China offers risky drip line to recession-hit Taiwan

By Ralph Jennings and Lee Chyen Yee - Analysis

TAIPEI (Reuters) - Recession-hit Taiwan has begun to depend so heavily on economic powerhouse China that the island's leadership risks being seen as beholden to Beijing and will have to tread carefully so as not to upset its political rival.

China will send a second major procurement mission to Taiwan in July to buy billions of dollars of goods, while this week Taiwan announced that it will allow mainland money into about 100 sectors in the hope of boosting private investments and consumption, which together make up 75 percent of the island's $380 billion GDP.

"You increasingly see the Taiwan economy dependent on China," said Joseph Cheng, a political scientist at City University of Hong Kong. "The whole idea is that people understand you cannot outrage China."

If relations ever turn sour China could halt or delay key investments, such as those in major infrastructure projects and in the financial sector, but analysts doubt Beijing would ever completely strip its assets.

"They can't completely withdraw all their investments immediately because it will be difficult to just sell off some assets, such as real estate, straightaway, " Alexander Huang, a professor of strategic studies at Tamkang University in Taipei.

"However, if the Taiwan government is expecting Chinese funding for some infrastructure projects, say an airport, and China then decides not to commit, then Taiwan will be scrambling to find new funding, causing a delay in construction."

Despite political differences, China has become Taiwan's top investment destination and trading partner with two-way trade totaling $130 billion.