Premier Jiang Yi-huah (江宜樺) told industry leaders last week that Taiwan needed to make greater efforts to emerge from its stagnant economic growth. Breaking away from his predecessors’ attempts to placate the public, Jiang admitted that Taiwan is not performing well and is overwhelmed by internal and external challenges.
Jiang is the first high-ranking government official willing to face the harsh reality that the nation is entangled in a web of chronic economic problems. As the government’s industrial policies over the past few years have failed to boost Taiwanese competitiveness, he called on industry leaders to help the nation avoid a further downward economic spiral.
It is encouraging that a government official has finally recognized some of the core problems facing the nation and is not willing to stick his or her head in the sand. Nobody could object to Jiang’s call for change. However, what Jiang said was nothing new. Corporate executives are keen to see what fresh stimulus measures the government will adopt to help them transform their businesses and lead them out of the current trough.
Speaking for the nation’s industrial circle, Chinese National Association of Industry and Commerce chairman Kenneth Lo (駱錦明) said: “Despite the government’s willingness to communicate with corporate executives, it still remains to be seen how it will execute its polices.”
Taiwanese firms face challenges from within as they try to boost innovation as part of efforts to do more than just make slim profits manufacturing products for other companies. Businesses are struggling to come up with creative products that can deliver high gross margins, as many are over-reliant on cost reduction to boost competitiveness, rather than investing in strengthening their abilities to innovate.
Taking contract notebook PC manufacturers as an example, Quanta Computer and Compal Electronics, which make laptops for the world’s top PC brands such as HP, Dell and Lenovo, only made 3.8 percent and 4.37 percent respectively in gross margin last year. These firms are trying hard to expand into sectors with more growth potential such as cloud computing technologies, but will need to wait to see a significant return on their investments.
At the same time, Chinese companies are catching up by advancing their technology abilities and will not depend on Taiwanese partners as heavily as before to supply components and technological know-how. Taiwan External Trade Development Council chairman Wang Chih-kang (王志剛) recently said that Chinese TV makers would gradually reduce their purchases of TV panels as Chinese panel makers are now making their own flat screens, according to China Video Industry Association president Bai Weimin (白為民). Flat-panel makers Innolux Corp and AU Optronics Corp ship between 30 percent and 40 percent of their total TV panel production to China.
Outside Taiwan, weak economic growth in China, the US and Europe, tensions on the Korean Penisula, and intensifying competition, primarily from South Korea’s Samsung Electronics Co, has locked Taiwan’s export growth into a narrow range. With massive resources and policy support from the South Korean government, Samsung is becoming a major competitor to Taiwanese smartphone maker HTC Corp and chipmaker Taiwan Semiconductor Manufacturing Co.
As the US and European economies remain fragile, the Ministry of Finance said it would be impossible to achieve the 4.7 percent annual growth rate for the first three months of the year that the Directorate-General of Budget, Accounting and Statistics had forecast.
At this pivotal time, the government needs to show strong leadership and to formulate effective measures to spur growth, rather than passing the responsibility on to corporations.