Editorial: The service sector holds the key

The Ministry of Economic Affairs kicks off a two-day National Commerce Development Conference today at which more than 400 representatives from business, academia and the government will help to outline a blueprint for the development of Taiwan's service sector over the next five years.

As the previous conference was held about a decade ago, the time has come to review the nation's commercial environment and rethink its future development strategy.

It remains to be seen how the conference will unfold, but regardless of the conclusions reached, the fact is that Taiwan desperately needs to reposition itself economically, as the manufacturing industry's contribution to the GDP continues to decline.

Taiwan transformed itself from an agricultural economy in the 1960s to a capital-intensive economy in the 1980s, with manufacturing, particularly in the field of electronics, leading the way. But ever since then, the service industry has begun to pick up steam. By 1995 it contributed around 60.15 percent of the GDP and that number increased to 68.72 percent in 2004. As of the third quarter of last year, the service sector's contribution had increased to 73.9 percent.

The importance of developing the service industry is further underlined by the fact that a recent survey indicated that 81.18 percent of Taiwan's manufacturers had invested in or maintained business operations in China last year, up from 76.7 percent in 2004 and 77.75 percent in 2003, as local manufacturers eyed China's huge market and cheap labor.

Little wonder then that the Executive Yuan approved the "Service Industry Development Guidelines and Action Plan" (服務業發展綱領及行動方案) in November 2004 in a bid to improve the service sector's overall efficiency. So far, the government has amended 17 laws and 68 administrative orders pursuant to the action plan, as well as completed 38 programs on manpower cultivation and 29 schemes designed to help keep the local industry abreast of international standards.

The government's goal is not an easy one as the nation's service sector is relatively uncompetitive compared with others in the region. But government officials (including those at the Council for Economic Planning and Development who helped orchestrate this action plan) seem to believe that it can be achieved purely through training, investment incentives and capital inflows.

In actual fact, opening up Taiwan's service industry is a prerequisite for its success. Only by encouraging an influx of human capital and foreign know-how will the domestic service industry's competitiveness be enhanced.

Another key requirement is that the government shows a real desire to abolish outdated laws and regulations. The latest economic freedom poll conducted by the Washington-based Heritage Foundation described Taiwan's business regulations as burdensome, making particular reference to unrealistic wording in regulations and inconsistent enforcement.

Some people expressed concern after President Chen Shui-bian (陳水扁) said in his New Year speech that the government would adjust its policy toward China-bound investment, saying that this would have a detrimental effect on Taiwanese manufacturers and the nation's economy as a whole. In fact, the opposite is true. The nation's economy has already become far too dependent on China as many manufacturers have relocated their factories, while at the same time both the government and big businesses have focused less on upgrading Taiwan's investment environment. It's time to refocus. The development of the service industry is the correct course of action.