Premier Yu Shyi-kun recently pitched a six-point plan for revamping Taiwan's banking industry. He asked the banks to support President Chen Shui-bian's (
Yu also called on the banking sector not to cut back on the supply of capital to enterprises that perform well while cautioning against lending for China-bound investment projects. The DPP considers these projects risky and apt to later turn sour, leaving their debts behind in Taiwan.
To step up efforts to revive the economy and help to meet the capital demands of businesses, the Executive Yuan also announced a two-year scheme to collaborate with banks to allot NT$1.3 trillion to stimulate traditional industries.
The policies of the premier over these past few days have focused on two important moves: first, a request to the banks to refrain from extending loans to businesses engaging in investment projects in China to suture hemorrhaging capital gaps; second, efforts to provide adequate capital to those businesses that do stay in Taiwan. These two solutions should, on the one hand, help secure the roots of Taiwan's economy, and, on the other hand, strengthen the economy itself in the process; they amount to a two-pronged move that should address both the symptoms and the causes of the problem.
Of greater importance though is that this development suggests that, now that the government has finally found a path of its own in terms of cross-strait relations, it is now beginning to do the same in terms of economics and trade. It no longer allows itself to be inveigled by the pro-unification camp and greedy businessmen into believing that the future of Taiwan's economy lies in the Chinese market.
Nor does it believe in the absurd theory that unless Taiwan businesses go to China, they will, despite their best efforts, face certain death. The government is now truly implementing the concepts of "Taiwan first" and strengthening roots in Taiwan.
When the DPP first became the ruling party, it repeatedly made goodwill gestures towards China because it lacked any understanding of the zero-sum competitive economic relationship between the two sides. Not only that, but it set off on a road of liberalization as regards cross-strait economic and trade policies as well.
It went as far as putting former president Lee Teng-hui's (李登輝) "no haste, be patient" policy on the back-burner, replacing it with the policy of "active opening, effective management" (積極開放,有效管理). But, no effective management mechanism has been established, and active liberalization became the central tenet of the policy.
Slow to act
Even more questionable was the government's failure to come up with policy solutions to the hollowing-out crisis created by the westward exodus of traditional industries over the past decade. Instead, the government opened the front door for high-tech industry's exodus to China.
After assembly and manufacturing companies within the information-technology industry were allowed to go to China, the government further authorized investments there by allowing hi-tech, intensive 8-inch wafer foundries into China. These moves have virtually cut off Taiwan's economic life line.
The westward march of Taiwan's industry has not only fattened the Chinese economy, but also given succor to Taiwan's future competitors. It has been suicidal.
As many industries move to China on a massive scale, some of them are shutting down retail stores and plants in Taiwan, adding to the rising unemployment rate, while procuring bank loans on the basis of plans ostensibly for use at facilities in Taiwan. They then inject the capital obtained into China, and turn a deaf ear to demands for loan repayments. As a result, the number of default loans in Taiwan continues to climb. Capital is poured into China, while bad loans are left behind in Taiwan.
Recently, the Control Yuan censured the Executive Yuan, pointing out that only about one percent of the capital invested in China by Taiwanese businessmen has been returned to Taiwan. This tiny figure goes flagrantly against the norms of overseas investments.
The Executive Yuan cannot escape blame for its failure to respond effectively to either the hollowing out of industry, or to the deliberate defaulting on bank loans. The censure highlights the central problem of Taiwanese industries' westward march.
While the government may not have actively encouraged this exodus, at the very least, it supinely allowed it to happen; it did not even take action to minimize the impact on Taiwan.
A side-effect of the westward march has been conflict within society. Taiwan seems to be at a cross-road between life and death, as it faces declining consumption, investment, real estate and stock markets, and incomes.
Just about the only thing climbing these days is unemployment.
Coming to
But our leaders and the ruling party have finally come to their senses. They have finally realized that liberalizing the rules on cross-strait investments will not necessarily accomplish the goal of economic recovery.
But, a small minority of government officials appears oblivious to the new policy direction, continuing to pursue erroneous and questionable policies.
To avoid making the mistake that Japan made, for example, the government is prepared to provide more than NT$1 trillion to help cover loan defaults and lower the percentage of bad loans, increasing the adequacy of liquid capital.
Frankly, this will only address the symptoms of the problem. If the economy is not revived, bad loans will only continue to increase. Industrial revival is the only way to deal with the root of the problem. The government's plan to raise NT$1 trillion to revive traditional industries, increase the availability of capital to businesses, expand investments and raise competitiveness will be much more effective.
Furthermore, now that even the premier has openly called on the banks to stop extending loans to firms that tend to make investments in China, while leaving bad loans behind in Taiwan, how can the Ministry of Finance move in the opposite direction by liberalizing regulations on loan extensions by overseas banking units (OBU) for Chinese investments?
We believe that our leaders are genuinely set on reviving Taiwan's economy, but that end must be accomplished in an appropriate way.
Listening to reason
They must not proceed purely on the basis of instinct, emotion, personal preference, or ideology. The theories that "China is the manufacturing plant of the world," and that "the two sides of the Taiwan Strait should engage in a linear division of labor" are very popular here.
Nevertheless, Taiwan's leaders must not simply accept these theories without closer consideration. In particular, certain people in Taiwan have a tendency to equate "sinicization" with "globalization," and to justify the exodus to China in those terms.
All the objective statistics tell us that the more Taiwanese businesses relocate to China, the more Taiwan suffers.
The economies of Taiwan and China do not complement each other. The hope of reviving Taiwan's economy by increasing investments in China is misguided.
The ruling camp must therefore uniformly follow policies that focus on Taiwan and Taiwan-based industry if Taiwan's economy is to enjoy a quick recovery.
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