The closeness of Sino-Japanese trade relations is indicated in the shipping announcements of Taiwan newspapers and in Taipei television advertising. Most of the ships are on runs between Taiwan and Japan. At least 90 per cent of the TV advertising is for Japanese goods.
Of the 80 foreign firms with branch offices in Taiwan, about half are Japanese.
Japan is one of Taiwan's principal trade partners for several reasons. One is geographic. It takes only three days for a freighter to reach Osaka from Keelung, the northern port of Taiwan. But it would take 35 days to reach New York, and 45 days to Rotterdam or Hamburg in Western Europe. Quicker transportation means faster turnover and lower interest and other charges. A trader can do more business with less capital.
Geographic advantage is coupled with consumer habit. Taiwan was occupied by Japan for 50 years. Native consumers became accustomed to Japanese goods. Doctors prescribe Japanese medicines. Cyclists prefer their Japanese bikes. Some farmers erroneously believe Japanese fertilizer is better than the local product.
Japanese are favorable toward Taiwan's produce. They like the rice, which they say was developed to satisfy Japanese taste. Bananas from Taiwan are said to be sweeter than Latin American varieties.
During the Japanese occupation, Taiwan's economy was dependent on Japan. This set the stage for some of the present trade disadvantages facing the island.
On September 9, 1950, China signed an agreement with the Supreme Command of the Allied Powers aimed at balanced trade between Taiwan and Japan. The agreement called for exchange of US$50 million worth of goods a year. Since, then, the agreement has been reviewed and revised many times, and the volume has grown steadily.
After the signing of the Sino-Japanese Peace Treaty, the countries entered into direct trade relations. On June 13, 1953, it was agreed to increase the volume to US$74.5 million. The amount was raised to US$94 million in 1956. In the 1961 agreement, fixed volume was omitted, but it was agreed to try for a goal of US$140 million.
U.S. Big Customer
In 13 years, China enjoyed a favorable balance in 1952, 1953, 1955, 1958, and 1960. The 1955 balance of US$21 million was the largest.
Since 1961, the balance has been unfavorable to China as the result of large imports of goods and the dwindling export of rice. The largest unfavorable balance was US$36 million in 1962.
The government has sought to reduce excessive trade dependence on Japan. In the 1950s, 50 to 60 per cent of Taiwan's exports went to Japan. The peak year was 1955, when Japan bought 60 per cent. Beginning last year, the United States replaced Japan as free China's biggest customer.
Economists regarded this as a favorable trend, but some pessimistic merchants said it also is evidence that the Japanese market for Taiwan goods is declining. In any event, Taiwan's exports are continuing to increase.
Leading exports are sugar, rice, bananas, and canned pineapple. In 1962, Taiwan exported US$49,536,000 of sugar, and 62 per cent of it went to Japan. Of the US$8,034,000 worth of bananas exported in 1962, 95.8 per cent was to Japan.
Textile Competitors
Between July, 1950, and July, 1962, Taiwan sold 1,287,928 metric tons of rice to Japan and earned US$209,333,641. However, export of rice! is decreasing. Last year only 52,500 metric tons were exported, compared with 233,557 metric tons in 1957.
Among Japanese imports, chemical fertilizer import and distribution are monopolized by the Provincial Food Bureau, as are rice exports. The bureau usually pegs imports to the amount of rice exported. Taiwan's fertilizer industry is nearing self-sufficiency, and the island has less rice for export as a result of the population explosion. The fertilizer-rice trade relationship thus is of declining importance.
Other sizable imports from Japan are vehicles, electronic equipment, medicines, and chemicals. Taiwan once was a good customer for Japanese textiles, but now has become a competitor in international markets.
Important as it is to both countries, and as mutually profitable, the Sino-Japanese trade relationship has been imperiled by Tokyo's continuing efforts to expand commercial intercourse with the Chinese Communists. China objects not only to strategic goods for Peiping, but to long-term credits granted by Japan. Bitter controversy still rages over Japan's sale of a US$20 million vinylon plant to the Red Chinese.
According to a report of Ambassador to Japan Chang Li-sheng, the transaction had its origin in a memorandum signed between a group of Japanese businessmen and Liao Cheng-chih, chief of the Peiping regime's export agency, on November 9, 1961. It was part of an overall program to expand trade between Japan and the mainland.
The ambassador said he learned of the deal as early as May 17, 1962, and immediately questioned Japanese Foreign Minister Ohira about it. Ohira said the Japanese government was unlikely to approve and that terms had not been agreed upon.
When the ambassador received word that the transaction was going through, he called on a key official of the Sino-Japanese friendship association, who is also an influential member of the Diet, and asked him to oppose the sale in the parliament and elsewhere.
The Japanese parliamentarian complied. However, during his testimony at the Diet, Prime Minister Hayato Ikeda said the Japanese government would not approve. Ikeda was misinformed or speaking politically. The sale: was approved by the Japanese cabinet in mid-August.
The news whipped up a storm of bitterness in Taiwan and overseas Chinese communities. Ambassador Chang was called home for consultations. Anti-Japanese sentiments were manifested in Taipei. Legislators urged an economic break. Overseas Chinese threatened to boycott Japanese goods. Those who favored cutting of trade ties said such a reprisal would be painful but not disastrous. Some thought it might be helpful in speeding Taiwan's industrialization.
