What was the primary cause of Taiwan's economic decline in 2001? At a symposium held by the Taiwan Economic Association on Oct. 4, Kao Koong-lian (高孔廉), a research committee member from the KMT-run National Policy Foundation, presented a report on behalf of Legislative Yuan Deputy Speaker Chiang Pin-kung (江丙坤).
Kao had a heated debate with Taiwan ThinkTank chairman Chen Po-chih (陳博志) at the symposium. Kao blamed the economic decline on political instability, which he said led to a lack of investor confidence and caused a drastic decline in private investment. Chen believes the sluggish US economy had an impact on Taiwan's exports.
Kao was making things up while Chen only told half of the truth. The primary cause was the industrial migration to China from 1997 onward, for which the previous government must take the biggest responsibility.
Was political instability the primary cause of the nation's economic decline in 2001? We only need to look at South Korea to find out.
South Korea replaced its prime minister three times during that period. The post even went unoccupied for a while due to opposition in the legislature. The coun-try's political chaos was by no means smaller than that in Tai-wan, but South Korea's economic activities continued as usual because it is a democratic country that can rely on democratic regulations to operate normally.
To blame political instability for economic decline is to call a deer a horse. If halting construction of the Fourth Nuclear Power Plant could cause negative economic growth, then will the entire economy shake and crumble if contruction of a steel plant, a chip foundry or a power plant is halted? People who advocate this view have no faith in Taiwan.
Meanwhile, Chen only told half the story of what caused the economic decline in 2001. It is true that the US market for technology products shrank, causing this nation's exports to fall by 18 percent. However, he did not explain why South Korea saw 3 percent economic growth. Why was Tai-wan unable to achieve this? Per-haps Chen did not have enough time to explain the reasons.
The year 2001 was not the first year Taiwan was outperformed by South Korea. Taiwan's economic performance was already getting worse in the 1990s, under the previous government. It fell from the top spot among the "four Asian dragons" and lagged further behind South Korea every year. This trend was especially obvious in 1999.
In that year, South Korea's economic growth was 10.7 percent, compared to Taiwan's 5.4 percent. In 2000, South Korea had 9.3 percent growth, compared to Taiwan's 5.9 percent. In 2001, South Korea only had 3 percent growth due to the contraction of the US high-tech market -- a decline of 6.3 percentage points compared to the previous year.
Because Taiwan's economic growth was quite low already, the negative growth in 2001 was quite natural if we look at it in the context of the margin of decline in South Korea's growth rate. It certainly cannot be blamed on the current government, much less on groundless charges like "political instability."
The decline in economic growth has been accompanied by a decline in private savings and investments, a long-running depression in real estate prices and rising unemployment. These phenomena happened before the transition of political power, not after.
Why then have the fall of Taiwan's economic growth and other economic indicators accelerated? Why has Taiwan lagged so far behind South Korea, especially in the past five years?
If we can stay calm and let go of the prejudices of the "Great China" ideology, it should not be difficult to find out that the primary cause was in the migration of Taiwanese industries to China in the 1990s. The more recent Chinese fever in the high-tech industries had the greatest impact.
In July 1997, economic bureaucrats went against then president Lee Teng-hui's (
Since then, the domestic high-tech industries have become enthusiastic only about low-wage production. They have delayed research and development efforts. As a result, industrial upgrading was sacrificed for the dream of turning all of China into a high-tech kingdom. (With the help of Taiwanese businesses, China has become the world's third largest high-tech kingdom.)
In the five-year period from 1997 to 2001, China attracted hundreds of technology firms from Taiwan and around US$10 billion of capital every year. During the same period South Korean investments in China totaled only US$1.9 billion. There were even some South Korean capital pullouts from China in 2001.
South Korea focused on upgrading its domestic investments and technologies. Because South Korea's high-tech industries have been entirely rooted in the country, technologies have been improved dramatically. Taiwan, not having upgraded its technologies significantly, could not bear the impact when the US tech economy contracted in 2001.
Fortunately, in 2001, the new government bravely corrected the overvalued NT dollar and let it float between 34.5 and 35 to the greenback. In concert with policies promoting domestic investments and myriad other efforts, this finally reversed more than 10 years of decline and allowed some visible improvement in the economy last year.
We no longer need to talk about past disputes, but if one insists on apportioning blame for the negative growth in 2001, the bureaucrats of the previous government are the foremost culprits. They cannot shirk this responsibility.
Huang Tien-lin is a national policy adviser to the president.
Translated by Francis Huang
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