Mon, Oct 31, 2005 - Page 8 News List

Economic marginalization is at hand

By Huang Tien-Lin 黃天麟

The marginalization of Taiwan's economy is upon us, with the opening up of trade with China, and the gradual drain of Taiwan's capital, talent and technology across the Taiwan Strait. Over time, this drain has increased in both volume and speed.

In 2001, the year that the government adopted its "proactive liberalization" policy toward trade with China, notebook computer production peaked in Taiwan. At the time it was No. 1 in the world, accounting for 89 percent of global production, compared with the 4 percent produced in China.

China's hold on production capacity shot up to 82 percent last year, leaving Taiwan trailing with a 16 percent share. This year the last notebook production line closed. The speed with which China has replaced Taiwan in this regard is quite breathtaking.

On Oct. 24, shares of notebook maker Compal fell NT$0.9, closing at NT$29.6. Some reports say that notebook original equipment manufacturers (OEMs) are running 6 percent profit margins. Only 6 percent? This is certainly cause for concern, but it is also the necessary outcome of a situation in which Taiwanese businesses have been falling over themselves to get a foothold in China, together with the government's lack of effective management. Given this, can the stock market recover?

The stock market closed that day at 5,717 points, representing a fall of 6.8 percent from the end of last year. This is pretty miserable compared to figures from South Korea, India and Japan, which have shown increases of 30 percent, 29 percent and 14 percent, respectively.

Marginalization is a process in which a small economic entity is absorbed and eventually extinguished by a larger one through integration. It is a slow process which can, at times, include periods of apparent rejuvenation, which offer some hope. In all, however, the smaller entity's life force is in perpetual decline.

Taiwan's economic growth started to slide in the 1990s, with bank reserves recording single-digit expansion. Both phenomena were part and parcel of the marginalization process. In 1996, former president Lee Teng-hui (李登輝) tried to put the brakes on this process to stop the country from going belly-up. The subsequent loosening of his policies and the government's tendency toward proactive liberalization following the transition of power to the Democratic Progressive Party-led (DPP) administration have resurrected the old problems. This has created Taiwan's unenviable and unique situation among international stock markets.

The pro-unification voices in the media claim that the root cause of the decline in the stock market is a lack of confidence, and that the most important thing now is to regain it. But is this really true? In all honesty, a lack of confidence is but a symptom of the problem and not the cause.

Take a situation in which an elderly man with anemia stumbles and breaks his arm. The fact that he stumbled and injured himself is just the result of the fact that he is anemic, and therefore unsteady on his feet.

Following the same principle, the poor fortunes of Taiwan's stock market in recent years and its significant fall on Oct. 17 cannot be put down to a loss of investor confidence or concerns over avian flu. The real reason is that Taiwanese businesses migrated to China, taking our capital and draining the economy of its lifeblood. The reason pro-unification academics and the media are blaming the market's decline on a lack of investor confidence stems from their identification with China. They have whipped up this public discourse in an effort to cover up their desire to realize their dream of unification.

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