During the past few weeks, the TAIEX has experienced severe fluctuations. The truth of the matter is that rises and falls in the market are a matter of course and ordinarily should be no cause for concern. But on the other hand, the stock market is also a reflection on the economy.
The recent fluctuations in the market demonstrate unease among investors about the political and economic future, both at home and abroad. However, anyone who has carefully analyzed the various challenges faced by Taiwan should be able to say with confidence that the nation's external challenges are no reason for grave concern, and that we must not panic.
At a time when the TAIEX is performing less than ideally, Business Environment Risks Intelligence (BERI), which is headquartered in Switzerland, has given Taiwan a global ranking of No. 5, behind only Singapore and Japan among Asian countries -- meaning that Taiwan is classified as a low-risk country suitable for investment. BERI also predicts that the risks of doing business here will gradually decline over the coming years.
At the same time, according to data released by government agencies, the nation's economy is improving; trade with foreign countries has grown by more than 2 percent; inflation has been relatively mild; and business operations have been very efficient. Other international institutes are also very optimistic about the economic prospects for the nation this year. Some even predict that economic growth may come close to 6 percent this year.
However, economic development is an ongoing process of meeting challenges and overcoming difficulties.
Though Taiwan's economy has improved, some noteworthy outside challenges have appeared. The ups and downs of the Taipei finance market in recent days reflect this. However, an analysis of such variables reveals that they should not have no major negative impact on the economy.
One such variable is the increase in international oil prices. Recently the crude oil price in New York topped US$40 per barrel, a 13-year high, triggering concerns about the stability of the global economy. However, recent increases in oil prices are still a far cry from the price hikes of the 1970s and 1980s. Today's price increases amount to only one-half of the price increases that we saw in the 1980s.
In addition, the rise in oil prices is not due to a decrease in supply but rather to an increase in demand, in addition to the depreciation of the US dollar, which is used to calculate oil prices. The increase in demand reflects that global economic growth is sufficient to support higher oil prices.
On the supply front, this week OPEC will discuss increasing production in the second half of the year, which would facilitate a steady supply of oil and, in turn, price stabilization. In other words, an increase in oil prices is an issue of concern, but not a cause for grave concern.
Then there is talk of increased interest rates in the US. Because both Britain and Australia have recently raised interest rates, while China has been experiencing inflation as a result of massive investment, talk about the end of cheap global capital and low interest rates has become prevalent. This is especially true since the level of the US' recent economic growth has been very high while its unemployment rate has been declining, giving rise to expectations that the US Federal Reserve will raise interest rates this summer, perhaps as early as next month.
Indeed, based on comments by Federal Reserve Chairman Alan Greenspan during congressional hearings in April, it appears that the US will eventually raise short-term interest rates from the current 1 percent. If those rates, as anticipated by the market, reach 3.5 percent by the end of next year, such an adjustment could only be considered mild and incremental. The potential of US rate increases to lead to higher interest rates in Taiwan, and to endanger the local economy, should be relatively limited.
But the most noteworthy outside factor is perhaps the cooling-off of the Chinese economy. The Beijing government has adopted measures for restricting investment and loans, measures intended to lower excessive investment and lessen the danger of a hard landing or a bursting of the Chinese economic bubble. But such measures, if not handled properly, may cause concern in the international community about the Chinese economy.
According to analysis by the Council of Economic Planning and Development, China's policy adjustments will have a very limited impact on the Taiwanese economy since the restrictions in question will affect only 3 percent of the nation's exports. This is not to mention that if the Chinese economy does indeed develop in the direction of stable growth, things will work out for the better in China in the long run.
Against such a backdrop, we must consider the fact that the close economic and trade integration with China over recent years has caused an outflow of large amounts of capital and of large segments of the nation's industry to an enemy state that makes explicit its intention to engulf Taiwan. Moreover, this gigantic opponent may be hit by a crisis at any time and drag Taiwan down as a result of problems it faces -- such as the risks of economic fluctuation, bad loans, disparities in wealth and latent social and political problems.
In comparison, it is remarkable that Taiwan has overlooked India -- another Asian country a population in excess of 1 billion and a democratic country with no hostility toward Taiwan -- in making overseas investments. Taiwan's trade with and investment in India amount to mere table scraps compared to those with China.
Neither the increase in oil prices nor the increase in US interest rates is something over which Taiwan can have any say. In contrast, adjustments to our economic and trade relationships with China are within our reach.
In the international community, many believe that in the race between China and India toward economic development, India -- a democratic country where rule of law is in force -- has a chance of catching up with totalitarian China eventually, despite having gotten off to a slow start.
According to some predictions, India will, in the next 20 years, become the fastest-growing economy in the world, with growth exceeding 10 percent a year. Taiwan should not continue to ignore India, nor place too many eggs in China's basket.
Also within our control is the political bickering here in Taiwan. Since the presidential election, the opposition has remained unwilling to accept defeat. We have seen protests, confrontations and bloodshed. Controversy has characterized the entire process of recounting votes.
The pan-blue camp's actions not only reflect poor sportsmanship but also threaten the rule of law and stability in the nation. The economy is paying the price for this. The pan-blues have already caused major unrest in the financial market, inflicting losses on investors. If the parties involved do not give top priority to the public interest, more disturbances are bound to result, further harming economic development.
This is something that both the ruling and opposition camps should keep in mind.
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