Taiwan's Regional Strategy in Southeast Asia: Kicking the New Southbound Policy into High Gear
By Jing Bo-jiun
January 31, 2018
One year after the launch of the “Guidelines for the New Southbound Policy” in August 2016, President Tsai Ing-wen noticeably ramped up rhetoric on the southbound initiative during a string of high-profile speeches, reaffirming her commitments to forging stronger economic and people-to-people ties with the island’s neighbors in Southeast Asia and South Asia, Australia, and New Zealand. Under increasing pressure to present progress on her southbound pivot, Tsai highlighted the significant growth of trade, tourism, and educational linkages between Taiwan and these countries, particularly those in the Association of Southeast Asian Nations (ASEAN), in her National Day address on October 10, 2017, as well as in a speech the following day at the first Track 1.5 Yushan Forum.  On October 12, 2017, Tsai reiterated the importance of fostering connectivity with target countries for the New Southbound Policy when she reappointed James Soong to represent her at the recent Asia-Pacific Economic Cooperation (APEC) summit in Da Nang, Vietnam. Amid an ongoing impasse across the Taiwan Strait, Tsai’s remarks sent a clear message that her administration would kick its New Southbound initiative into high gear in the coming year. She deems the policy a panacea for Taiwan to diversify its economy and “to hold a more advantageous position in international society.” 
This brief first examines the historical context of Taiwan’s Go South strategies toward Southeast Asia. It then evaluates the people-to-people component of Taiwan–Southeast Asia relations, followed by an analysis of Taiwan’s trade and investment engagement with ASEAN countries. The concluding paragraphs assess the prospects of the New Southbound Policy and its implications for Taiwan’s regional connectivity in the years ahead.
The Evolution of Taiwan's Go South Strategy
As suggested by the title of the policy agenda, Tsai is not the first president who has explicitly prioritized Southeast Asia in her Asia-Pacific strategy. The previous southbound strategy, the Go South Policy, was initiated by President Lee Teng-hui in 1994 when the new Taiwan dollar was strong and foreign investment was generally profitable. The details for this policy were laid out in the “Guidelines for Strengthening Economic and Trade Ties with Southeast Asia,” later inherited by Presidents Chen Shui-bian and Ma Ying-jeou and implemented in seven different phases.  While the earlier southbound approaches under Lee and Chen centered on encouraging Taiwanese manufacturing firms to establish factories in Southeast Asia, Ma’s version began to emphasize the importance of tapping into ASEAN’s burgeoning consumer markets and enhancing educational ties with the region.  Despite their differences in focus, they have all stressed the need to promote economic engagement with Southeast Asia to avoid overdependence on Chinese markets and marginalization in regional economic integration.
Although the past two decades of southbound engagement have seen the growth of economic linkages between Taiwan and ASEAN countries, the island’s overseas investments and exports remain largely reliant on the Chinese economy—not least because of the rise of China and the aftershocks of the 1997–98 Asian financial crisis. From January 1991 to October 2017, 59.2% of Taiwan’s accumulated overseas investment went to mainland China, while 4.6% went to Singapore, 3.1% went to Vietnam, and 1.2% went to Thailand.  From January 2017 to October 2017, 40.5% of Taiwan’s total exports went to mainland China (27.6%) and Hong Kong (12.9%), while 18.6% went to ASEAN countries. The former figure hovered between 39% and 41% over the past decade, and the latter rose from 14.7% in 2007 to 18.3% in 2016. 
That Tsai is eager to put more eggs into ASEAN baskets is not in doubt. The objective is twofold: the first goal is to “bid farewell to our past overreliance on a single market,”  and the second is to reap the benefits of the region’s steady GDP growth, young demographics, and promising economic prospects. At issue, however, are the questions of what the “new” elements are under the banner of the New Southbound Policy, and, more crucially, how feasible they are for Taiwan to achieve these goals. While spending no less effort to emphasize economic cooperation than her predecessors have, Tsai directs much more public attention to people-to-people components, particularly in the realms of education and tourism. A large portion of her administration’s budget has been allocated to support educational exchanges. The New Southbound budget skyrocketed by 61.6% from NT$4.45 billion (US$148 million) in 2017 to NT$7.19 billion (US$240 million) for 2018. Of this amount, NT$1.7 billion (US$57 million) would be allocated to the Ministry of Education, NT$2.88 billion (US$96 million) to the Ministry of Economic Affairs, and NT$560 million (US$19 million) to the Ministry of Science and Technology.  Moreover, Tsai has continued to relax visa rules for tourists and businesspeople from ASEAN countries. By promoting two-way exchanges in education and tourism, she hopes her “people-centered” approach will foster mutual understanding between ASEAN and Taiwan, which could in turn facilitate further economic cooperation in the region.
