Is Taiwan’s embrace of China a good thing? Huge trade surpluses are usually thought to be good….

Taiwan was China’s largest source of trade deficit in 2005 and “intra-industry” trade across the Taiwan Strait surpassed half of that between China and the rest of the world in the same year, a World Trade Organization report said Saturday.

The report said that although Taiwan has maintained bans on the import of about 2,000 categories of products from China, its huge trade surplus and “intra-industry” trade with China indicate that trade exchanges across the Taiwan Strait have continued to increase.

According to a trade policy review on China soon to be published by the WTO Secretariat, Taiwan enjoyed a trade surplus of US$58 billion with China in 2005, topping all countries in the world, including South Korea, which posted a surplus of US$42 billion with China in the same year to become the second-top surplus earner, and Japan in third place with US$16.5 billion.

The report suggested that Taiwan’s, South Korea’s and Japan’s huge trade surpluses with China partly reflect the huge amounts of investment and large numbers of manufacturing operations that these countries maintain in China.

In fact, the report said, Taiwan, South Korea and Japan have “exported” their trade surplus with the United States and the European Union to China by investing in, producing and exporting their products from China, the so-called “world factory.”

According to the report, Taiwan was China’s third largest import source, providing 11.3 percent of China’s entire imports in 2005, after Japan’s 15.2 percent and South Korea’s 11.6 percent.