Sun, Jul 20, 2014 - Page 8 News List

Way forward for Taiwan’s economy

By Yen Ching-Chang 顏慶章

Taiwan has been a dynamic capitalist economy for more than five decades, with foreign trade being the engine of its miraculous growth. In so doing, Taiwan has successfully transformed itself from an underdeveloped, agricultural nation to an economic power that is a leading global supplier of high-tech products.

Having said this, no one could argue that Taiwan has been losing momentum as an industrial powerhouse because of ever-increasing outbound investment, which has eroded its attraction as a destination for foreign direct investment. As a consequence, more than 50 percent of the nation’s total export value has been supplied by overseas manufacturing sites for some time now. Last year alone, China and Hong Kong accounted for about 40 percent of Taiwan’s total exports, while 84 percent of Taiwan’s outbound investment went to China.

An IMF study published in July 2012 concluded that should Chinese investment be reduced by 1 percent, Taiwan’s economic growth would be reduced by 0.9 percent — the highest among China’s trading partners. In other words, the negative impact on Taiwan’s economy in the event of an economic downturn in China would be instant and direct due to its heavy reliance on the Chinese market.

Furthermore, because the signing of the Economic Cooperation Framework Agreement (ECFA) in June 2010 ushered in closer economic integration between the two nations, Taiwan has become increasingly dependent on China’s economy, thereby giving Beijing greater leverage in pushing its political agenda.

Given all this, what are the ways and means by which Taiwan can move forward economically?

Having served as minister of finance and ambassador to the WTO, I believe that the following points can help put Taiwan back on the right track and ensure its long-term development.

First, the government urgently needs to change its policy focus from “Made by Taiwan” to “Made in Taiwan.” While recognizing that the private sector always has the option to find the most cost-effective sites for manufacturing, the government has to be aware of the vital need to attract both domestic and foreign investments. The US has been outstanding in this regard, as it is the largest foreign investor in Taiwan, particularly, in the finance, insurance, manufacturing and wholesale trade sectors.

However, as mentioned, Taiwan has been losing its momentum as an industrial powerhouse because of ever-increasing outbound investment, resulting in more than half of the nation’s export value coming from manufacturing sites abroad.

In US President Barack Obama’s State of the Union address in January, he said: “Let’s do more to help the entrepreneurs and small-business owners who create most new jobs in America... We need to work together ... to protect our workers, protect our environment, and open new markets to new goods stamped ‘Made in the USA.’ China and Europe aren’t standing on the sidelines. Neither should we.”

Unfortunately, Taiwan seems to be the only country in the world standing on the sidelines without paying attention to the home game. I fully support Obama’s message that the government has to come up with an effective policy to effectively provide the private sector with the environment to create new jobs, thus ensuring the driving force of economic development by virtue of continued capital formation.

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