the Strait is very complicated, there is actually no detailed data to show how much Taiwanese capital flows into Mainland China or how much capital is sent back to Taiwan. But surely, every governmental agency thinks that the Taiwanese capital moving out is greater than the Taiwanese capital being sent back, and the difference is very large." (page 166-7)
So we can see that even the Taiwan government has trouble pinning down this issue. But still you can see that the amount of money leaving Taiwan for China far exceeds that which returns. The US and Taiwan both have extensive trade links with China, and I believe that the situation with US companies in China is almost certainly very similar to that which the Control Yuan points out here. The reason for this is neither strange nor mysterious. It is the explicit policy of the Chinese government to hold on to as much of the money that exists in their country as possible, and to draw in as much as possible from overseas and hold on to that equally as strongly.
As there seems to be some confusion on this point in Washington, I wanted to have evidence such as the above to make it as clear as is humanly possible that simply engaging in business-to-business relations with China is not ever going to be an unalloyed boon to the US economy or a cure-all for our issues with the Chinese government.
So now I offer this addendum my other evidence to just make that point a little bit clearer and stronger. I hope that it makes my ultimate conclusions more plausible as well.
- Jason Meade
6/28/03