Taiwan is a small and open country, which almost entirely relies on exporting to support its economy.
However, recent export performance does not seem as good as we hoped it would be.
Taiwan’s exports are excessively concentrated, meaning that more than 50 percent of its annual shipments are to China — about 40 percent from January to October last year — and ASEAN —15 percent for the same period.
However, exports to ASEAN have declined for the past two consecutive months.
One reason for this could be competition from the nation’s neighbor exporters, Japan and South Korea.
China was in a cooperative relationship with Taiwan, but has gradually begun to replace its imports with home-made manufacturing materials.
Taiwan’s growth in exports to China and Hong Kong were 1.5 percent year-on-year last year and minus-4.4 percent year-on-year one year earlier, according to a December Ministry of Finance press release.
Trade is a large portion of Taiwan’s economy, but the nation’s recent exports — 0.7 percent last year and minus-2.3 percent one year earlier, could be thought to be a nightmare considering last year’s export growth rates of 8.3 percent in China and 2.2 percent in South Korea.
The traditional idea used to strengthen Taiwan’s economy is to improve export performance, then make profits in the manufacturing sector, then raise salaries to stimulate private consumption.
This idea is no longer helpful in Taiwan’s economy considering the figures mentioned.
The administration should reverse this traditional idea, which encourages entrepreneurs to increase employees’ salaries in order to stimulate consumption, domestic demand and then finally GDP.
In his speech at the 2014 New Year’s Eve ceremony, President Ma Ying-jeou (馬英九) said that improving the economy is the first priority this year.
The public cannot feel economic improvement by simply looking at these figures.
Therefore, the government should work to create jobs and to raise salaries, as this is the most direct way for the public to feel a positive turn in economic performance.
However, the administration should also support the local manufacturing sector in supplying materials instead of relying on imports from competitors such as Japan and South Korea, and perhaps China.
The import substitution could reduce dependence on imports and help to cut spending.
The government should create policies to try to attract industries such as precision machinery and high-value petrochemical production, and support technological development by injecting more funds into energy-saving infrastructure and subsidies for those in the manufacturing sector that purchase or upgrade to energy-saving equipment.
Taiwan needs to improve its weak domestic demand to bolster the entire economy, as increasing exports is no longer the best solution in the current economy.
The administration should actively negotiate and sign more free-trade agreements with neighbor countries, encourage a rise in salaries and continue to promote import substitution to reduce dependency on imported goods from competitors.
“Working in Unity to Bolster the Economy” was the title of Ma’s speech at the beginning of this year.
Hopefully, it is not just a slogan, but comprehensive action he will take.
Gary Chen is a public relations and international affairs officer at the Taiwan Institute of Economic Research.