The attacks against New York and Washington have shaken the world economy. Optimistic local analysts are comparing them to the 921 earthquake and the Gulf War, believing that the stock market will only display a short-term psychological reaction, and that Taiwan is as healthy as ever.
The concern is that the revival of the US economy may be delayed, or even that the American century may be at an end. In that case, the question of whether China will be able to become the predominant country in the new century becomes a central concern.
The history of the twentieth century is a history of a rising US, and toward the end of the century the US was at the center of the world economy and flourishing global markets. Behind this development lay a gradually strengthening US dollar, resulting from the Bretton Woods agreements, and a US military that grew strong through two world wars and the Cold War.
Through the Wintel alliance between Intel and Microsoft, the high-tech US industry developed to allow the US to control patent and standard-setting powers and to rule the global information industry. The US economy maintained its growth at the end of the century, with US stock markets seeing an unprecedented 10-year bull market, and Taiwan was fortunate enough to become its contract manufacturing base, with the benefits evenly spread across the board.
Because of this, each time a political or economic crisis has led to panic selling, stock markets have been able to swiftly return to the normalcy of continuous growth after a short period to digest the crisis. The call of the bull that "any dip in the market is a buying opportunity" resounded through the skies, and a sudden bear market became a golden opportunity to get rich overnight.
The question of whether history repeats itself is a difficult one, but a simple deductive rule is that when the overall environment changes, details will change with it. This also means that the heart of the problem is whether the current situation will be a temporary suspension of the bull market, or whether markets have already entered a bearish cycle and whether a future situation conducive to short-term trading will be a technical rebound or a return due to the exhaustion of a fundamentally bearish market.
If the special character of the terrorist attacks is ignored, preventing an in-depth analysis of their influence on fundamentals, it will lead to a false assessment of the overall political and economic situation, and to mistaken strategies that go against the market.
Since production capacity exceeds demand, and since there is a production surplus, the new economy -- which is centered on the information and communications industries -- began inflating last year.
The "year-end economic revival" talked about at the beginning of this year had already been shot down before the attacks, due to the ineffectiveness of the US Federal Reserve's repeated interest cuts.
The time for revival slips further and further into the future due to losses sustained by financial institutions and dwindling consumer confidence, and now the "year-end economic revival," repackaged as the "spring 2002 economic revival," has become mainstream opinion.
There have also been difficulties in maintaining the might of the US dollar, which weakened in the middle of this year. After this happened, central banks around the world joined hands to support the dollar and stopped it from crashing immediately, but the gradually weakening trend still has not been contained
If cracks appear even in the power to control military matters and intelligence, the US will be considered a paper tiger, consigning the American century to history, together with a thoroughly deflated American dream.
In this crisis forced by US domestic and foreign policy, there are people turning toward China, believing that she must rise in the wake of the American century.
Nationalism aside, this is the attitude of the die-hard bull, who must have a savior. As a matter of fact, the rise of the Chinese economy in recent years is mainly due to orders that went to Japan in the 1980s and Taiwan in the 1990s, and which in the last two years have gone to China via Taiwan.
With the US and Taiwan in decline, it will also be difficult for a slightly slower China to avoid going downhill in the future. In the last few months, the growth rates of China's imports and exports seem to have slowed, and the double-digit growth rates it enjoyed up to last year are no longer to be seen.
Some Taiwanese companies, having established manufacturing plants in China, reduced their production capacity for products exported to the US in the first half of this year.
If China were also driven by export sales to the US market, then her fundamental structure would be similar to that of the Southeast Asian countries prior to the Asian financial crisis, and this would be just another version of the myth of input-driven growth, with the only difference being China's enormous domestic market.
But given China's low technical and consumer standards, what will that country rely upon if it is to become the growth center for the new economy? Its stock markets already started slipping in early June, and it should only be a matter of time before it is at risk of fundamental and financial decline.
If the American century really is at an end, then the global economy will enter into a new phase of restructuring, and the cold, dark night will last even longer. Total, unrestrained optimism is tantamount to exposing ourselves to risk, and if wishful nationalism leads Taiwan to develop in the wrong direction, it will only create another bubble for the hundred-year Taiwan miracle.
Pan Han-shen is vice president of research at the SunMoon Securities Investment Consulting Co.
Translated by Perry Svensson
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