The biggest economic-policy problem facing the government is that it has called for the opening up of trade and economic exchanges between the two sides of the Taiwan Strait as well as effective measures to manage such exchanges. The opening up has occurred but no effective management exists.
For example, if manufacturers of silicon wafers want to invest in China, the government should first pass a technology-protection law. Not having passed such a law means not having implemented effective management. The only effective way to proceed is to wait until after 2005 -- when such a law is in place -- before allowing the three manufacturers of silicon wafers to proceed with their China-investment plans.
Taiwan's investment environment is among the best. The Economist predicts that in the next five years, the nation's business environment will rank 18th in the world. South Korea will rank 25th and China will rank 38th. Within Asia, the nation's business environment comes in third. Only Singapore and Hong Kong rank higher, but both those places are both too small. In other words, the nation's business environment could be considered the best in Asia.
Moreover, in the World Economic Forum's assessment of growth and competitiveness last year, Taiwan ranked third. South Korea was 21st, Japan was 13th and China was 33rd. This indicates that country is in excellent shape in terms of both its business environment and growth and competitiveness, while China lags far behind.
Nevertheless, local industries are rushing to invest in China. There are a number of reasons for this, including business "backwardness." This backwardness refers to businesses not wanting to make progress, not wanting to improve their technologies or upgrade their industry through research and development. Instead they desire only to maintain the status quo.
Thus, the easiest thing to do is to invest in countries where manufacturing costs are lower. For instance, they invest in China where wages and land prices are low. With this kind of attitude, domestic manufacturers pay no attention to the fact that the nation's investment environment is among the best in Asia.
Given China's huge population and land area, it presents an enormous market that appears very seductive to Taiwanese firms. Moreover, on an ideological level, the education system has taught the Taiwanese from a young age that a "greater China" is a lofty ideal -- thereby filling the minds of many people with unrealistic fantasies.
Most of the mainstream media also regularly describe China as a paradise on earth, giving the impression that not going there would be a disaster. This sort of media bias and misleading early education have distorted people's sense of national identity.
Due to this distorted identity, many firms are abandoning Tai-wan, despite the fact that international experts rate the country as among the best for doing business. If we do not squarely face these problems when considering cross-strait trade and economic relations, then no economic theory or assessments will apply to the cross-strait case.
At present, the nation's investment environment is pretty good. Taiwan enjoys the advantages of democratic politics, sufficient basic infrastructure and a hard-working labor force as well as and a tax and financial system that are improving rapidly. By contrast, China is a country under authoritarian rule, where problems for investment are rife.
Local firms moving to China have already had a markedly adverse effect on the domestic economy. In the 1950s, the nation's economic growth rate was 8.2 percent. In the 1960s it was 9.1 percent, in the 1970s it was 10 percent and from 1981 to 1988, it was 8.3 percent. After 1988, restrictions on exchanges with China were relaxed, and the growth rate began to decline. By 1997, it was only 4.57 percent. In 2001, it fell to negative 2.2 percent. Although it rose again to about 3.37 percent last year, overall economic growth had already slowed. This is all the result of investment in China.
Some people will never acknowledge the impact that investment in China has had on the nation's economy. They even believe that the economic growth rate is already as high as it will go. But this kind of statement is nothing more than smoke and mirrors. South Korea didn't invest excessively in China, but its economy has maintained a high growth rate.
Furthermore, in terms of the money supply (M2), Taiwan's growth rate was still 16.33 percent in 1991, but by 2000, it was only 6.73 percent. By 2001, it was 4.73 percent and last year it dropped to a historical low of 3.55 percent. The declining growth of the money supply reflects a decline in economic vitality and reduced domestic business investment.
The growth rate for bank lending is an even more of advanced indicator than the money supply. In the past, it was usually double-digit growth. In 1991, the number reached 22.87 percent, but by 1998 it was just 5.5 percent. Last year it was negative 2.87 percent. The problem of reduced bank lending is very serious. It shows that domestic investment has dropped off sharply.
Taiwan is also facing a fall in real estate prices and a contraction of wealth. In the past, the stock market was able to reach 10,000 points, but now we are seeing penny stocks. These are all the results of industry moving west.
Taking real estate prices as an example, in the period between 1990 and the present, the value of real estate holdings contracted by NT$22 trillion. Those losses don't even include money that evaporated in the stock market when it dropped from a height of over 10,000 points.
When wealth contracts, consumer spending power drops and bad loans in the banking sector continue to increase. In effect, the members of the public remaining in Taiwan become victims of businesses advancing to China.
In 1996 the "no haste, be patient" policy restricted silicon-wafer manufacturers from moving to China. The result was that domestic-wafer manufacturers held 70 percent of the world's chip market and became highly competitive. Not being able to go to China, they upgraded their manufacturing techniques, and this was the main reason for their success. If they had gone to China, they would have concentrated on low prices and large volume -- a sure dead end.
History is history and fact is fact. Don't try to justify actions by distorting the facts and saying that not going to China would be a catastrophe. South Korea has invested only US$12 billion in China without suffering any catastrophe. This nation has already invested US$160 billion. How can people still keep saying that not to go would be a catastrophe? It is imperative that people stop trying to sugar coat the meaning of "advancing" west to China.
If the government doesn't have effective management mechanisms in place before throwing open the doors to investment in China, it will be allowing itself to be manipulated by business groups without considering the interests of the entire public. If the public interest is to be considered first, then proper precautions must be taken.
Huang Tien-lin is a national policy adviser to the president.
Translated by Ethan Harkness
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