The Taiwan Banker

The answer will depend largely on Seoul’s willingness to move closer to the United States and away from ChinaOn June 6, 2021, a delegation of United States senators arrived at Taipei Songshan Airport to announce the donation of 750,000 Covid-19 vaccines to Taiwan. The visit was primarily intended to convey Washington’s support for Taipei in its hour of need. At the time, Taiwan had vaccinated less than 3% of its population and was struggling to contain a Covid outbreak. The symbolism of the visit went beyond vaccine diplomacy though. The senators arrived on a U.S. Air Force C-17 Globemaster III freighter, a main strategic lift aircraft for the American military. It was the first time in more than 40 years that a U.S. military aircraft openly touched down in Taiwan. The C-17 took off from Osan Air Base in South Korea, about 65 kilometers from Seoul.To avoid putting South Korea in a difficult situation with China, the senators did not inform South Korean officials of their intention to fly to Taipei. “There were no commercial flights. The [Biden] administration agreed with us and actually sent a military aircraft, and flew us in from a military base in South Korea to Taiwan,” Senator Tammy Duckworth said in November at a conference. This incident illustrates the increasingly difficult balancing act that South Korea must execute. Seoul depends on the U.S. for its national security while China is its largest trading partner and a go-between for negotiations with North Korea. The left-leaning Moon Jae-in administration, ever eager for a rapprochement with Pyongyang, has been loath to do anything that might upset China, especially after Beijing sanctioned Seoul following the latter’s decision in 2016 to deploy a U.S.-made missile defense system (THAAD) that China said threatened its security interests. South Korea’s economic losses from the sanctions are estimated at US$7.5 billion. After some likely arm twisting from the Biden administration, South Korea agreed to a joint statement concerning Taiwan in May. "We've shared the view that peace and stability in the Taiwan Strait are extremely important, and we agreed to work together on that matter while considering special characteristics in relations between China and Taiwan,” Moon Jae-in said following a summit with Joe Biden at the White House. While that statement was welcome, the Moon administration remains wary of any official exchanges with Taiwan. In late December, it abruptly canceled the invitation of Minister Without Portfolio Audrey Tang to speak virtually at a global technology conference in Seoul, citing “various aspects of cross-Strait issues.” Deepening unofficial tiesWhile South Korea for now remains wedded to a rigid interpretation of the one-China policy, Seoul and Taipei are steadily deepening unofficial relations. Before the pandemic brought international travel to a halt, the South Korean tourism market was booming in Taiwan. 2.45 million visitors traveled between the two countries in 2019. Taiwan still has high hopes for this market, as seen by the Tourism Bureau’s large presence at the Seoul International Tourism Fair in June 2021. The same month, a travel show promoting Taiwan co-produced by the Tourism Bureau premiered in South Korea. Culturally, South Korea’s culture is probably the most influential of any country among Taiwan’s youth. Korean pop music, chimaek (Korean-style chicken and beer) and television shows like “Squid Game”– all part of the “Korean Wave” – are more popular with young Taiwanese than anything comparable from China, Japan or the West. South Korea has brand power in Taiwan too, with Samsung accounting for about ¼ of smartphone sales here. At the same time, Taiwan and South Korea are one another’s fifth-largest trading partners and bilateral trade reached an all-time high of US$35.74 billion last year. Semiconductors account for a key part of two-way trade. Although Taiwan and South Korea have historically competed more than cooperated in this sector, that may change as the US looks to build clean semiconductor supply chains – free of China-made components – with its democratic partners in Asia. “Taiwan and South Korea are under geopolitical pressure, and they have shown the Biden administration they are on the U.S. side,” noted Colley Hwang, president of DIGITIMES Asia and a veteran tech industry analyst, in a September 2021 commentary. One potential area of cooperation is the automotive chip segment in which Taiwan Semiconductor Manufacturing Co. (TSMC) is dominant. Facing a chip shortage that was hitting Korean carmakers Hyundai and Kia hard, Seoul sent a delegation early last year to meet with Taiwan’s Minister of Economic Affairs to request assistance. South Korea relies largely on automotive chip imports, producing just 2.2% of the global supply itself, according to Taiwan’s Central