Given the existing groundwork laid by the previous administration, Tsai does not have to advance her people-centered southbound agenda from scratch. Since 2009, Taiwan has witnessed notable growth in tourism and enrollment by Southeast Asian students. From 2008 to 2015, the number of ASEAN students in Taiwanese colleges and universities more than doubled from 11,959 to 26,756 (124% growth), making ASEAN the second-largest source of foreign students in Taiwan. Malaysia is the largest source of Southeast Asian students on the island, with 14,946 students in 2015, followed by Indonesia (4,394 students) and Vietnam (4,043 students).  The strong educational linkage between Taiwan and Malaysia is largely due to the existence in Malaysia of more than 60 “Chinese independent high schools,” whose students traditionally go to Taiwan or Singapore for higher education. More than 60,000 Malaysians have studied in Taiwan to date, many of whom have joined the nationwide alumni association.  In September 2017, Tsai received the leaders of the alumni association in Taipei to promote her New Southbound Policy, promising to take measures to attract more students from Southeast Asia and to retain talent by relaxing work permit requirements.  Her administration has established a goal of increasing the number of ASEAN students in Taiwan to 58,000 in 2019. 
With a larger budget for education, as mentioned above, the Tsai administration is slated to offer more scholarships and fellowships for Southeast Asian students and scholars to study or conduct research in Taiwan, as well as for young Taiwanese talent to explore the opportunities in the region. The Taiwan Scholarship offered by the Ministry of Education, for instance, increased its quotas for Malaysian students from 20 to 35 and for Indonesian students from 16 to 35 over the past year.  The ministry also budgeted NT$50 million (US$1.7 million) in 2017 for a public-private partnership project that sends Taiwanese students to participate in internship programs across various industries in the region.  As these educational initiatives are long-term investments, the government may not achieve immediate results other than increasing the number of student exchanges between Taiwan and Southeast Asia. If implemented successfully, however, these efforts over the long term may nurture more young people who can draw on direct experience of the cultural, societal, and business norms in Southeast Asia and serve as influential bridges to help Taiwan become further integrated with the regional economies.
Tourism is another key node of Tsai’s push for enhancing interpersonal relationships across the region. During Ma’s tenure, the number of visitor arrivals from ASEAN countries already rose substantially from 726,000 in 2008 to 1.43 million in 2015, making ASEAN the third-largest source of visitor arrivals to the island, after mainland China (4.18 million) and Japan (1.63 million).  This substantial progress can be largely attributed to the continued visa-waiver programs for Malaysia and Singapore, the thriving of low-cost airlines in the region, and some new visa-free authorization certificate and streamlined visa-processing programs for ASEAN travelers. Building on this foundation, Tsai has taken additional steps to lift visa requirements, such as granting Thai and Bruneian tourists 30-day visa exemptions and extending 14-day visa-free privileges to the citizens of the Philippines.  The visa-related initiatives, particularly the one covering Thailand, helped Tsai boost the number of ASEAN visitor arrivals to 1.65 million in 2016 (16% growth). Even though the number of mainland Chinese tourists to Taiwan dropped 16.1% to 3.51 million in 2016—which was due primarily to the implicit effort by Beijing to cut down the flow of Chinese group tourists to the island following Tsai’s inauguration in May 2016—her administration managed to maintain the annual number of visitor arrivals at 10 million, supported by the increase of tourists from ASEAN, Japan, and South Korea.  The latest statistics show that Taiwan in December 2017 once again achieved the goal of 10 million arrivals annually. But with a 22.2% year-on-year decrease in visitors from mainland China between 2016 and 2017, achieving this benchmark was even more challenging. 
