The economy is in a rapid downward spiral, with many economic indicators telling a tale of coming doom and gloom. Last year, exports, which constitute a major proportion of our GDP, fell by 4.7 percent. Taiwan was the only nation among our Asian neighbors to see export volume fall. South Korea reported a year-on-year increase rate for the first half of the year of 0.7 percent. It is abundantly clear who is the most competitive here.
Academia Sinica adjusted its Taiwanese economic growth rate forecast for this year downward to 1.94 percent, making a mockery of the government’s promises to maintain the rate at 3 percent or above. President Ma Ying-jeou (馬英九) is struggling to come up with a viable antidote to the nation’s economic ills, and is quite powerless to breathe life back into the ailing patient. Who knows when the public’s trials will end?
If we are to find a way out of this predicament, we first need to understand the nature of what ails our economy, and prescribe the correct medicine accordingly. One of the symptoms is our overreliance on China, including the fact that more than 50 percent of the orders Taiwanese companies take are for goods that are actually produced overseas, and when we say “overseas,” we mean in China.
Also, the vast majority of Taiwanese investment “overseas” is actually in China, to the tune of more than US$10 billion a year. In fact, according to unofficial estimates, the total amount over the years has accrued to more than US$200 billion. Another factor is that more than 40 percent of our exports go to China.
Since Ma took office, he has come up with one sole antidote to our economic travails: Look to China for help. Ostensibly seeking to sign the Economic Cooperation Framework Agreement (ECFA) as a means to overcome Beijing’s resistance to our signing free-trade agreements with other countries, Ma has in practice embarked on a policy of diplomatic-truce-and-sovereignty emasculation in the hope that China will show us some mercy. This is how he thinks he is going to be able to reinvigorate the economy.
Putting virtually all our eggs in the China basket has not only worsened our economic malaise, but has got us addicted to the purported cure.
We are already seeing the negative impact of this addiction. Politically speaking, Beijing knows it has Taiwan by the short hairs. The reason behind the perpetual postponement of the eighth meeting between Association for Relations Across the Taiwan Straits (ARATS) Chairman Chen Yunlin (陳雲林) and Straits Exchange Foundation (SEF) Chairman Chiang Pin-kung (江丙坤) is that the dynamics between the two countries has changed. Beijing no longer needs anything from the Ma administration. The net has already been cast, and all Beijing has to do is wait to pull in the catch.
In economic terms, Taiwan is even worse off. Taiwanese industry has placed all its hopes in China, but China’s economic growth is already starting to slow, and its policy of transforming its formerly labor and energy-intensive, low-tech industry through technology transfer is starting to bear fruit. These two factors combined are having a serious impact on Taiwanese manufacturing, hitting Taiwanese exports and marginalizing Taiwanese companies.
Given that, as we have said, the main problem for Taiwan’s economy is our overreliance on China, it is this we have to change to put things right. We have to put a stop to the current model of goods ordered from Taiwanese companies being manufactured over in China. There are three parts to the prescription.
First, overseas investment needs to be diversified: it cannot be aimed exclusively at China. In particular, we should be looking at the emerging ASEAN economies, and the huge business and investment opportunities that they represent, as a strong driver for our economy.
Second, we should not be concentrating our exports on China. We need to open up more markets for Taiwanese products. At present, as much as 40 percent of Taiwanese exports are shipped to China. This is because of the high concentration of Taiwanese companies over there: Many of the raw materials and components that these companies need are sent over there, where they are assembled before being shipped to other countries. Herein lie two potential dangers: First, that 40 percent figure is worryingly large, and leaves us very vulnerable should the situation change through external interference or obstruction. The second is that, should many Taiwanese businesses in China close up shop, it will have a serious impact on our export volume. Again, this leaves us dangerously exposed to factors beyond our control.
Finally, and most importantly, we need to repatriate our manufacturing industry. If we are to thoroughly rid ourselves of our reliance on China, the best way to do this would be to get Taiwanese businesses that have relocated to China to return to Taiwan and invest here, opening up plants and factories back in this country.
Twenty years ago, Taiwanese companies began relocating across the Strait to take advantage of the lower costs of land and labor, lax environmental regulations and favorable tax breaks. Now, wages are rising in China, and with the various benefits that need to be taken care of, labor costs are no longer much lower than they are in Taiwan. Land is getting more expensive, too. In addition, regulations have been getting progressively stricter, and in many cases individuals in positions of power have their own interpretation of how those regulations are to be applied. Also, the tax incentives on offer are no longer anything to write home about.
Over the past few years, the US government has been the strongest advocate of repatriation of manufacturers from China. It has invested in researching how best to integrate manufacturing to improve efficiencies at home, rather than relying on cheap but inefficient labor in China. Wages are higher in the US than they are in Taiwan. If it is possible to entice US manufacturers to relocate back home, then it should be possible to get Taiwanese producers to repatriate.
The trouble is, the government has to start doing something about this, rather than just devising catchy slogans. It needs to improve integration between different government departments. It should try to work out what exactly Taiwanese businesses need, and what obstacles are keeping them from returning from China. It needs to get off its butt and revise regulations and the tax system, providing well-planned and integrated industrial parks and establish comprehensive supply chains. All of this should help coax Taiwanese companies back to Taiwan.
If this is successful, it will also create a considerable amount of new jobs, address the problem of inadequate domestic investment and reduce our reliance on exports to China. It will be a huge boost to economic growth in Taiwan, now and into the future.
Translated by Paul Cooper
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