While this investment has flourished to this point despite strained cross-strait relations, deterioration in the China-Taiwan relationship would threaten Taiwanese investment in China. Taiwan's firms have already been warned by their Ministry of Economic Affairs to increase their level of risk assessment on account of increased risk that China's government poses to Taiwanese investments (Central News Agency, 2007). More important, however, are the damaging effects on total FDI that deterioration in China-Taiwan relations would have. While Hong Kong is the largest source of FDI, much of that is Western and Taiwanese money that is merely funneled through Hong Kong intermediaries, rather than bona fide HK-sourced capital (Ibid). Some of this money may even be China-sourced (Hou, 2001). If China loses substantial amounts of foreign investment as a consequence of turmoil with regards to Taiwan, its economic growth could stall. However, this remains a lower concern than some of the other threats, in particular as Taiwan has moved to a less adversarial approach to cross-strait relations (Lai, 2009). While this has not resulted in new, meaningful dialogue, it is a policy geared towards the maintaining the status quo. China has the capability for domestic investment at this point in its economic development. While it remains dependent on FDI for growth and foreign currency to purchase energy and mineral resources, it has built up reserves that would defray the impact of a decrease in FDI on account of the Taiwan issue.
Conclusions
China's economic growth faces serious challenges in the future. The most important of these are its lack of resources, in particular water. The country has strong foreign reserves that could help it offset fuel, mineral and even food shortages or a decline in FDI, but the nation has little defense against a shortage of water. Water shortages in the short-term will create goal conflicts between the needs of industry and the needs of a hungry populace. In the long-run, a shortage of water could devastate the northern half o the country, leading to massive starvation and internal displacement. Social upheaval -- already a concern for the CPC -- could threaten the regime and all of the infrastructure that depends on it. This includes the entire economic system, which to a significant extent is a fabrication of Communist Party policies.
For the next few decades, if China can resolve its water issues, the economic miracle is likely to continue. The large stock of foreign reserves will help alleviate resource shortages. The Communist Party is unlikely to jeopardize its foreign investment over Taiwan, and even if did the impacts are not going to be catastrophic due to the massive stockpile of foreign reserves.
Careful management of critical resources will therefore allow for China to continue its strong growth in the immediate future. A generation from now, however, the nation is likely to be faced with multiple, converging catastrophes. Water and food shortages and income disparities will lead to increased social unrest. Internal...
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