By pushing for a visa-exemption policy to boost people-to-people connectivity, which has also been implemented by ASEAN countries, Japan, and South Korea in recent years, Tsai clearly wants to compete for a bigger share of the tourism market and thereby cushion the blow from the shortfall in Chinese tourists. However, other measures such as improving the halal food certificate system, facilitating regional airlines to operate more routes between Taiwan and ASEAN countries, and increasing the number of qualified tourism professionals with Southeast Asian language capabilities are essential for Taiwan to make headway in its southbound pivot. To achieve the goal of fostering two-way tourism exchanges, the Tsai administration should also redouble its efforts to negotiate reciprocal visa-free treatment from Thailand, Brunei, and the Philippines, despite diplomatic pressure from Beijing.
Stepping up trade and investment ties with ASEAN countries remains a central part of the New Southbound Policy, yet the regional setting is undoubtedly more challenging for Tsai than for her predecessors. Compared with the former Go South attempts, especially in the age of Lee Teng-hui, Taiwan now faces a more powerful China and more competition in ASEAN markets. During the mid-1990s, Taiwan was one of the top-five foreign investors in Southeast Asia, as well as ASEAN’s fourth-largest goods trading partner.  However, Taiwan’s investment and trade volume to the region have been outpaced by mainland China and South Korea in the early 21st century. In 2015, Taiwan ranked as the ninth-largest source of FDI in ASEAN (on an accumulative basis between 2006 and 2015) and the sixth-largest goods trading partner with the region, whereas mainland China ranked as the fifth-largest investor and became the largest external trading partner of ASEAN in 2009. 
Beijing’s substantial economic clout vis-à-vis Taipei, compounded by the current cross-strait stalemate, has limited Tsai’s leeway to conclude or renew more economic agreements with ASEAN countries. Taiwan’s only free trade deal within the region—the Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership, signed in November 2013—was arguably a result of the greenlight given by China following the conclusion of the Cross-Straits Economic Cooperation Framework Agreement in June 2010 and the existing free trade agreement between China and Singapore.  Another critical factor is the political foundation of the “1992 consensus,” which Beijing sees as embodying a “one-China principle” and which Ma and the Kuomintang have advocated is a formula for both sides to agree to disagree about what “one China” means in practice. In the absence of a political formula between Tsai and Xi Jinping, China is unlikely to relax its attitude toward Taiwan’s trade negotiations with other countries. Consequently, ASEAN countries must walk a fine line between benefiting from their economic ties with Taiwan and avoiding any actions that could antagonize China.
Having said that, there are several opportunities that Tsai’s southbound initiatives could capture. First, the Taiwanese business community in the region continues to be an active player in the regional supply chain. To date, the island remains the third-largest foreign investor in Thailand and the fourth-largest in Vietnam and Malaysia. Taiwanese small and medium-sized enterprises enjoy a reputation for good quality control and adaptability, which has helped them survive in Southeast Asia and build close connections with local business and politicians. To gather commercial information on the ground and implement southbound plans at full steam, the Tsai administration must work closely with the existing robust network of Taiwanese business associations across Southeast Asia.
Second, the past few years have seen the expansion of Taiwanese banks into Southeast Asia. As of June 2017, Taiwanese banks have established 188 overseas units—including branches, representative offices, and exchange offices—in ASEAN countries, accounting for 39% of Taiwan’s 484 overseas banking institutions. Among the 188 units, 143 institutions belong to privately owned banks, while 45 of them are government-controlled.  Under Tsai’s initiative, state-backed banks are likely to increase their presence in Southeast Asia. The growing number of Taiwanese banks in the region would help Taiwanese investors secure better access to corporate financing and thus facilitate more investment.
Last, Taiwan possesses a high capacity to share its experience in agricultural technology, medical treatment, e-commerce, and smart-city-related infrastructure with ASEAN countries. These industries, highlighted in the New Southbound Policy, are correlated to the growth of ASEAN’s middle class. Should the Tsai administration follow through on its pledge to foster more cooperative actions in these areas, it may simultaneously make strides in weaving closer economic ties while enhancing people-to-people linkages with Southeast Asia. This would help Taiwan avoid becoming marginalized in the regional economy in the longer term.
