Taiwan might have experienced negative GDP growth during the third quarter, while achieving annual GDP growth of more than 1 percent is looking doubtful.
Why has the nation come to this pass? An opinion piece in the Liberty Times (the Taipei Times’ sister paper) on Oct. 1 last year gives a comprehensive answer to the question. Still, the appearance of negative growth requires additional explanation.
The reason is that during President Ma Ying-jeou’s (馬英九) second term in office, the nation’s financial capital has started to flow out, in addition to the outflow of productive capital. The lack of both productive and financial capital has placed the nation in a more precarious situation than ever before.
The outflow of financial capital began in 2010 as the Economic Cooperation Framework Agreement (ECFA) began to accelerate financial integration across the Taiwan Strait.
Over the past four years, Taiwan’s major banks and financial holding corporations have acted with blinding speed to establish eight subsidiaries in China, with a core capital of NT$83.8 billion (US$2.57 billion). Three are investing a total capital of NT$21.3 billion in shares. They have also established 23 branches as well as 11 sub-branches in China, with a total investment of NT$119 billion.
In addition to that, they have established 18 leasing companies, with a total capital investment of NT$16 billion.
Together, more than NT$240 billion of Taiwan’s core capital has been invested in the Chinese financial sector over the past four years. The result of the investments is that Taiwan’s credit exposure to China has increased from US$4.26 billion in 2012 to US$81.27 billion in the first quarter of last year.
To cover for this expanded risk, Taiwan’s banks need to raise further capital: Covering an increased credit exposure of NT$2.5 trillion requires a capital infusion of NT$250 billion.
Between 2008 and last year, major Taiwanese banks raised NT$486.5 billion from the domestic capital market, but between 2010 and last year, they invested NT$240 billion in China. That accounts for almost 50 percent of the capital raised domestically. Adding the capital needed for covering Taiwan’s exploding credit exposure to China, it is possible to say that almost all of Taiwan’s financial activities during the period were conducted simply to fill the Chinese financial black hole and only a small amount was used for domestic demand.
Moreover, Taiwan has allowed Chinese yuan deposits since 2013 and the interest rates on yuan deposits are slightly higher than on New Taiwan dollar deposits. By August, total yuan deposits in Taiwan had reached 326.9 billion yuan (US$51.5 billion).
At the same time, the number of Taiwanese investing in the Chinese stock market has grown consistently, while Taiwanese banks have pushed for gradually increasing the qualified foreign institutional investor (QFII) quota. Data showed that the QFII quota might have reached US$9 billion. These local financial resources all end up flowing into China.
The outflow of financial resources has already had various negative impacts. It is more difficult for those needing to borrow money, domestic investment is shrinking, fewer people are starting their own businesses, domestic demand is contracting and other industries are following in the financial sector’s footsteps, moving overseas at an accelerating rate, while momentum in the stock market is weakening.
Although the Financial Supervisory Commission has loosened various measures in order to stimulate the market, its failure to boost trading volume shows how serious the problem really is.
In August, the stock market once dropped by 22.6 percent to 7,203 points, with stock market investors suffering great financial losses, while a group of vultures and certain financial companies benefited from the decline.
The government must make policies based on the well-being of the public. It should not curry favor with special groups for the sake of their preferences or business benefits. There is nothing wrong with major Taiwanese banks entering the Asian market, but they should not do it as if they were Chinese banks.
“Going West” might bring short-term profit to local bank operators, but would it be beneficial to Taiwanese depositors, too? The answer to that question is “No.” It would only bring losses, as increasing numbers of people start depositing yuan.
Have securities investors benefited from going West? Once again, the answer is “No.” Most Taiwanese investing in the Shanghai Stock Exchange have been trapped as the exchange index has dropped.
Have all Taiwanese people benefited from this? No, they have not. They are still struggling with low starting salaries of NT$22,000 per month. As for national security, if Taiwan puts its financial resources completely in Beijing’s hands, then how is it going to survive?
The Chinese saying that best describes the past eight years is: “A general’s fame is established at the expense of numerous people lives.”
Huang Tien-lin is a former presidential adviser.
Translated by Eddy Chang
The Executive Yuan recently revised a page of its Web site on ethnic groups in Taiwan, replacing the term “Han” (漢族) with “the rest of the population.” The page, which was updated on March 24, describes the composition of Taiwan’s registered households as indigenous (2.5 percent), foreign origin (1.2 percent) and the rest of the population (96.2 percent). The change was picked up by a social media user and amplified by local media, sparking heated discussion over the weekend. The pan-blue and pro-China camp called it a politically motivated desinicization attempt to obscure the Han Chinese ethnicity of most Taiwanese.
On Wednesday last week, the Rossiyskaya Gazeta published an article by Chinese President Xi Jinping (習近平) asserting the People’s Republic of China’s (PRC) territorial claim over Taiwan effective 1945, predicated upon instruments such as the 1943 Cairo Declaration and the 1945 Potsdam Proclamation. The article further contended that this de jure and de facto status was subsequently reaffirmed by UN General Assembly Resolution 2758 of 1971. The Ministry of Foreign Affairs promptly issued a statement categorically repudiating these assertions. In addition to the reasons put forward by the ministry, I believe that China’s assertions are open to questions in international
The Legislative Yuan passed an amendment on Friday last week to add four national holidays and make Workers’ Day a national holiday for all sectors — a move referred to as “four plus one.” The Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP), who used their combined legislative majority to push the bill through its third reading, claim the holidays were chosen based on their inherent significance and social relevance. However, in passing the amendment, they have stuck to the traditional mindset of taking a holiday just for the sake of it, failing to make good use of
As strategic tensions escalate across the vast Indo-Pacific region, Taiwan has emerged as more than a potential flashpoint. It is the fulcrum upon which the credibility of the evolving American-led strategy of integrated deterrence now rests. How the US and regional powers like Japan respond to Taiwan’s defense, and how credible the deterrent against Chinese aggression proves to be, will profoundly shape the Indo-Pacific security architecture for years to come. A successful defense of Taiwan through strengthened deterrence in the Indo-Pacific would enhance the credibility of the US-led alliance system and underpin America’s global preeminence, while a failure of integrated deterrence would
RSS