Hon Hai Precision Industry Co’s announcement that it is to pour billions of dollars into the US state of Wisconsin and Formosa Plastics Group’s decision to launch a new investment in Louisiana have drawn mixed responses in Taiwan.
Some people say the moves show the US government’s willingness to provide a more favorable investment environment and incentives to lure businesses, while others wonder if more Taiwanese businesses might move production lines abroad. Perhaps it was purely a business decision by individual firms, as Taiwan Semiconductor Manufacturing Co has reiterated that Taiwan is still its top choice for investment.
Even so, there are growing danger signs that Taiwanese companies are hesitant to increase their domestic investment while speeding up their global expansion, which poses a risk to the nation’s economy in the long term.
Data released on Friday by the Directorate-General of Budget, Accounting and Statistics (DGBAS) show gross capital formation increased just 0.08 percent in the second quarter from a year earlier, compared with the 1.27 percent gain forecast in May. The slower growth in capital formation indicates that private investment was weaker than expected in the April-June quarter, which the agency attributed to a still-slumping construction industry and cautiousness about capital spending by semiconductor companies and airlines.
Academia Sinica recently predicted that Taiwan’s private investment would rise 2.36 percent annually this year, faster than a 1.95 percent advance the DGBAS projected in May. Together with the government’s and public enterprises’ investments, the institute forecast the fixed investment — a crucial element of domestic demand — would increase 2.57 percent from last year, compared with the DGBAS’ 2.3 percent growth estimate.
However, from 2007 to last year, fixed investment grew just 0.83 percent annually on average, according to the Ministry of Economic Affairs’ statistics.
Moreover, the statistics show a discouraging trend in the ratio between fixed investment and GDP, as the number has dropped from 23.9 percent in 2007 to 20.9 percent last year.
Public investment usually accounts for 20 percent of the nation’s fixed investment; private investment makes up the rest. While the nation’s fixed investment growth has been weak over the past 10 years, public investment exhibited a faster deceleration, falling by an average of more than 5 percent annually, compared with an average of about 2 percent growth in private investment.
Nonetheless, in terms of their proportion to GDP, public and private investments have diminished their contribution to economic growth over the past decade, with public investment accounting for 3.7 percent of GDP last year, down from 5.3 percent in 2007, and private investment making up 17.3 percent of GDP last year, compared with 18.7 percent in 2007.
Limited investment in public infrastructure projects, government deficits and the privatization of state-owned enterprises have contributed to the slump in public investment over the years.
However, there must be other problems in Taiwan’s operating environment that have led to a substantial withdrawal of foreign investors and their local peers, with foreign direct investment plunging more than 31 percent in the first half of this year from a year earlier, Investment Commission statistics show.
Whether the so-called “five plus two” innovative industries promoted by President Tsai Ing-wen (蔡英文) over the past year, or a new state investment corporation capitalized at NT$250 million (US$8.25 million), can help transform the economy is an open question.
However, without a real improvement in terms of taxes, labor regulations, red tape and infrastructure, neither Taiwanese nor foreign businesses will make real investments and create jobs in the nation.
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