Taiwan may be gripped by a crisis of confidence caused by an ongoing economic slump and political uncertainty, driving investments into the hands of arch rival China, analysts say. They warn that further deterioration in the domestic political situation could sink the economy deeper into recession.
"Taiwan is now experiencing its worst economic slowdown in almost three decades," said Wu Chung-shu, a research fellow at Academia Sinica (
Shrinking exports and domestic investment had dragged down economic growth in the first three months to a 26-year quarterly low of 1.06 percent.
The Academic Sinica, projecting an even slower growth of 0.73 percent for the second quarter, has cut the 2001 growth projection to 2.38 percent. The independent Chung-Hua Institution for Economic Research (中華經濟研究院) expected only a 2.22 percent growth for the whole year, the lowest level since 1974.
In May, the jobless rate hit a record 4.22 percent as more businesses trimmed their workforce or shut down.
Analysts worry that the ruling DPP lacks the ability to bail out the country.
"Taiwan is stricken by its worst confidence crisis as more and more people seem to have lost faith in the leadership and its ability to weather the country through the recession," said Thomas Lee, a professor at National Chengchi University.
The crisis is even worse than in 1971 when the island was thrown out of the UN or when China lobbed ballistic missiles into the shipping lanes off the island ahead of Taiwan's first democratic presidential elections in March 1996, he said.
"The government has lost its credibility" because of its inefficiency and inconsistency on various major policies as well as a wavering and unfriendly attitude in handling cross-strait relations, Lee said.
A recent poll of 1,035 people conducted by a local Chinese-language economic daily showed four in five respondents were unhappy with the administration of pro-independence DPP.
Since President Chen Shui-bian (
The local currency has also recently fallen below the NT$35 level against the greenback, the lowest in 14 years.
"Investor confidence has practically collapsed as they see no signs of improvement in either the domestic political or economic situation," said Bentham Hung, an analyst at Fuh-Hwa Securities (復華證券).
The wrangling between the ruling and opposition parties, which was expected to linger until the December legislative elections, has darkened the already cloudy economic outlook.
"There's little hope of a turnaround for Taiwan stocks before the year's end since the government is too busy working on DPP's victory in the elections," he said.
But Wu said the opposition was equally responsible for the political upheavals and and economic downturn.
The DPP has alleged that the opposition parties, which dominate parliament, had virtually paralyzed its bid for reforms.
Lee warned that Taiwan's uncertainty would accelerate the exodus of capital and people.
"Investors tend to stay away from any country where they don't know what to expect in the next three to five years," Lee said.
Some 50 percent of Taiwan's listed firms already have business interests in China.
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