The nation’s four major flat-panel manufacturers reported combined losses of NT$99.7 billion (US$3.3 billion) in the first three quarters of the year, while three of the nation’s DRAM companies reported aggregate losses of NT$57.1 billion during the same period. These figures are truly shocking. Meanwhile, South Korea’s DRAM and panel industries are looking good and are even expanding their facilities. What role has the government played in allowing things to come to this?
With industrial development, the government’s primary function is to maintain an even playing field to allow for fair competition, enabling companies to compete under fair conditions with their rivals both at home and abroad. The administration of President Ma Ying-jeou (馬英九) could have done much more than it has over the last three-and-a-half years.
When Lehman Brothers went bankrupt in September 2008, it marked the start of the financial crisis. The South Korean government responded immediately by devaluing the won to help domestic industries. It adjusted the exchange rate downward to 1,102 won to the US dollar, from the 2007 rate of 929 won to the US dollar. In contrast, the exchange rate for the New Taiwan dollar rose from an average of NT$32.84 per US dollar in 2007 to NT$31.52 in 2008. South Korea’s action gave its DRAM and panel industries an enormous lift, emboldening them to slash prices and get a serious slice of the market.
Seoul was still seeing the benefits of this in September this year, when the average exchange rate was 1,121.9 won to the US dollar, a depreciation of 20.72 percent compared with 2007. The NT dollar, meanwhile, increased in value by 9.44 percent compared with its 2007 rate, to NT$29.74. While one currency depreciated, the other increased in value, the result being that the exchange rate disparity between them has grown to more than 25 percent. The total business revenue for the four panel firms in Taiwan for the three quarters mentioned above was about NT$700 billion, so the value difference resulting from the exchange rate was about NT$175 billion.
That the Taiwanese panel industry hemorrhaged NT$99.7 billion during that period has much to do with this: The loss cannot be blamed entirely on the companies themselves. The DRAM manufacturing industry and other export businesses have South Korea as their main competitor and are all subject to this unfair competition. The recent problem over unpaid leave in Taiwan’s science parks can be traced back to this — it is the product of the companies’ efforts to mitigate the situation.
Why is the government happy to stand by, hoping for the best, as the won depreciates and the NT dollar appreciates? There are two reasons. First, the government is only considering Beijing and Taiwanese businesspeople in China, and not domestic-based businesses. Second, Ma is worried about the failure of his “6-3-3” campaign pledge, which promised 6 percent annual economic growth, US$30,000 per capita income and an unemployment rate under 3 percent by next year. After all, the first two elements of this policy are measured in US dollar terms, making it easier for Ma to achieve his stated goals if the NT dollars rises in value.
This approach is ill-advised. It will be very difficult to avoid stifling Taiwan’s “Two Trillion and Twin Star” high-tech industries in this climate. As to why electricity prices have kept rising although the currency has appreciated, that has to do with the efficiency of policy implementation.
Huang Tien-lin is a former national policy adviser.
Translated by Paul Cooper
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