Is the world financial crisis rearing its ugly head again? Dubai World, the biggest state-owned conglomerate in Dubai, the second-biggest sheikhdom in the United Arab Emirates, has fallen into financial difficulties, and a few days ago asked its creditor banks for a half-year delay on repayments of nearly US$60 billion in debt. This move sparked fears among investors everywhere that the global financial crisis is heating up again and triggered big falls in European, American and Asian stock markets.
The Dubai crisis could hit financial institutions in many countries hard. Statistics from the Financial Supervisory Commission on Tuesday showed that Taiwanese financial institutions’ exposure to Dubai equity investments totaled NT$34.7 billion (US$1.08 billion), including NT$21 billion in loans. Although the figure is small compared with their NT$80 billion exposure in Lehman Brothers, the end of the Dubai dream has significant implications for Taiwan.
The past few years have seen “economic miracles” take place in several countries, with Ireland and Dubai, for example, hailed as fast-rising stars. However, the truth behind these “miracles” has yet to be fully analyzed. It is too early to say whether they were but an economic bubble that has visited many countries throughout history.
Whatever the long-term outcome may be, the fact is, certain Taiwanese media and politicians have built these “miracles” into fairy tales, contrasting them with what they consider Taiwan’s isolationism and failure to keep up with the globalization trend that has left it marginalized.
In reality, the fairy tale these people want to promote is that of China. They say that Taiwan needs to break free of the constraints of an island-state mentality and embrace the world by riding the tide of globalization and internationalization. Such proposals may sound attractive, but they are mere words that lack substance. Their real motive is to have Taiwan open wide its gates to China, without any kind of precautionary measure.
In other words, what these pundits call globalization is really integration with China. When they talk about internationalization and embracing the world, they mean climbing the Great Wall and hugging the Chinese panda. We have seen these dreams crumble one by one in Ireland and Dubai among others. Will the Chinese fairy tale be the next to fall?
Let us take a closer look at what happened in Dubai. Dubai is the second-biggest city-state in the United Arab Emirates. Its population is just 1.8 million — about 90 percent of whom are immigrants — and its area is just one-ninth that of Taiwan. It is a desert country with next to no rainfall all year round. These conditions are hardly favorable to its existence as an independent state. The only advantage Dubai enjoys is oil, which was discovered in 1966; but oil only accounts for 6 percent of its GDP.
The main driving force behind the creation of the Dubai fairy tale is the ambition of its ruler, Sheikh Mohammed Bin Rashid al-Maktoum, backed up by effective marketing. Dubai was willing to borrow a lot of money and invest it in major construction projects such as Burj Dubai, the world’s tallest building; the manmade Jumeirah Islands, which some have called the eighth wonder of the world; the sail-shaped Burj Al Arab, the world’s only seven-star hotel; and the world’s biggest shopping mall.
Dubai has been touted as an international financial center, transshipment center, prime tourist destination and investment paradise. Hot money pouring in from abroad has made the Dubai bubble bigger and bigger, but now the economy is faltering and Dubai finds itself in a tight corner.
However lacking in resources a country might be, as long as its people are willing to work hard, and as long as it chooses the right direction, it can build a bright future. Dubai, too, has development potential, but it ought to establish its own manufacturing base.
Unfortunately, the ambitious Sheikh Mohammed chose to take a short cut, using borrowed money to make money the easy way. With this in mind, the country launched dream projects in the desert — skyscrapers, manmade lakes, sumptuous hotels, an airport and so on. It seemed like Aladdin’s magic lamp. All you had to do was rub it and make a wish, and a palace would appear right there in the desert sands.
Sheikh Mohammed’s magic show did produce some amazing achievements. Dubai’s GDP grew 230 percent between 1995 and 2005, giving its population an average yearly income of about US$30,000. However, this show was built on money that was mostly raised through loans. It had all the features of a bubble, but greed won over wisdom. Investors could see there was a tiger lurking, but they convinced themselves they could tame it.
Andrew Lawrence, an analyst with Deutsche Bank Securities in Hong Kong, has created what he calls a skyscraper index. Lawrence said economic recessions and stock market slumps often occur around the time that new tall buildings are built.
New York’s Empire State Building was finished in 1931, just when the US was bogged down in the Great Depression. Malaysia’s Petronas Towers, then the tallest building in the world, were built in 1998, in the midst of the Asian Financial Crisis.
Now the world’s new tallest building, at 160 stories high, is under construction in Dubai. The country’s present crisis seems to be proof of Lawrence’s skyscraper curse.
In Taiwan, Ireland was first presented as a model for development, followed by Dubai. The dazzling show Dubai put on made it a place of pilgrimage for some Taiwanese politicians and media personalities, who used its example to attack pro-localization policies in Taiwan. Taiwan does not have many opportunities left, they say — and its biggest chance lies with China.
If Taiwan does not grab this window of opportunity, its decline and fall would be inevitable, they warn. In reality, the Chinese economy is a super-bubble a hundred times as big as the Ireland and Dubai bubbles. If it bursts, the disaster will be worldwide, and there has never been a bubble that did not burst. It can only be a matter of time before the China illusion crumbles.
Regrettably for Taiwan, the government of President Ma Ying-jeou (馬英九) is committed to eventual unification. Ma’s policies have already made Taiwan over-dependent on China. When the China bubble bursts, the shock to Taiwan will be unimaginable. In its 18 months in government, the Ma administration has brought Taiwan to the edge of a precipice. If Taiwan perishes as a result, Ma will be a villain for eternity.
TRANSLATED BY JULIAN CLEGG
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