Central Bank Governor Perng Fai-nan (彭淮南) has been given the top “A” rating from Global Finance magazine 10 times. To show support for the cross-strait service trade agreement, he recently released Perng’s Version of the Service Trade Agreement for Dummies. However, careful scrutiny of this information pack reveals some critical mistakes.
The first mistake is to compare Taiwan with South Korea. Perng says that the signing of free-trade agreements (FTA) has boosted South Korea’s business with FTA partners to 36.1 percent of its total trade, compared with a mere 9.3 percent for comparitive trade in Taiwan. However, 75.3 percent, 56.6 percent and 53.6 percent of Taiwanese exports to the US, Europe and China, respectively, are tariff-free, not to mention all Taiwanese exports to Hong Kong and Singapore. Taiwan’s exports are concentrated on IT products whereas South Korea in addition to exporting IT products also exports cars, ships, iron and steel. In other words, Taiwan might not be marginalized even if it does not sign FTAs or agreements on trade in services or goods. Perng’s information pack, then, is likely to mislead.
Next, Perng says that the 264 Chinese professionals who have been allowed to work here temporarily by January had hired 9,624 Taiwanese employees, so that each Chinese professional had created 36.5 jobs in Taiwan. This is laughable. The fact is that Taiwanese businesspeople have launched over 2,000 investment projects in China since signing the Economic Cooperation Framework Agreement (ECFA), and more than US$45 billion (about NT$1.37 trillion) has flowed to China. The number of Taiwanese workers thrown into unemployment after their factories were closed down may be 10 times the number of jobs Chinese professionals have created. Why are young people facing high unemployment rates or receiving low starting salaries of NT$22,000 per month? The signing of the service trade agreement may worsen the problem.
Finally, Perng’s sudden display of concern for Taiwan’s flat-panel industry is confusing. Currently, China imposes a 5 percent tariff on flat-panel imports. According to Perng, if South Korea enjoys zero tariffs after signing an FTA with China later this year, while Taiwan is still subjected to the 5 percent tariff, as many as 100,000 workers in the flat-panel industry could lose their jobs. Exactly who should be held responsible for the decline of this industry? It is, in fact, a result of Taiwan’s exchange rate policy. When the financial tsunami hit Asia in 2008, South Korea quickly depreciated the Korean won by 34.6 percent from 936 to 1,258 won for one US dollar, while the value of the New Taiwan dollar remained unchanged as the central bank adhered to President Ma Ying-jeou’s (馬英九) policy of maintaining a strong NT dollar. As a result, South Korea took advantage of Taiwan, and the nation’s four largest flat-panel manufacturers have suffered badly. The nation’s DRAM manufacturers have also suffered from this policy. Yet it is not too late if the Central Bank wants to resolve the predicament. It could immediately depreciate the NT dollar by 5 percent to NT$32 for one US dollar, which would bring temporary relief to the 100,000 workers in the flat-panel industry.
Having a world-renowned central banker is not necessarily a good thing for Taiwan, as he is no longer subject to criticism, perhaps causing him to lose self-discipline. US economist Alan Greenspan served as chairman of the US Federal Reserve from 1987 to 2006, and the world praised him when he left office. However, once the US subprime mortgage crisis turned into a global financial crisis, the tolerance of financial derivatives during his chairmanship was said to be the cause of the crisis. Taiwan should learn from the US.