“The signing of the [accord] will be the first step. After that we will see a progressive lifting of investment caps,” says Wai Ho Leong, regional economist with Barclays Capital in Singapore. “My sense is that this will unlock M&A flows from China into Taiwan and, along with it, also substantial amounts of FDI flows.”
Before 2008, presidents in self-ruled Taiwan advocated the island’s formal independence from China, enraging the communist leadership and making trade or investment deals all but impossible. China has claimed sovereignty over Taiwan since the Chinese civil war of the 1940s and wants eventual reunification.
While Taiwan stood its ground, Beijing negotiated trade deals with South Korea and countries in Southeast Asia, hurting Taiwan’s export competitiveness as its rivals got a piece of China’s economy, now No. 2 in the world with a GDP of about $7 trillion.
But Taiwan President Ma Ying-jeou set aside political differences after taking office in 2008 to establish trade, transit, and tourism links with China, ties worth billions of US dollars to the island economy. Mr. Ma was reelected this year with pledges to pick up the momentum.
Growing economic ties also reduce the risk of war, Taiwan's government has argued. As late as 2005, officials in Beijing said they would strike Taiwan if the two sides could not unify through peaceful means. But Beijing has not repeated the threat since Ma took office, signalling a record low in tensions over the past six decades.