The Directorate-General of Budget, Accounting and Statistics recently announced that first-quarter GDP growth, surprisingly enough, grew at the astonishing rate that Premier Wu Den-yih (吳敦義) was looking for. At 13.27 percent, the increase is the highest single-quarterly growth in 31 years, since the fourth quarter of 1978. The rate for the entire year is forecast to be 6.14 percent.
Of course, we should be happy that the economy seems to be getting back on its feet. However, a closer look at the reality behind this double-digit quarterly growth may reveal that celebrations might be a little premature.
First, the base rate was quite low, given that the first quarter of last year represented the trough in the downcycle resulting from the global economic crisis. Compared with the first quarter of the previous year, the economy actually saw a double-digit contraction of 10.24 percent — the highest rate of decline ever recorded.
In other words, it would have been surprising had the rate for the first quarter this year — given that it was compared with a disastrous first quarter last year — not been so rosy.
It’s also worth noting that this rosy growth rate for the first quarter this year is the result of an export-driven economic development strategy and did not lead to any significant job creation. Moreover, prices are increasing while wages remain stagnant, so salaries have actually fallen in real terms, exacerbating the widening gap between the rich and poor.
The vast majority of the public, who get by on a fixed salary, will not feel the benefits of this economic growth: It is the tiny minority — big-time investors and stockholders — who are reaping the rewards of this resurgence.
Another distorting factor is Taiwan’s three-way export model, in which Western companies place orders with Taiwanese manufacturers, who then have the products made in their China-based plants for export to the West. The proportion of production carried out overseas has been rising for the past 10 years, from only 12.38 percent in January 2001 to 50.9 percent in March of this year.
The increase has been steady, hitting the 20 percent mark in 2002, 30 percent in 2004 and 40 percent in mid-2005. In the space of 10 years, then, the proportion of goods produced overseas by manufacturers has almost quadrupled, and more than half of the volume reflected in the export figures was not made in Taiwan at all.
The increase in the overseas production ratio for information and communication technology, the field in which Taiwan is most competitive and a world leader, is startling to say the least. From 23.03 percent in 1999, it rose by a modest increment to 24.86 percent in the following year, but then shot up to 73.01 percent in 2005 before reaching 86.94 percent last year.
Therefore, little of the actual manufacturing is done in Taiwan once an order is placed. While the company benefits, no jobs are created and Taiwanese workers get nothing. Local workers are more likely to lose their jobs from the outsourcing of production overseas.
This is precisely what the premier was referring to during a meeting with the Taiwan CPA Association to explain a proposed economic cooperation framework agreement (ECFA) with China. In a rare moment of candor, Wu said: “The number of orders Taiwanese firms are getting that we see in the GDP figures are somewhat reassuring; however, the actual employment figures give us cause for despair.”
In addition, Taiwan has to deal with the twin problems of over-concentration in terms of industrial structure and export markets — another reason why employment and salary levels have failed to increase in line with the growth of the economy. People with the power to do something about this should take note.
As mentioned above, these impressive figures are good news and hopefully the beneficiaries will continue to invest in Taiwan to drive economic growth further. It is also hoped the government could find a model for economic growth that is both sustainable and beneficial to all, and which, at the same time, could help minimize tensions.
Hong Chi-chang is former chairman of the Straits Exchange Foundation and a former Democratic Progressive Party legislator.
TRANSLATED BY PAUL COOPER
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