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EDITORIAL: China not a solution to economic ills

Taiwanese food-making tycoon Wei Ing-chou’s (魏應州) warning last week about the challenges facing the Chinese economy was hardly music to the ears of a government that has made cross-strait trade deregulation a cornerstone of its policy.

In a front-page story by the Chinese-language Economic Daily News on Tuesday, Wei — chairman of Tingyi (Cayman Islands) Holding Corp (康師傅控股), China’s biggest instant noodle maker and owner of the Master Kang brand — said that in a world economy hit by the US subprime mortgage crisis, “China’s economy will be facing the biggest changes in the next two to three years.”

Wei also said in the interview that in view of this changing environment, companies should pay particular attention to financial risk control and suggested that keeping “cash on hand” would be the best strategy for companies.

Wei’s warning is not an isolated call.

On Thursday, Gordon Chang (章家敦), the Chinese-American author of the 2001 book titled The Coming Collapse of China, said in a New York speech that China was “due for a post-Olympic recession.”

Chang also warned Taiwanese against investing in China, especially in its financial markets, over the next two to three years or even the next half-decade, the Central News Agency reported.

However, all the cross-trade policies unveiled by the Chinese Nationalist Party (KMT) government since President Ma Ying-jeou (馬英九) took office in May seem to downplay or even overlook the fact that China’s economic outlook is increasingly challenging in terms of growth creation and inflation control.

On Thursday, the government scrapped a regulation banning companies with more than 20 percent Chinese equity stake from listing on the nation’s stock markets. At the same time, it removed the prohibition on companies with 40 percent or more of their net assets invested in China from listing in Taiwan. The administration also agreed to allow companies to sell shares in Taiwan and use the proceeds for investment across the Strait.

No one in this country would oppose a modest degree of financial liberalization aimed at broadening domestic capital markets and attracting more foreign fund inflow — as long as the regulators have established adequate measures to safeguard shareholders’ interests and the economy as a whole.

The government has to realize that the best policy for the nation’s export-oriented economy is one that targets global markets — not just one focused on China, where many firms are already struggling to cope with a rising Chinese yuan, a reduction in export rebates, tightening loans and rising labor costs.

At this point, there is little relief in sight for the Taiwanese economy. The past week saw the stock market falling 3.2 percent after rising 6.1 percent a week earlier, making it the region’s worst performer.

The reasons are clear enough, given the latest slew of economic data: Leading indicators were flat in June for the second straight month, suggesting that the economic slowdown would persist; the latest consumer confidence poll showed the public had become more bearish last month compared with the previous month; several high-tech companies had issued conservative guidance on business prospects in the second half of the year.

Faced with the current market correction, investors need positive and constructive action from the government to boost confidence. Whether the market could regain its upward momentum would be dependent on macroeconomic factors, including global oil price fluctuations and their implications on corporate profits — not the Chinese economy alone.
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