Over the last year, the stock market has been falling, Taiwan's currency has been greatly devalued, industries have been moving abroad and unemployment rates have been climbing toward historic highs. Imports, exports and industrial output are all declining, economic growth will be the lowest since the oil crisis of 1974 and financial institutions and some investor groups are shaking down to their very foundations.
It is true that Taiwan's economy finds itself in a perilous situation and that the fighting spirit of the people is almost exhausted, but it isn't as though we haven't experienced similar situations before. One thinks of the two oil crises, the run on the Taipei 10th Credit Cooperative (十信擠兌) and the loss of diplomatic ties with the US in 1979. Society's trust [in the government] is declining, in particular because it is the first time that the DPP has held the reins of power and its limited experience has led to a number of ugly disputes. The conflicts between the government and opposition are just the tip of the iceberg.
We should not, however, underestimate ourselves. Taiwan, with its population of 23 million, has few natural resources, but has in the past created countless world number ones: umbrellas, sports shoes, bicycles, PVC plastics, polyester fibre, communication products, personal computers, spare parts and components.
When it comes to electronic communication product manufacturing skills, Taiwan leads the world. Even though production of many products today has moved to China, Taiwanese techniques, management and marketing are still used in combination with China's low-cost labor, land and large market to expand the scope of Taiwanese industry.
Production volumes for the first companies to move to China, such as Bao Chen (sports shoes), Delta (power supplies) and Foxconn (connectors), have increased many times over, and these companies now hold the largest market shares in the world.
Taiwan's technical management and marketing abilities have not been reduced in spite of the exodus to China. At the same time as companies have been leaving the country, freed-up resources in Taiwan have been redirected toward the development of more advanced products.
When Acer Peripherals moved its whole monitor manufacturing business to Suzhou (蘇州), for example, it shifted its research and development focus toward the development of communications and opto-electronics products. After Wah Tung moved its PC and printed circuit board manufacturing to Huizhou (惠州), it built a new plant in Tayuan (大園), Taiwan to develop industrial multi-layer printed circuit boards.
These companies aside, gross profits for Taiwanese manufacturers such as Gigabyte, Pan-Jit and Chilisin are very high, but to develop the domestic Chinese market they moved to China to save on product taxes, without reducing production in their Taiwanese operations.
The exodus of companies is not something that began only in the last one or two years. Traditional industries have been moving away over the last 10 years, but Taiwan has still been able to bask in the glory of the communication and semi-conductor industries. The reason for the pessimistic atmosphere now is that the communications industry has been leaving Taiwan faster over the last year. The industrial sector has also been experiencing a downturn.
Markets for the newly rising optical fiber and communications industries, however, are still growing. Future markets will be universal, and costs will have to be cut still further: in this lies the turning point for Taiwan's electronics industry. Not only do technology industries have to make their products more compact, but they also have to speed up research, development and innovation and implement low cost manufacturing -- all Taiwanese specialities.
The flexibility, efficiency and close integration of the upper and lower reaches of Taiwan's electronics industry, with the addition of superior human resources, creates a competitive advantage second to none: while Motorola, Ericson and Nokia declared plant closures or production volume reductions, original design manufacturers (ODMs) and original equipment manufacturers (OEMs) in Taiwan increased their volumes from 11 million in 2000 to 17 million this year, and an estimated 35 million next year.
Chi Mei Corp and Quanta have followed Acer Peripherals, GVC, DBTEL and Arima and joined the ranks of handset manufacturers. Before long, a wave of new technological industries will be created by [the development of] TFT-LCD (thin film transistor liquid crystal display), filters, polarizing filters, indium tin oxide (ITO) glass, radio frequency integrated circuits (RF-ICs) and analog integrated circuits (ICs).
Industry's move away from Taiwan is nothing to be afraid of. It could even herald an inevitable industrial upgrade and economic transformation. The US and Japan are earlier examples that Taiwan is still digesting; manufacturers have already left Hong Kong and Singapore without harm to their economic development; Philips is the largest company in Holland, but its factories are distributed all over the globe, with only a few in Holland.
After direct links have been established, Taiwanese-owned factories in Suzhou, Kunshan (
One of the four trends in the "new economy" explained by the Japanese trend and strategy specialist, Kenichi Ohmae, in his book The Invisible Continent -- Four Strategic Imperatives of the New Economy, is the trend toward a borderless economy in which borders and obstacles between nations and geographic regions gradually disappear.
It is of course inevitable that there will be structural unemployment during a period of economic transformation. Apart from offering an opportunity to strengthen the pension fund system and improve the skills of the labor force, structural unemployment may also be reduced by using some of the ideas that have been proposed by the government, such as the development of tourism for the outlying islands and the mountain districts. These ideas could also lead to an increase in domestic real estate investment and a reduction in the amount of money leaving the island with Taiwanese tourists. They would also attract foreign tourists to Taiwan.
The more the Chinese economy develops, the higher the income of its citizens and the lower the risks of extremism. On the contrary, it will bring the two sides closer together. On the one hand, the rise of the Chinese economy may marginalize Taiwan's economy, but on the other, it is also a turning point for the Taiwanese business community. The development of cross-strait economics and trade is more complementary than substitutional, which means that it should not be viewed as an economic war, but rather as a means to create a mutually beneficial, coexistent and cooperative relationship.
The key to solving Taiwan's economic problems and developing a new turning point lies in making economics, rather than politics the priority; in the use of less ideology and more specialization; and in stressing opening up over controlling and restricting.
Chang Chung-pen is the president of Hotung Group.
Translated by Perry Svensson
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