This time last year, when Taiwan was mired in the passion and chaos of the presidential election, people were, nevertheless, quite optimistic about the future. Taiwan's first wave of democratization had resolved the problem of an authoritarian system and a second wave of democratization was ushering in a peaceful transition of power and bringing the country into the ranks of democratic countries. Everyone had a hunch that there would be a price to pay for democracy, but no one had expected the price to be so high. Today, Taiwan is facing a crisis of sliding confidence, draining capital and fading hopes about the future.
The transition of power has given the DPP executive power in the central government, but the opposition parties still hold a majority of seats in the legislature. With the ruling party unwilling to bow to political reality and the opposition unwilling to let the ruling party do whatever it wants, Taiwan has seen endless political conflict and economic woes.
The motivations of Taiwanese businesses investing in China have also changed, from the early days when it sought cheap labor and materials, to seeking new markets, to taking up positions in anticipation of both countries entry into the WTO, to disappointment at Taiwan's prospects for development.
Over the past two years, Taiwanese investment in China has been growing at more than 30 percent per annum. In the first half of last year, 315 listed Taiwanese companies invested US$5 billion in China. Were the Taiwan government to open the way this year for wafer foundries and petrochemical companies to invest in China, the tide of investments will become unstoppable.
In contrast, the Taiwan government predicts a total of NT$1 trillion in domestic investment this year, but if we deduct the NT$300 billion in private investments and the NT$400 billion for post-quake reconstruction in central Taiwan, the government is actually investing a mere NT$300 billion. Both government and private investment in Taiwan may fall ever lower than the amount of Taiwanese investment in China. This is a serious warning sign of capital drain.
Apart from dwindling investor interest, Taiwan is also losing its competitive edge. During the recent National Economic Development Conference, Academia Sinica President Lee Yuan-tseh (李遠哲) warned that a shrinking budget for science and technology may cripple the country's efforts to catch up with Japan and may even cause it to fall behind South Korea. During an economic conference four years ago, the government promised to increase the country's research and development budget by 10 percent each year, but the promise has been broken annually ever since. Now National Science Council Chairman Weng Cheng-I (翁政義) has promised to raise the country's R&D budget by at least 12 percent annually.
Almost every year, Taiwan's education budget has suffered cuts both at the Executive Yuan and the legislature -- at a time when Japan, South Korea, China and Singapore are all strengthening their technology research policies to improve their competitive edge. Taiwan risks being marginalized, both in cross-strait and global competition, once its loses high-end human resources and R&D capabilities.
Apart from working to create a better environment for investors, the government should also review its government bond regulations, expand the scale of its investment and strengthen build-operate-transfer mechanisms for private investment. When it comes to R&D and education, the government should not only increase budgets but also provide incentives for businesses to invest in R&D. Taiwan's future hopes lies in its willingness to invest in itself -- and in its own future. Without such willingness, Taiwan will only wither away day by day.
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