The government of President Ma Ying-jeou (馬英九), which puts the economy at the top of its political agenda, has intensified its interaction with China since the 2008 global financial crisis. At the same time, the effects of the debt crises in Europe and North America over the past couple of years have been felt around the world. The global economy has suffered numerous reversals and fears of a double-dip recession have heightened.
During its more than three years in office, the Ma government has pursued policies that rely too heavily on China, while disregarding sustainability and independence in its plans for Taiwanese industries and the economy. These policies are likely to expose Taiwan’s economy to increasing risk over time.
China’s economy is focused principally on exports to the European and North American markets. However, faced with the threat of a double-dip recession, people have begun reducing consumption. As a result, China’s export markets are shrinking, and it is doubtful whether domestic demand can support the kind of rapid growth it has grown accustomed to.
Just as Greece borrowed willy-nilly to finance the Athens Olympics, China has poured funds into infrastructure building, not just for the Beijing Olympics, but also to stimulate economic growth.
The problem is China’s financial sector is opaque. Although there is plenty of impressive-looking official data available, nobody believes those figures.
Research done by international institutes suggests that if all types of debt — such as the more than 2 trillion yuan (US$314.8 billion) owed by the Chinese Ministry of Railways, bonds issued by the three big “policy” banks (the China Development Bank, the Export-Import Bank of China and the Agricultural Development Bank of China), plus bad loans — were included in the calculations, then China’s real total debt has already reached 19 percent of GDP. If that is so, the country could well face a sovereign debt crisis.
Ma’s economic policies have all along relied heavily on China. Eager to chalk up a policy achievement, his administration hastily signed the Economic Cooperation Framework Agreement (ECFA) with China without thoroughly assessing its implications, and it did not insist that China revise unfair manufacturing and trade policies that are detrimental to Taiwan.
Moreover, China is not a normal democratic country, and Taiwan’s international status and diplomatic relations are very limited. Given the big disparity between China and Taiwan, it is foreseeable that when disputes arise, the ECFA is unlikely to prove equally binding on the two sides.
Even Greece, which is trying to integrate itself with other European countries that have more transparent and mature democracies and legal systems, is having great trouble finding solutions to its problems. How much more difficult will it be, then, for Taiwan, whose target for integration is China — a country whose institutions lack maturity, transparency and freedom, and whose legal system is not well-founded?
To meet the challenge of the rapid changes global markets are undergoing, Taiwan needs to restructure its industries and economy. Taiwan needs to decouple itself from China in a well-planned way and reduce its dependence on the Chinese market. If it fails to do this, then the nation could soon find itself in even more serious trouble than Greece now faces. The threat is real and needs to be treated seriously.
Lo Chih-cheng is chief executive of the Taiwan Brain Trust.
Translated by Julian Clegg
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