Less than a week after the new Cabinet was formed, a high-profile economic forum between Cabinet officials and business leaders was convened to help deal with the nose-diving stock market. Five guarantees and six beneficial economic policy measures were announced, but the following day the stock market failed to show clear signs of improvement due to rumors of military threats from China.
The rumors about such military threats were nothing more than the release of a national defense white paper and routine training exercises. Neither the content of the white paper nor the exercise itself was anything new, yet they managed to thoroughly subvert the policies of the economic forum.
The brittleness of Taiwanese investors' confidence can't help but make one feel surprised. However, rather than accusing Beijing of harboring ill intentions, the new government would be better off reflecting on its own policy shortcomings.
Among the most concrete policies, first consider the elimination of the business tax for financial institutions, six-month extensions for traditional industries on repayment of loan principle and backing loans to medium and small enterprises provided by a credit guarantee fund.
The problem is that the relative weight of the financial industry and traditional industries on the stock market is at present less than 30 percent. Even if it is possible to deliver an injection to stimulate these industries, the effect on the overall stock market will be rather limited.
Clearly, a still more central issue is how to deal with the emergence of a bubble economy and relocation of industry overseas, thereby speeding up the transformation of Taiwan's economy. There are two key points.
First, ensuring a stable investment environment and second, stimulating the rapid rise of new mainstream industries. The government has so far failed to provide any guarantees to reassure people on these two key points.
The stability of the investment environment requires that the government eliminate confusing policy statements and take a clear stand on important issues. But the new government is hesitant and vague to this day about whether or not construction will continue on the Fourth Nuclear Power Plant
Regarding the deadlock between the two sides of the Taiwan Strait, the new government is stuck in the mud over whether or not there was a consensus in 1992 between Taiwan and China. Even if there are plans for the "small three links" with China
The new government has treated the problem of the Fourth Nuclear Power Plant as a simple energy issue. However, the sudden halting of plant construction and subsequent descent into indecisive political squabbling has already caused the quality of the government's policymaking to come under deep suspicion. Former premier Tang Fei's
As for the deadlock across the Taiwan Strait, the government's miring itself in the mud has also caused us to have no basis upon which to map out an economic development strategy. China's economy has become the center of attention, following the US approving PNTR status for China and with both Taiwan and China on the verge of entering the WTO. In contrast to the sudden fall in most of the world's stock markets, the Shanghai bourse has gone against the trend and risen. In contrast to the dismal forecast for most of the world's economies next year, the Chinese economy has excellent prospects. Naturally Taiwanese businessmen, who enjoy a favorable position, won't shut themselves out of the highly regarded Chinese market. A new wave of enthusiasm for doing business in China is on the rise, challenging the restraining "no haste, be patient"
Still more serious is that this new wave of enthusiasm for China comes just as Taiwan's electronics industry is in the midst of a large-scale movement overseas. However, what course Taiwan's new mainstream industries will follow is not as obvious as it was in the 1980's. In the face of another wave of industries moving abroad, the government still has no comprehensive plan for the transformation of the economy.
Endless debate that doesn't result in any decisions being made is the real source of trouble in the stock market. When faced with serious illness, the new government can't just provide relief for the symptoms. The heart of the problem must be treated before people can be won over.
Julian Kuo is an associate professor of political science at Soochow University. translated by Ethan Harkness
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