CROSS-STRAIT ECONOMIC-RELATIONS AND THEIR IMPLICATIONS FOR TAIWAN

After Teng Hsiao-p'ing's (Deng Xiaoping's) tour of the southern provinces in early 1992, the Chinese Communist Party set forth upon a new course in economic modernization-a restructuring of the old planned economy in favor of a new market economy with a fresh mixture of economic entities designed to increase productivity and welfare. Interior provinces began establishing new economic development Zones to attract foreign investment, particularly from Taiwan. Taiwanese investment has since increased greatly, much of it directed toward the mainland's domestic market. New laws passed in early 1994 have lowered taxes for foreign investors and allowed for easier remittance of profits to Taiwan. Accelerated Taiwan-to-mainland transfer of economic resources and increased market integration between the two economies can be expected Greater market integration will also entail higher social, legal, and transaction costs involved in managing cross-Strait economic relations. These costs will invariably influence popular perceptions about national and ''Taiwanese'' identity in Taiwan. Greater Taiwan-mainland market integration and attendant transaction costs will very likely intensify political tensions within Taiwan, possibly moving it further from the orbit of Chinese cultural and political interests.