Economic framework helps nobody - Taipei Times
Wed, Aug 31, 2011 - Page 8 News List

Economic framework helps nobody

By Tung Chen-yuan 童振源

If we look at the flow of international funds, including direct investment, which refers to FDI and direct investment in Taiwan, as well as portfolio investment, which includes assets and liabilities, we will see that Taiwan’s competitive advantage is still rapidly decreasing. In the 1990s, Taiwan’s net capital outflow, which refers to net direct investment plus net portfolio investment, was on average US$1.98 billion per year. From 2000 to 2007, during the DPP’s time in office, the net capital outflow was US$13.23 billion, and during Ma’s time in office, from 2008 to last year, it has reached US$ 20.8 billion. In the first quarter of this year, Taiwan’s net capital outflow was US$16.8 billion and in the second quarter it was US$ 9.9 billion, which means that Taiwan could lose even more capital this year than in 2007, or US$43.4 billion, which was the most capital Taiwan ever lost in a year.

In terms of domestic investment, during the DPP’s eight years in power, Taiwan’s average real investment rate was 23.7 percent, while the average for the three years Ma has been in office is 17.9 percent. In 2009, when the global financial crisis hit, Taiwan’s investment rate dropped to 16.7 percent, the lowest since 1981. However, the Directorate-General of Budget, Accounting and Statistics has predicted that the investment rate this year would reach only 17.4 percent, the second-lowest behind 2009. It also predicted that this figure would drop further to 16.7 percent in the fourth quarter of this year, which really makes one worry about Taiwan’s economic prospects.

On July 1, the Free Trade Agreement (FTA) between South Korea — Taiwan’s main international competitor — and the EU came into effect, and the FTA between South Korea and the US should also come into effect very soon. Approximately 70 percent of Taiwan’s and South Korea’s exports overlap and Taiwanese businesses will all be facing intense competition from South Korean businesses in the international market.

However, so far, Taiwan still has not signed an FTA with any nation in the Asia-Pacific region, including China. At present, Taiwan is negotiating an FTA with Singapore, but progress is slow. This shows that Taiwan lacks a sound and complete strategy for global economic integration, as well as the determination necessary to promote economic liberalization.

Tung Chen-yuan is a professor at National Chengchi University’s Graduate Institute of Development Studies.


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