The aggravating investment environment in Taiwan has lead to migration of industries to oversea nations. China, with its geographical advantage, lower labor cost, and enormous market potential, has become Taiwan investors¡¦ preferred choice of investment region. Nevertheless, that has affected Taiwan¡¦s economy in many perspectives when a large amount of Taiwanese investors shifted their operations to China, along with their enormous amount of capital. Hence, the main focus of this thesis is to focus and evaluate this impact on Taiwan¡¦s economic growth, import and export structure, industrial adjustment, market competitiveness, employment issues and industrial hollowing-out effect. This thesis analyzes and evaluates several issues from Taiwanese investor¡¦s point of perspective, including: 1.Evaluate whether or not there is industrial hollowing-out effect in Taiwan. 2. The cause of industrial hollowing-out effect in Taiwan. 3. The correlation between investor¡¦s migration to China and industrial hollowing-out effect in Taiwan. 4.The influence of the industrial hollowing-out effect. This thesis adopts historical process research, statistics analysis method, and documentary research as the basis of evaluation. By the 5 criteria indicator (negative net value of foreign direct investment, the growing trend of unemployment rate, and the declining trend of the manufacturing-based industries over the GDP ratio, manufacturing labor productivity, and manufacturing investment) to examine if there is any data or evidence indicating that Taiwan at present is going through industrial hollowing-out. This Thesis has discovered the following facts: 1.The 5 criteria indicating an industrial hollowing-out is in effect. Over the 16 years from 1991 to 2006, the net value of Taiwan¡¦s foreign direct investment is ¡V35.213 billion dollars, and the unemployment rate has been rising since 1995. Manufacturing industries over the GDP ratio has declined from 33.34% to 21.39%. Manufacturing production index growth rate varied from 7.42% to 5.04%. Labor productivity index growth rate declined from 1.29% to -2.37%. And except 2004, manufacturing gross domestic capital formation growth rate (nominal or real) has been decreased since 2001. From these findings stated above, Taiwan has faced all of the 5 trends and hence, Taiwan has begun to face the industrial hollowing-out effects. 2.The causes of Taiwan¡¦s industrial hollowing-out are as follows: (1) the over-extended migration of investment to China. (2) the problem of industries¡¦ structural adjustment. (3) the similarity of exporting products, which leads to the trade competition. (4) insufficient local investment. 3.Industrial hollowing-out effects can be discussed under the perspectives of the employment market, the industries structural and the international market. From the market employment perspective, the industrial hollowing-out results in high unemployment, stagnant wage growth and imbalance on spread of wealth. From industries structural point of view, the hollowing-out effect causes struggling in industries technological advancement, difficulties in research and development for manufacturing industries, limitations of cooperation between global enterprises and the restriction of the economy growth. On international market level, the hollowing out effect would create the negative impacts such as difficulties in industrial restructuring, the tremendous international competition, the replacement of products manufactured in Taiwan with those made by other nations, and the inability to attract more foreign investment.

This paper analyzes Taiwan’s cross-Strait trade regimes from 1987 to 2006. The situation across Taiwan Strait has changed remarkably since 1987 when the Kuomingtang government lifted martial law and allowed Taiwanese people to enter to the People’s Republic of China. By now it is estimated that Taiwanese businessmen have invested more than US$ 100 billion in mainland China. China has become Taiwan’s largest trading partner notwithstanding the government’s restrictions. The laws and regulations have changed since 1987, too. There are many players that participate in the decision making process and implementation of policies in Taipei. This paper explains the factors that have lead to current situation and explains why there is a big gap between official policies and real volume in terms of investment and trade. These factors include different players of the game (e.g. leadership, political parties, organizations, and businessmen) as well as broader trends (i.e. democratization, globalization, and vertical disintegration.) Key words: Cross-Strait relations, Taiwanese investment and trading.