The failure of Taiwan’s economy is becoming clearer by the day. The prosperity index has flashed a “blue light” for seven consecutive months and last month exports fell by 3.2 percent for the fourth consecutive monthly drop, making Taiwan the only country with negative export growth among neighboring Asian countries. Not only will it be difficult for Taiwan to sustain economic growth of more than 3 percent, it might even drop to 1.5 percent. Naturally, things do not get so bad overnight: The seeds for this economic downturn were planted when Semiconductor Manufacturing International Corp (SMIC) ignored government restrictions and invested in China in 2000.
SMIC was established in April 2000, a month after Taiwan’s first transition of government power, and it invested US$1.48 billion in China. The SMIC did not “sneak” into China, because local media published detailed reports of the company’s establishment and groundbreaking ceremony, which clearly violated government policy, but authorities did nothing. When SMIC founder Richard Chang (張汝京) returned home in December 2001, he even received a hero’s welcome when he gave a speech at National Chiao Tung University.
At the time, public opinion, influenced by a pro-unification media, was strongly in favor of opening up to China, and those in favor of opening up also controlled key posts in the administration of then-president Chen Shui-bian (陳水扁).
“If we don’t go, someone else will;” “integrate resources to add value;” “division of labor between Taiwan’s and China’s industry;” “build a global supply chain;” “turn Taiwan into the world’s gateway to China;” “take orders in Taiwan and manufacture in China;” “make Taiwan a global logistics center;” “take advantage of China’s rise” — were the slogans of those favoring deregulation and pro-unification activists.
The government held an Economic Development Advisory Conference (EDAC) in August 2001, which the decided to allow 7,078 industrial items to be manufactured in China, including computers. This was the beginning of the decline for Taiwan’s domestic investment and of falling wages. Since wafer manufacturers were not among the 7,078 items a long and intense debate ensued. Six months later, in March 2002, the government decided to allow chipmakers to produce 8-inch wafers in China on three conditions, one of which was that a manufacturer’s 12-inch fabs in Taiwan must have reached mass production for six months. This delayed relocation to China and helped Taiwan maintain its leading role in the sector.
On July 4, a decade later, Taiwan Semiconductor Manufacturing Co chairman and chief executive Morris Chang (張忠謀) gave a speech entitled “Those who study well should be innovators” at the Industrial Technology Research Institute, saying it was “a myth” that factories were established in China because of low wages. In particular, he used the SMIC case to explain that taking advantage of China’s low wages was not a good strategy for long-term competition, because competitiveness comes from innovation, accurately pinpointing the cause of Taiwan’s economic downturn over the past dozen years.
President Ma Ying-jeou’s (馬英九) administration has further accelerated Taiwan’s economic marginalization and pushed wages back to the levels they were at 14 years ago.
Practice is the sole criterion for testing truth. Fact shows that Taiwan’s economic integration with China is leading Taiwan to its own destruction, as Taiwanese companies lose the drive to innovate and upgrade. Having lost the drive, all those nice slogans ends up being so much empty talk.