Thu, Jan 25, 2018 - Page 8 News List

An inconvenient truth about China

By Huang Tien-lin 黃天麟

During an annual media event, President Tsai Ing-wen (蔡英文) said she wanted over time to raise the minimum monthly wage to NT$30,000. This is to be commended, for it demonstrates vision, and vision informs policy.

Tsai’s administration has already proposed five major approaches to address the issue, including industrial upgrading and transformation, encouraging corporate-driven pay hikes and raising the minimum wage.

The Taipei Times on Tuesday published an opinion piece by a former National Taiwan University professor worried that using subsidies and other administrative incentives to drive up salaries would distort salary levels (“Pay raises cannot solve low wages,” Jan. 23, page 8).

The author also attributed Taiwan’s low wages to corporate structure, different skill levels among workers and the export-driven business model of original equipment manufacturing.

Nobody should expect such an issue to be resolved overnight. Despite a decade of debate between both sides of the aisle in the legislature and among the general public, the solution has remained elusive.

Like Tsai’s proposal of “industrial upgrading and transformation,” the professor’s suggestions are essentially stock answers for academics and politicians alike.

The administrations of former presidents Chen Shui-bian (陳水扁) and Ma Ying-jeou (馬英九) tried to tackle the problem according to such stock answers, but none of the policies worked.

The truth is that such causes are little more than scapegoats.

When Taiwan has Taiwan Semiconductor Manufacturing Co and firms such as Largan Precision, whose stock price is just shy of NT$4,000, industrial transformation and upgrading is not really the issue, especially as many of these companies have created much higher added value than major US businesses.

Similarly, little ground is made by claiming that Taiwan’s investment environment has to be improved, or addressing the “five shortages,” as Taiwan consistently outperforms neighbors such as South Korea and China in international ratings in terms of business environment and global competitiveness.

The real culprit for low salaries is, and has always been, right in front of our noses, but is intentionally overlooked, either for ideological reasons or for avoiding an inconvenient truth: China’s magnetic draw. It is an exclusively Taiwanese problem for which the answer will never be found in economic theory.

About 80 percent of Taiwan’s listed companies do their manufacturing in China, not to mention the tens of thousands of its small and medium-sized enterprises (SMEs) conducting business there.

There are more than 100,000 Taiwanese companies in China, with about US$9 billion worth of government-approved direct investments, and about 1 million Taiwanese work in China. This means that China’s magnet effect is depriving Taiwan of an astonishing 10 percent of domestic consumption, a key reason for the nation’s low levels of consumption.

Not content with benefiting from the lower costs and China’s larger market, these Taiwanese businesspeople plunder the domestic and the international markets, refusing to share them with Taiwan’s SMEs, while at the same time dragging down the added value of Taiwan’s overall economics and trade.

These people are the real culprits behind Taiwan’s low-wage issue.

Strategies such as “optimizing the domestic investment environment” or “encouraging industrial upgrading and transformation” are of no use in the face of China’s magnetic effect. The only remedy for the low-income issue will be to prevent businesses from making further investments in China through tax regulations and administrative measures.

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