Taiwan’s economy is expected to gain momentum on rising investment following President Tsai Ing-wen’s (蔡英文) victory in the presidential election on Saturday, but the nation still faces challenges to meet energy demands and in signing more free-trade agreements, economists said yesterday.
The Ministry of Economic Affairs would likely continue using rewards and subsidies to entice Taiwanese companies with operations in China back home, which would provide a stable foundation for domestic investment, National Central University economics professor Hsu Chih-chiang (徐之強) said.
Last year, domestic investment was the engine of the local economy, boosting Taiwan ahead of Japan, South Korea and Singapore in terms of economic growth, Hsu said.
Tech companies’ growing focus on emerging technology, especially 5G, contributed to the increase in domestic investment, Hsu said, citing Taiwan Semiconductor Manufacturing Co’s (台積電) planned capital expenditure of US$14 billion to US$15 billion this year.
The Directorate-General of Budget, Accounting and Statistics forecast a full-year gain of 7.61 percent for private investment, which along with a 9.71 percent increase in government investment last year would help offset the decline in exports caused by the US-China trade dispute and support a mild growth in private consumption, he said.
“Although the US and China are slated to sign a ‘phase one’ deal on Wednesday, Taiwanese companies that were planning to move out of China are not likely to halt those plans, as production costs have kept rising in China and there would still be high political and economic uncertainty,” Hsu said.
With a high comparison base last year, domestic investment is predicted to grow less than 5 percent this year, he said.
However, rising domestic investment would increase the nation’s energy demands, making stable electricity supply an important issue for the Tsai administration over the next four years, National Central University research center director Dachrahn Wu (吳大任) said.
“Supplying adequate power would be one of the major challenges for Tsai, as the government’s assurance of no power shortages seems not to have eased people’s anxiety,” Wu said.
The government is slated to start decommissioning the Guosheng Nuclear Power Plant in New Taipei City’s Wanli District (萬里) next year, he said.
Meanwhile, there is trouble in using some generators at the coal-fired Taichung Power Plant due to tensions between Taiwan Power Co (台電) and Taichung City Government, he added.
The Democratic Progressive Party government, which plans to increase the ratio of green energy from 5 percent last year to 20 percent by 2025, would need to do more to convince the public and companies that green energy is reliable and it would not lead to higher electricity prices, Wu said.
At NT$2.3874 (US$0.08) per kilowatt-hour, Taiwan’s industrial electricity price is the sixth-lowest worldwide and that has attracted many foreign companies to invest in the nation, including the NT$26 billion Google paid to expand its data center last year, he said.
Another challenge for Tsai’s government is international trade, due to the US-China trade dispute, a global economic slowdown and Taiwan’s difficulty in signing free-trade deals with other Asian countries under pressure from China, said Roy Lee (李淳), deputy director of the Taiwan World Trade Organization and Regional Trade Agreements Center of the Chung-Hua Institution for Economic Research (中華經濟研究院).
“It is almost impossible for Taiwan to join the Regional Comprehensive Economic Partnership [RCEP], which is led by China,” Lee said. “Therefore, it is time to rethink a new strategy to improve Taiwan’s exports to neighboring countries.”
As companies in South Korea and Japan have enjoyed preferential tariffs when exporting to the ASEAN market in the past decade, they would gain the upper hand against Taiwanese firms when exporting to China once the RCEP is signed later this year, he said.
Rebalancing economic relations with China might be good for the nation’s healthy development in the long term, he added.
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