MAINLAND CHINA ECONOMIC-POLICY TOWARD TAIWAN - ECONOMIC NEEDS OR UNIFICATION SCHEME

There are two competing explanations of mainland China's economic poli cy toward Taiwan. The economic argument asserts that the mainland's po licy and the resultant cross-Strait economic relations can be explaine d in terms of needs that arise from the mainland's economic reform. Th e unification argument challenges this position by pointing out the ab normalcies in the relationship: the increasingly large trade deficit i n Taiwan's favor and the less-than-desirable nature of Taiwan's invest ments on the Chinese mainland. These abnormalcies can be explained by Peking's (Beijing's) politically motivated desire to forge economic in terdependence as a basis for unification. In reply to this proposition , the economic reform argument states that since Taiwan's investment i s geared to export, and as the economic reform on the mainland created a strong need for foreign exchange, it was reasonable for the mainlan d government to grant privileges to Taiwan investors in labor-intensiv e production. The availability of Taiwan capital immediately after the Tienanmen (Tiananmen) incident also made granting preferences to T'ai -shang (Taiwan businessmen) a reasonable decision. As to cross-Strait trade, which is investment-driven and mainly composed of producer good s exported from Taiwan to mainland China, one should expect it to grow concurrently with the mainland's booming export industry. Since polit ical considerations on Taiwan's side exclude the possibility of a rapi d increase in the flow of exports from the mainland to Taiwan, the cur rent trade imbalance will continue. All the ''abnormalcies'' can be re adily explained in terms of needs arising from the mainland's economic reform and invoking the unification argument is, therefore, unnecessa ry to understand the track record of cross-Strait economic relations.