Taiwan is now beginning to suffer the consequences of its "go west" policy and its economic tilt towards China. According to Ministry of Finance figures, the trade surplus this year for the months January through July was only US$750 million, a fall of 84.3 percent from the same period last year. It is likely that Taiwan's surplus for this year will be the lowest since 1981.
In the past, the nation's trade surplus has regularly exceeded US$10 billion, and in 2001 it achieved an amazing US$18 billion. But three years later this figure has plummeted, and is in danger of becoming a deficit.
Clearly this is not unrelated to the rise of crude oil and materials prices. But the blow to Taiwan's economic performance has been the massive shift in the proportion of companies that take orders in Taiwan but manufacture in China. This is the result of the "go west" policy, and this is what is responsible for the gradual deterioration of the nation's economy.
Despite a steady decrease in the importance of manufacturing, it still accounts for one-quarter of the country's economy. The strength or weakness of the manufacturing sector is therefore crucial to whether the economy can continue to grow. But beginning in the 1980s, traditional manufacturing industries began to shift their operations to China, followed by the high-technology sector in the 1990s. This shift to China undermined one of the twin pillars of the economy.
Before traditional manufacturing moved to China, Taiwan's light industry, with its production of bicycles, umbrellas, shoes and clothes, led the world. But after the move to China, export processing and industrial districts saw an increasing number of closures. China has successfully learned from and adopted our experience in export manufacturing, which -- when combined with cheap labor costs and plentiful land -- has made it highly competitive on the international market.
Taiwan was fortunate in that the growth of its high technology sector offset the shift of traditional manufacturing to China, helping to maintain economic prosperity. Unfortunately, the strength of the high-technology industry was in contract manufacturing, rather than in R&D and own-brand marketing, so ultimately it followed traditional industries to China starting in the 1990s.
As a result, Taiwan's leading position in the manufacture of many technology products has been taken over by China. Exports of Taiwan's tech products have shrunk and now China claims to lead the world in hardware production. According to reports released by Lehman Brothers, of the top 100 Chinese firms, over half are foreign-invested, and of these, 21 operate with Taiwanese capital. The biggest exporter is Hong Fu Jin Precision (Shenzhen) Co, owned by Taiwan's Hon Hai Group, with exports worth US$8.35 billion last year. In second place is Quanta (Shanghai), owned by Quanta Computer, with exports worth US$8.30 billion last year.
Other major players in Taiwan's technology market such as Compal, Acer, Inventec and AU Optronics are also in the top 50 exporters. According to figures released by the Ministry of Economic Affairs, the proportion of companies taking orders in Taiwan and exporting from China has risen from 23.85 percent in July 2003 to 40.5 percent in June this year. The proportion is even more skewed in the high technology industry, shifting from 45 percent to 74.76 percent over the same period.
To put it another way, three-quarters of the production value from our high technology sector, which is the very heart of our manufacturing industry, has moved to China. It is no wonder that our economic performance has lagged behind other Southeast Asian countries, which also face pressure from rising oil prices and materials costs.
South Korea's economic performance has been the envy of many other nations, and many in Taiwan like to compare our performance with theirs. Even our research organizations have praised South Korea's success. South Korea is no longer just a fad -- its leading companies have established themselves as internationally recognized brand names.
South Korea's investment in China is a form of industrial expansion that follows the consolidation of its core businesses. Taiwan's investments, on the other hand, are more akin to a transplant -- including roots and all -- and therefore quite different from South Korea's example.
This difference is the reason why South Korea's economy has grown, while ours has shrunk. We fear that the drop in our trade surplus is only the tip of the iceberg. The government should take this situation very seriously, for if a remedy is not proposed, who knows when the decline of the economy will end.
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