2018: The Pivotal Year for the New Southbound Policy
The benefits of the New Southbound Policy, as Tsai herself has recognized, are not low-hanging fruit. Although Tsai has emphasized that her strategy “is designed to complement, rather than compete against,” the Regional Comprehensive Economic Partnership and Belt and Road Initiative,  and she does not exclude the possibility of cooperating with mainland China on regional development, it appears that Beijing remains skeptical about her southbound intentions. China is likely to continue to watch Tsai’s moves in the region carefully and pressure ASEAN leaders not to take high-profile actions in their relations with Taiwan. The signing of a new bilateral investment agreement between Taiwan and the Philippines on December 7, 2017, was deemed a significant victory for Tsai. This development, which China sees as “official in character,” unsurprisingly drew opposition from Beijing. 
Besides the China factor, the success of the New Southbound Policy still largely hinges on the effectiveness of the Tsai administration. It remains to be seen whether the Office of Trade Negotiations under John Deng, the Taiwan External Trade Development Council under James Huang, or the National Development Council under Chen Mei-ling can productively coordinate their efforts and prevent bureaucratic inefficiency. In the end, Tsai, as the commander-in-chief, will need to navigate through the regional context. If the New Southbound Policy succeeds, Taiwan would further expand into Southeast Asian markets in the near term and achieve a higher degree of interconnectivity with the region and diversify its trade and investment portfolio in the longer term. Given that Tsai will be campaigning for re-election ahead of 2020 and will want to show progress on this regional strategy to voters, the coming year will be a critical time for her to make a southbound leap forward.
The inaugural Yushan Forum, or Asian Dialogue for Innovation and Progress, gathered a few high-level current and former government officials, scholars, entrepreneurs, and NGO leaders from target countries for the New Southbound Policy, as well as from the United States, Japan, and South Korea, to discuss economic and social connectivity issues in the region. For details on the event, see the Yushan Forum webpage, http://www.yushanforum.tw.
Tsai Ing-wen, “National Day Address” (Taipei, October 10, 2017), http://english.president.gov.tw/News/5231.
In 2002, President Chen publicly said that he would reinvigorate the Go South Policy. President Ma, by contrast, did not highlight the term “go south” so as to avoid implying that Taiwan’s investment and trade should not “go west” to China.
The first (1994–96) and the second (1997–99) phases of the guidelines were implemented under Lee. The third (2000–2003), the fourth (2004–6), and the fifth (2007–9) phases were formed under Chen. The sixth (2010–12) and the seventh (2014–16) phases were implemented under Ma.
Mainland Affairs Council (Taiwan), “Table 10: Taiwan Approved Outward Investment by Country (Area),” Cross-Strait Economic Statistics Monthly, no. 296, December 2017.
For the data used for these calculations, see Bureau of Foreign Trade, Ministry of Economic Affairs (Taiwan), Trade Statistics, http://cus93.trade.gov.tw/FSCE000F/FSCE000F.
Tsai Ing-wen, “Inaugural Address” (Taipei, May 20, 2016), http://english.president.gov.tw/Page/252.
Chen Xi-wen, “Xin nan xiang yu suan zhi xing lu bu jia” [New Southbound Budget Execution Rate Is Not Good], United Daily News, September 29, 2017, https://udn.com/news/story/6656/2729191.
For the data on the number of ASEAN students in Taiwan, see Ministry of Education (Taiwan), http://ws.moe.edu.tw/001/Upload/7/relfile/8053/51386/1b0e60cd-3526-4657-a93f-14f704ffaecb.pdf.
The Federation of Alumni Association of Taiwan Universities, Malaysia, has nearly 40 alumni association branches across Malaysia and forms a strong network to encourage and help students to pursue higher education in Taiwan.
Sophia Yeh and Kuan-lin Liu, “President Wants More Foreign Nationals to Study in Taiwan,” Focus Taiwan, September 15, 2017, http://focustaiwan.tw/news/aipl/201709150029.aspx.
Jason Pan, “New Southbound Policy: ‘Southbound Policy’ Takes Off in Schools,” Taipei Times, May 27, 2017, http://www.taipeitimes.com/News/taiwan/archives/2017/05/27/2003671391.
