Third-quarter GDP — which expanded at a much weaker-than-expected pace of 1.58 percent from a year earlier — reflects the vulnerability and volatile nature of Taiwan’s export-reliant economy. However, the growing discrepancy between the growth in export orders and the real status of the nation’s economy indicates a “hollowing out” of domestic industries, an issue which deserves more attention from all parties.
Last week, the Ministry of Economic Affairs said the nation’s economy is resilient, as the latest data showed export orders increased last month for the fourth consecutive month. According to the ministry, export orders — which offer an indication of Taiwan’s products and components shipments to overseas markets over the next one to three months — grew 3.2 percent year-on-year to US$39.59 billion, the second-highest figure in history after a record order level of US$40.73 billion in November last year.
However, this positive export order figure came just one week after the Ministry of Finance said it was still worried about the outlook of the nation’s custom-cleared exports, as its data indicated the nation’s actual outbound shipments fell by 1.5 percent year-on-year to US$26.12 billion for the second straight month last month. Overall, cumulative exports in the first 10 months of the year increased just 1 percent from a year earlier to US$252.75 billion, while total export orders were US$359.57 billion during the 10-month period, down 0.4 percent from the same period last year.
At first glance, it is hard not to be impressed by the continued growth in export orders, but underneath the surface something worrying is going on. First, the discrepancy between the performance of export orders and actual shipments raises the question which data exactly reflect the strength of Taiwan’s economy. Indeed, the model of triangular trade — in which exporters receive orders in Taiwan but produce goods in offshore plants — has made export orders a less convincing trend for actual movement of goods.
Last month, for instance, a record 52.9 percent of all export orders received by Taiwanese businesses were produced in their overseas factories. By sector, information technology and communications, electronics, precision machinery and mechanical engineering were the major sectors reporting last month that more than 50 percent of their production output came from abroad.
The ratio of overseas production has consistently risen over the past two decades as Taiwanese businesses have worked to increase their competitive power and occupy the global market. It is undeniable that companies’ active pursuit of overseas investment has enabled them to generate profits by taking advantage of lower costs abroad, but one side-effect is that they have not made a big contribution to domestic jobs and wages at home, which has in turn slowed domestic consumption and weakened the sustainability of economic growth.
In addition, the sustained global recovery and presence of relatively low interest rates, which should promote borrowing and investment, have not led to a strong recovery for Taiwan’s economy. In fact, in real terms, most people’s salaries have fallen back to the same level they were at 16 years ago.
Therefore, as long as triangular trade continues, domestic productivity and growth momentum will continue to weaken. Unless the government is able to get exporters to reinvest in the domestic market, or if the nation does not proceed smoothly toward a service-oriented economy from a manufacturing one, there is a bad omen for Taiwan’s long-term economic prospects.