Recent news of disagreement within society over the cross-strait service pact often involves a discussion of the widening gap in economic growth between Taiwan and its chief rival, South Korea. Notwithstanding envy and a resulting sense of discontent, Taiwan can compete and even surpass South Korea if bold strategies are implemented in lockstep with some structural reforms.
South Korea’s experience with free-trade agreements (FTAs) — first with Chile and subsequently with the US, the European Free Trade Association, Australia, Canada and soon with China — has largely proved successful, boosting exports of its automobiles, auto parts, petrochemicals, steel and consumer electronics industries. As for imports, clever negotiations created non-tariff barriers that have protected domestic sectors in agriculture, processed food, financial services, education and healthcare. One US trade negotiator privately told me that the South Korean trade negotiators and the North Koreans shared one characteristic: tenacious brinksmanship.
President Ma Ying-jeou’s (馬英九) emphasis on following south Korea’s lead in FTAs would open up new opportunities for Taiwanese industries and businesses: For example, joining the Trans-Pacific Partnership (TPP) would usher in a slew of new opportunities to expand the tradeable sector of the economy. Firing up the existing set of growth engines would likely fail to generate the marginal growth spurt that would permanently push Taiwan’s growth curve up one or two notches above the current path.
To lift the growth curve from the current 1 or 2 percent GDP growth to 4 or 5 percent, Taiwan needs bold strategies and willpower to build the country’s future in targeted areas.
According to the IMF’s January report, the world economy between now and 2030 will rely on “smart” infrastructure investment to boost sluggish growth. More than half of this projected investment will fund an upgrade in infrastructure in the developed countries of North America and Europe in the name of higher energy efficiency. Large companies such as Siemens, GE, ABB and IBM are already coming up with proprietary solutions that combine designing solutions, providing services and selling equipment and components. For example, IBM’s Smart City and the eMobility by Siemens are setting the new standards in anticipation of the trillions of dollars to be generated in energy and infrastructure upgrades in advanced economies. What could be the opportunity for Taiwan, Inc? Taiwanese industries should build relationships with the solution providers and supply components, such as industrial sensors, communicative devices embedded in the Internet of Things as an integral part of the new ecosystems. The government should also help businesses to build partnerships with international funding organizations such as the World Bank and the IMF for infrastructure projects. In the new future of smart infrastructure, proprietary technology matters little, while the capacity to create partnerships and ecosystems matter.
China’s mainland and Hong Kong together account for more than half of Taiwan’s external trade and investment. It follows that China’s huge underdevelopment in healthcare would present new opportunities for companies in the pharmaceutical and medical devices industries. Samsung is harboring huge ambitions to overtake big pharma companies and take market share in MRI scanners from GE Health Care, Siemens and Philips. There is an opportunity for Taiwan to start a new race for affordable drugs and portable medical devices.