Su Yun-chang, chairman of the National Industrial Association, said cutoff might be a blessing in disguise because it would reduce dependence on Japan. China cannot place its economic destiny at the mercy of a profit-seeking foreign power, he said, and must be prepared to sever ties with Japan.
Example of Textiles
"If we do our best to find new markets, the loss of the Japan market would not be serious," he said. He cited Taiwan's textile exports. In 1961, textile exports to the United States amounted to US$20 million. Then the United States imposed quotas, and the exports were reduced to US$7 million. Even so, total textile exports have increased. New markets were found to make up for the loss.
Su said that if another market cannot be found for bananas, Taiwan can grow other crops. The Japanese have been such eager banana buyers that demand exceeds supply. Next year's banana production will be four million baskets, of which two and a half million will be available! for export. By September 28, China had received 924 Japanese import applications totaling 1,445,000 baskets for the six months beginning October 1. Only 200,000 baskets will be available for export in that off-season period.
Pharmaceutical manufacturers also say Japanese trade is not essential. Taiwan buys US$6 million worth of pharmaceuticals from Japan annually, but there have been charges of poor quality. Taiwan's drug makers said medicines produced in the United States and Europe are better in quality and lower in price, and also noted the rapid growth of the local pharmaceutical industry.
Approach of Patience
Importers said electronic and communication facilities could be obtained from other sources. As for technical cooperation, Taiwan entrepreneurs said most of it amounts to disguised sale of Japanese semi-finished products, which are banned from import in finished form. Japanese manufacturers, thus make money by taking advantage of low wages in Taiwan.
However, government officials are inclined to handle the Japanese trade problem with patience. Both Ambassador Chang and Economic Minister Yang Chi-tseng are opposed to drastic measures. The ambassador said he favors solution by "political means".
Tao Po-chuan, a leading legislator, warned against blindly boycotting Japanese goods. Many free Chinese hoped Japan would take a second look at its own and free world interests before the plant is shipped. A noted economist and trade expert pointed out that the vinylon plant sale is not in Japan's interest for these reasons:
1. Foreign exchange reserves of Peiping are meager and it is a poor credit risk.
2. Margin of profit is too small to justify payment over a five-year period.
3. Peiping would pay in coal and iron ore.
4. Import of other goods would be cut by Red China.
5. Increase in Peiping's textile exports would provide competition for Japan.
Not Much Cash
Economists estimated Peiping's foreign exchange reserves at US$300 million. This is 50 cents for each of the 600 million people of the mainland. How can this be considered a promising market? Political observers suggested the Peiping regime would not last the five years required for completion of the payments.
Another economist said the Chinese Communists might use the durable vinylon cloth to replace cotton in military uniforms. This would release cotton textiles for competition with Japanese products.
Professor Chu Ching-chow of National Taiwan University said Japan had rushed into the Peiping trade arrangement to relieve the hardships of secondary and small industries.
He said in Japan a large number of people earn their livelihood from such manufacturers, and that markets must be found. Products are poor, but cheap enough for the mainland masses to buy. Hence Japan's pre-occupation with mainland trade.
Japan's Viewpoint
Professor Yi Hsi-liang of Chung Hsing University, just back from an economic research tour of Japan, said export expansion is the watchword of the Ikeda cabinet, that the Japanese government must find an outlet for the goods produced under the accelerated economic development program. He said Japan is hard-pressed in the American market, squeezed in Europe by the Common Market countries, and disliked in Southeast Asia, where it cannot find good markets because people are sensitive to Japanese economic aggression. Under such circumstances, the professor said, Japan is trying to turn to the mainland, which bought 40 per cent of its exports before the war.
The Chinese Communists also are eager to find new trade partnerships as a result of the Peiping-Moscow schism, Professor Yi said. "Their targets are Great Britain and Japan."
Foreign Minister Sheng Chang-huan denounced the "profit-minded in gratitude" of some Japanese people. He said the Japanese quest for trade with Peiping has blocked closer friendship and cooperation between the Republic of China and Japan for many years. "The Communists are using trade as a means of subversion and infiltration, and this was amply exposed in 1958," he said. "After that, Tokyo-Peiping trade was disrupted for four years as a result of the Chinese government's strong opposition."
The Japanese trade with the mainland was resumed only after the Moscow-Peiping relationship deteriorated and the Chinese Communist economy neared bankruptcy, he added, warning Japan not to rise to Communist bait.
Some 40 overseas Chinese newspapers have published more 100 editorials denouncing the vinylon plant sale. Many papers suggested that since most overseas Chinese are anti-Communist, Japanese markets in Southeast Asia will dry up if Tokyo pushes forward in its mainland trade offensive.
As realists in matters of trade, the Japanese appeared to be re-examining the problem posed by Communist virtual insolvency and the strong objections of the Republic of China. As one observer put it, "The Japanese are thinking twice about risking one hundred and forty million dollars worth of sure-pay trade for a mainland volume that would be considerably less and probably not profitable." The vinylon plant shipment was delayed, and Japanese: government officials talked of it in vague terms. Behind the scenes, anti-Communist Japanese were doing all within their power to prevent a further drift into a Peiping trade relationship that inevitably will have political as well as economic implications.
The final decisions about Japanese trade with the Chinese Communists had not been made. Both government and people of the Republic of China were still hopeful that Japan. would choose the right course—right both for its own prosperity and for the: fulfillment of its commitment to the free world.