News Agency (CNA). Learning from South Korea Taiwan can also learn from South Korea in several important areas. One is digital financial services. Both countries have conservative financial sectors that have been slow to embrace digitization. However, South Korea’s financial regulators have been more proactive when it comes to digital banks, seeing them as a necessary addition to the competitive landscape able to better meet the financial needs of the nation’s youth than traditional lenders.Such thinking has borne fruit: South Korean digital lenders like Kakao Bank, K bank and Toss Bank are flourishing on the back of strong demand from customers 35 and under. For their part, traditional banks are responding to the competitive pressure by seeking to launch digital subsidiaries of their own. Additionally, South Korea’s military preparedness could be instructive for Taiwan. Both countries face an existential threat and count on American support to mitigate that threat. However, South Korea is better prepared than Taiwan for a worst-case scenario. It maintains mandatory two-year military service for all males aged 18-28. In Taiwan, which is transitioning to an all-volunteer military, conscription has been reduced to just four months. Further, while Taiwan has 1.65 million active-duty reservists on paper, many are unprepared to fight a war. In contrast, the South Korean reserve force is 3.1 million men strong and known for its formidability, its training nearly as tough as that of regular forces. South Korea’s Mobilization Reserve Forces receive regular training one day a month and an annual three-day call up. Leaning to one sideFor a true breakthrough to occur in Taiwan-South Korea relations, Seoul would have to loosen its interpretation of the one-China policy as the U.S. and Japan have done. That would mean no longer primarily viewing ties with Taipei through the prism of Beijing’s feelings on the matter. Under a left-leaning president like Moon Jae-in, who expects China to help him reconcile with North Korea, such a change is unlikely. Moon’s sentimentality about Pyongyang has made him captive to Beijing in a certain sense. However, Moon will leave office in March 2022. Should the conservative opposition candidate Yoon Suk-yeol of the People Power Party (PPP) win the presidential election, chances are that South Korea would take a cooler approach to relations with both the North and China. Yoon would instead likely focus on bulwarking Seoul’s alliance with the United States. That would be consistent with prior conservative South Korean administrations. Currently, Yoon has a slight lead in the polls over the Democratic Party candidate Lee Jae-myung. Regardless of who wins South Korea’s presidential election, the geopolitical winds are shifting. As the U.S.-China rivalry intensifies, Seoul may eventually have no choice but to “lean to one side” in the words of erstwhile China chairman Mao Zedong. Mao coined the term in 1949 as the Cold War was heating up, urging his comrades to embrace the Soviet Union as an ideological and material ally, while shunning the “imperialist” United States. For Seoul, the choice will be the United States – as it was during the Cold War – because of China’s rising aggression and Washington’s paramountcy to South Korea’s national security, which ultimately matters more than narrow economic interests. Recent survey data support this assertion. A survey conducted by South Korea’s Hankook Research in March 2021 found that 59% of South Koreans view China primarily as a rival, with 83% seeing Beijing as a security threat and 60% as an economic threat. A spring 2021 Pew survey found that 77% of South Koreans have a positive view of the United States, while just 22% view China positively. Interestingly, South Korea’s young people have the most negative views of China. In this respect, they share some similarities with Taiwanese. Compared to their elders, many who grew up in a military dictatorship (South Korea democratized in 1988), South Korean millennials have less patience for China’s authoritarianism. South Korean youth have only known a free society and some see the illiberal Chinese party-state as a threat to their core values. Such feelings have intensified following Beijing’s draconian imposition of a national security law in Hong Kong and the outbreak of the coronavirus pandemic, which might have been contained within China’s borders if Communist Party officials had been truthful rather than deceitful at the onset. In contrast, South Korea’s young people generally have warm feelings towards Taiwan, a fellow East Asian democracy that has evolved along a similar trajectory to their own country. Though it will take time before a younger generation of South Korean politicians leads the country, this nonetheless augurs well for the future of Taiwan-South Korea relations.