Taipei Times: Taiwan Research Institute (台綜院) last week unofficially proposed that the New Taiwan dollar be significantly depreciated to between NT$38 and NT$40 against the US dollar, do you have any comment on the proposal?
Lin Jong-shong (
However, this time it might not work as well as 20 years ago. There are two reasons why: The first is that Taiwan's economy has been transformed from a labor-intensive economy to a capital-intensive economy over the past two decades, and depreciating one's currency is unlikely to guarantee increasing the competitiveness of Taiwan's exports -- especially against our neighboring countries. The second reason is that the magnitude of the recent proposal is much wider than the depreciation [of the early 1980s]. Should the New Taiwan dollar be depreciated from NT$33 to NT$40 against the US dollar, it's roughly about a 20 percent depreciation. [Since the currency depreciation would increase the cost of imports], it could affect domestic price levels significantly, which would mean inflation. For these two reasons, it's unlikely that the administration will adopt the recent proposal.
TT: Taiwan's unemployment rate has recently risen to historical highs. Can you explain where the problem lies?
Lin: The recent recession of the global economy should be the major reason that Taiwan's economy has been performing poorly, since Taiwan depends heavily on its exports. Another reason is the massive investments [from Taiwan] in China in recent years.
Originally, Taiwan's businessmen purchased materials and parts from Taiwan after they moved their operations to China. But they have gradually stopped doing so. Instead, they directly purchase parts and materials within China, significantly decreasing demand from Taiwan's economy.
There is no short-term solution for the problem of China investments [from Taiwan businesses], what we need is for Taiwan entrepreneurs to find a new direction for local investments, whether it's in high-technology or other industries.
As for the unemployment rate problem, besides the economic recession, the willingness of Taiwan workers also plays an important factor.
Many of Taiwan's entrepreneurs have said that the younger generation is unlike the older generation in that they aren't as willing to work hard. And probably for this reason, Taiwan's entrepreneurs prefer to set up their operations in China, where labor cost is much lower than Taiwan and China's laborers are more willing to work hard.
TT: Is there any solution to the problem of Taiwan's businessmen continuing to invest their money in China?
Lin: There is no good solution to this problem. A small-scale economy has to invest outward, in order to continue its development. With China so close to Taiwan and providing so many opportunities for Taiwan businessmen, there is hardly any way to reverse the trend. One good example is the UK, since the UK is so close to the European continent and the continent provides massive investment opportunities for UK businessmen over the last few centuries, UK businessmen have heavily invested their money [there]. Taiwan is likely to follow this model and continue investing heavily in China. Regardless of whether Taiwan unifies with China or not, such investment trends are unlikely to be altered. Even if Taiwan did unified with China politically, Taiwan's economy would still only be a regional economy, from the point of view of the greater China economy. The political cooperation with China is unlikely to change the [economic] situation for Taiwan businessmen who invest in the mainland.
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