Prices are weak in Taiwan because consumer demand is soft.
The US technology stock crash had a direct and still-unfolding effect on the local economy. As the US buys fewer Taiwanese goods, employers here need fewer workers. They're also paying less, leaving consumers with smaller discretionary incomes. Even though Taiwan boasts high household savings rates, the changing economic climate has consumers spending less.
That's led Taipei to employ some good old fashioned priming -- boosting government spending to support the economy. The spending is aimed at combating record unemployment and stabilizing the nation's key stock index, which is down 60 percent since the middle of last year. Bad weather isn't helping things. Typhoons have interrupted factory production, closed businesses, damaged property and crimped consumption.
Yet fiscal spending and easier money are short-term solutions to Taiwan's problems. What is Taipei doing to wean its economy off exports? Not enough, say many local economists. "I don't see much work on this front," says Irmak Surenkok, an economist at Primasia Securities Co. "This latest crisis has highlighted the problem, but I can't see much going on to change things."
Then again, major change often takes time, especially here in Asia. Just look at Japan, which is 11 years into a slump for which no end is in sight. The ongoing global malaise has given Taiwan the determination to revive its economy from within. Now it needs time to make the transition.
"I think it's unrealistic for the manufacturer of last resort to the industrialized world to regear itself overnight," explains Spencer White, head of research at Merrill Lynch Taiwan Ltd.
One route Taipei is pursuing is increased commercial ties with China, which still considers Taiwan a renegade province.
Stung by the worst economic slump in 49 years and the US and Japanese slowdowns, businesses on this side of the Taiwan Strait want wider access to China. There's cheaper land and labor to be found there, as well as a 7 percent growth rate -- the fastest in the world -- that could mean a vibrant market for Taiwanese firms.
Yet things are progressing very slowly and unevenly. This week's meeting of leaders of the 21 Asia-Pacific Economic Cooperation nations in Shanghai may bring China-Taiwan tensions to a head. Taiwan is already smarting from China's move to bar President Chen Shui-bian from the gathering. The snub underscores the fragile relations between the two countries following a civil war that ended in 1949.
Thawing the chill between Beijing and Taipei will take time.
In the meantime, Taiwan's dependence on exports is perhaps its biggest structural problem. That explains why Taiwan finds itself in the uncomfortable position of waiting for a global rebound. No one knows when the US economy will stop sliding, or if Japan's ever will. Yet Taiwan is hoping for the best. Trouble is, that's all it can do at the moment.
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