Tho Xin Yi, “Trade Ties Up as Taipei Looks ‘South,’” Star, September 17, 2017, https://www.thestar.com.my/news/nation/2017/09/17/trade-ties-up-as-taipei-looks-south-one-year-after-taiwan-launched-its-new-southbound-policy-to-spur; and Jay Chou and Kuan-lin Liu, “Taiwan Seeks to Double Students from Indonesia,” Focus Taiwan, August 26, 2017, http://focustaiwan.tw/news/asoc/201708260009.aspx.
Chen Guo-wei, “Xin nan xiang zhi chang shi xi shang qian xue zi huo bu zhu” [More Than a Thousand Students Are Awarded Grants for the New Southbound Career Internship], Radio Taiwan International, May 31, 2017, https://news.rti.org.tw/news/view/id/347542.
For the data used for these calculations, see Tourism Bureau, Ministry of Transportation and Communications (Taiwan), Tourism Statistics Database, http://stat.taiwan.net.tw/system/index.html.
Joseph Yeh, “Taiwan to Begin Visa-Free Trial Run for the Philippines Nov. 1,” Focus Taiwan, October 16, 2017, http://focustaiwan.tw/news/aipl/201710160014.aspx.
Tourism Bureau, Ministry of Transportation and Communications (Taiwan), Tourism Statistics Database. For further details, see Jing Bo-jiun, “ ‘Go South’ Going South? Assessing Taiwan’s ‘New Southbound’ Policy and the China Factor in Southeast Asia,” in Chinese (Taiwan) Yearbook of International Law and Affairs, vol. 34, ed. Ma Ying-jeou (Leiden: Brill, 2017), 215–16.
Tourism Bureau, Ministry of Transportation and Communications (Taiwan), Tourism Statistics Database.
See Association of Southeast Asian Nations (ASEAN), ASEAN Statistical Yearbook 2001 (Jakarta: ASEAN Secretariat, 2001), 68–73, 131, http://www.aseanstats.org/publication/asean-statistical-yearbook-asyb-2001.
The double taxation avoidance agreement with Singapore was signed in 1981 under President Chiang Ching-kuo, and the investment protection and promotion agreement with the Philippines was signed in 2002 under President Chen.
For the data used for these calculations, see ASEAN, ASEAN Statistical Yearbook 2014 (Jakarta: ASEAN Secretariat, 2015), 110, http://www.aseanstats.org/publication/asean-statistical-yearbook-asyb-2014; ASEAN Secretariat, “Top Ten Sources of Foreign Direct Investment Inflows in ASEAN,” October 2016, http:// asean.org/storage/2015/09/Table-27_oct2016.pdf; and ASEAN Secretariat, “Top Ten ASEAN Trade Partner Countries/Regions, 2015,” November 2016, http://asean.org/storage/2016/11/Table20_as-of-6-dec-2016.pdf.
As Kevin G. Nealer and Margaux Fimbres note, many Taiwanese “believe that a standing FTA between China and a given country is a prerequisite for Taiwan to sign an FTA with that same country.” See Kevin G. Nealer and Margaux Fimbres, “Taiwan and Regional Trade Organizations: An Urgent Need for Fresh Ideas,” Asia Policy no. 21 (2016): 72.
See Department of Investment Services, Ministry of Economic Affairs (Taiwan), “Taiwan’s Investment in Southeast Asia (1959–2016),” https://www.dois.moea.gov.tw/Home/relation3.
For the data used for these calculations, see Banking Bureau, Financial Supervisory Commission (Taiwan), “Basic Financial Data, 2nd Season 2017,” August 2017, https://www.banking.gov.tw/webdowndoc?file=/stat/bas/10606.pdf.
Tsai Ing-wen, “Remarks at Yushan Forum: Asian Dialogue for Innovation and Progress” (Taipei, Taiwan, October 11, 2017), http://english.president.gov.tw/NEWS/5232.
“China Unhappy as Philippines Signs Investment Deal with Taiwan,” Reuters, December 8, 2017, https://www.reuters.com/article/us-china-taiwan-philippines/china-unhappy-as-philippines-signs-investment-deal-with-taiwan-idUSKBN1E217F.