For all the talk about measures to boost the nation’s economy, the government appears to have acknowledged that achieving a substantial increase in domestic investment is the key to improving employment, wages and corporate profits. The Executive Yuan on Thursday announced plans to spend NT$340 billion (US$10.7 billion) on infrastructure and public works and encourage private investment to spur economic growth.
This stimulus package proposed by the National Development Council means that state-run enterprises and government entities would control public-sector investment. Incentives for private-sector investment would include a two-year waiver on rent for land in industrial zones, an average 8.99 percent reduction in science park rental fees and shortening the useful life of fixed assets.
Council Deputy Director Kung Ming-hsin (龔明鑫) on Thursday said that government investment has continued to decline in recent years and state-run companies’ investment has slowed.
Kung said injecting fresh momentum into the nation’s meager private investment is necessary, as real growth of private investment this year is estimated to be 1.15 percent, the lowest in the past three years.
Private investment increased 3.17 percent year-on-year in 2014 and 2.75 percent last year, Directorate-General of Budget, Accounting and Statistics data show.
On the contrary, increases in outbound investment (excluding to China) is predicted to more than double this year, following annual growth rates of 39.40 percent in 2014 and 47.30 percent last year, reflecting deteriorating investment conditions, Taipei-based agency China Credit Information Service Ltd said last week.
Given that Taiwan is an export-led economy, the nation’s investment demands are highly dependent on its export performance. Hence, sluggish progress in domestic investment has not only seriously affected growth potential, but also become one of the major sources of drag on innovation, further threatening the nation’s long-term competitiveness.
However, to what extent can the stimulus package boost domestic demand and contribute to GDP growth?
Recovery momentum remains weak, according to a mixed bag of economic data released recently. Last week the government reported weaker-than-expected export orders and industrial production data for last month, while its business monitoring system turned “green” — an indication of steady growth — for the first time in 17 months.
Furthermore, considering a global economic environment that promises scant sustainable growth in the coming months or years, coupled with China’s focus on technological advancement and its transformation to a consumer-led economy, things could get very tough for Taiwan over the next few years.
While the council is expecting another “green” light this month on the back of a good export outlook and accelerated public investment in the second half of the year, the question is whether Taiwan’s exports can gain market share because the nation is becoming more competitive or simply because local manufacturers have the right product mix for the product cycle.
In the absence of structural reform and effective policy implementation, Taiwan could continue to lose its export market share due to declining competitiveness, which would further constrain employment and wages.
However, if this stimulus plan can create a solid foundation for the “five innovative industries” that President Tsai Ing-wen (蔡英文) touted during her presidential campaign, and if people are willing to take on the challenge of economic transformation and confront social turmoil with constructive dialogue, combined efforts could bring tangible growth to the economy in the near future.
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