Tue, Nov 27, 2001 - Page 8 News List

Editorial: China is no economic lifeline

As the global economy grinds ever slower, will China turn out to be Asia's economic savior? Or will it be a burden that drags the rest of the region down? This might be a life or death question for Taiwan.

Japanese management guru Kenichi Ohmae believes cheap labor has turned China into the world's biggest factory -- like post-World War II Japan, the US in the early 20th Century, or Britain following the Industrial Revolution. Ohmae also believes this trend will intensify after China joins the WTO.

But Huang Tien-lin (黃天麟), a national policy advisor to President Chen Shui-bian (陳水扁), believes the China market has been grossly overestimated. Huang said China's GNP will remain less than 50 percent of Japan's and 20 percent of the US over the next 10 years. He believes Taiwan should develop a global strategy instead of looking mainly to China.

With WTO entry, both Taiwan and China will be facing substantial adjustments. Taiwan's privatization of state-owned enterprises has been difficult, but there has been steady progress. In contrast, appallingly inefficient state-owned enterprises still hog almost every industrial sector in China and remain a major stumbling block to economic transformation. In Taiwan, unemployment has risen to more than 5 percent but social security mechanisms remain relatively healthy. In China, unemployment has created serious social problems, including the massive "blind flow" of migrant workers. After China's WTO entry, the country's agriculture sector will churn out more crowds of unemployed. Meanwhile, the economic gap between the coastal and inland provinces will continue to widen.

Non-performing loans are a serious problem at Taiwan's banks, but the government is taking a hands-on approach to financial reforms. In contrast, illegal or shady loans obtained through political connections are still widespread in China's banks on top of those banks' politically directed lending to unprofitable state enterprises from which this money can never be recovered. Inefficient local banks are also ill-equip-ped to compete with foreign banks. Meanwhile, China's stock market bubbles appear close to bursting. A financial crisis in China may well become the eye of the next regional financial disaster.

Taiwan's economy is posting negative growth this year, while China maintains 5 percent growth. This has led many to adopt a rather negative outlook on Taiwan and rush to China for investment opportunities. This situation is likely to change after both sides enter the WTO. Taiwan is making solid preparations for an industrial transformation, while much of the basic readjustment work is still non-existent in China.

The Economist has suggested that other Asian countries should not intervene in trade with China out of fear of the China threat. Instead, it suggested, they should utilize the China market, effectively re-allocate resources and lift economic restrictions. This recipe may work well for other countries, but as Richard Koo (辜朝明), chief economist at Japan's Nomura Research Institute, noted recently, Taiwan and China are still in a state of enmity. Before Beijing renounces the use of force against Taiwan and shows some genuine respect for human rights, Taiwanese investors should not invest too much in China, he said. They should instead develop a global strategy and disperse their business risk. The Economist may have suggested an aspirin to ease the economic pains, but Koo's recipe is tailored for Taiwan's problems.

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