Print

Mail

wiki links

Editorial: Fear the falling trade surplus

Mimicking other think-tanks, the Taiwan Institute of Economic Research (TIER, 台經院) last week lowered its gross domestic product (GDP) growth forecast for this year in the wake of sluggish foreign trade, slashing the figure to 3.31 percent from its previous estimate of 4.41 percent given in April.

The TIER said the reduction was mainly due to weaker-than-expected second-quarter performance, when GDP growth slowed to 2.06 percent following a 2.54 percent increase in the first quarter. But the institute said the economy has good momentum heading into the second half of the year, predicting a 4.16 percent growth this quarter and 4.36 percent in the final quarter.

The TIER said a higher growth rate of 3.50 percent remains possible for this year if the government's NT$80 billion flood prevention budget is passed by the legislature and is implemented during the final quarter. Critics, however, argue that the latest GDP forecast just shows how difficult it is for the government to secure the targeted 4 percent growth rate for this year.

The debate over whether the government can achieve the 4 percent target is only meaningful to politicians, as they use the number to blame each other for jeopardizing the nation's economic development. They should be reminded that we don't need the myth of high annual GDP growth -- which usually stood above 8 percent before 1990 -- to build up confidence because the nation's economy has gradually matured in its development course.

But the factors that prompted the lowering of the GDP forecasts should sound alarm bells. The fast-shrinking trade surplus during the first six months through June due to the continued relocation of Taiwanese manufacturers abroad, to China in particular, was the driving force behind the lowered forecasts.

Taiwanese companies have relocated to China faster than most of their Asian competitors because of a shared culture and language. According to government statistics, export orders totalled NT$3.67 trillion in the first half of the year, up 10.86 percent from a year earlier. But the amount of exports clearing customs in the same period increased by a mere 0.63 percent to NT$2.819 trillion, reflecting a growing trend that our manufacturers are taking orders here but producing their goods in China and other countries. Consequently, the nation's trade surplus dropped a whopping 96.19 percent to NT$4.645 billion during the same period.

Obviously, excessive investment in China has made Taiwan overly dependent on its arch rival, so much so that it is now a matter of national security. It is justified, then, that President Chen Shui-bian (陳水扁) warned last week that the government will not unconditionally open up its policy that governs Taiwanese investment in China, if a policy of "effective management" cannot be fully implemented.

Fortunately, there are signs that capital inflows from high-tech companies in the Central Taiwan Science Park, mainly due to the emerging liquid-crystal-display panel manufacturing, are growing. In the last two years, the capital inflows totalled NT$760 billion worth investment from some 70 companies, suggesting that companies will decide where they want to go as long as the investment environment is good.

Perhaps more importantly, policymakers should understand what caused the trade surplus to decline, in addition to rising oil prices and slower export growth. Does a smaller trade surplus mean the nation is losing its ability to compete on the world market? Will the worsened balance of trade lead to lower national income and affect the exchange rate of the New Taiwan dollar? Only when policymakers truly understand these problems will we believe they are treating the symptoms with the right medicine.
This story has been viewed 2082 times.