Direct links between Taiwan and China continue to generate much debate. At a time when Taiwanese businesses are rushing to China one after another, Huang Tien-lin (黃天麟) -- a national policy advisor to the president -- wrote yesterday in this newspaper that "investment is not the only means of entering China," and that "the best way to develop the Chinese markets is not to establish factories there. Rather, the way to achieve business success is to create a stable foundation in Taiwan and then improve quality." I absolutely agree with him.
I still remember that when the Asian financial crisis broke out in 1997, South Korea received about US$58 billion from the IMF, the World Bank and the Asian Development Bank (ADB) -- which the South Koreans regarded as a national humiliation. Taiwan, meanwhile, escaped safely from the crisis.
Today, the overall non-performing loan (NPL) ratio of the banking industry in South Korea has already decreased from a two-digit figure to under 5 percent, while that of Taiwan has rapidly increased from 6 percent to 12 percent. The most crucial factors are, firstly, that Taiwan has not undertaken financial reforms similar to those of South Korea. Secondly, both Taiwan's industries and its capital are flowing out. Since the government has always pretended that everything is going well, it has failed to take steps to establish a "market-exit mechanism" (
If US$140 billion in capital had been invested here, it would have reduced the NPL ratio of our banking industry. It would also have reduced the cost to the government of solving the problems of the banking industry. The people of Taiwan should reflect deeply and calmly over the fundamental cause of our increased NPL ratio.
Twenty or 30 years ago, economically mighty Japan invested massively across the world. But the massive outflow of capital that this entailed eventually led to the bursting of its economic bubble. As a consequence, both the stock and the real estate markets collapsed and the NPL ratio of its banking industry jumped dramatically. Meanwhile, the Japanese government repeatedly delayed financial reforms. Finally, it ran out of ways to boost its inexorably declining economy. In view of the Japanese experience, Taiwan's government has finally decided to introduce financial reforms. To avoid repeating Japan's mistake, however, the government must take the issues of business migration and capital outflow very seriously.
Taiwan is a small island. Its survival depends solely on its economic development. Taiwan's businesses must not invest too hastily in China. Instead, they should sell their products to China, or simply import raw materials from China before exporting finished products back there. We must view the economic growth and decline on either side of the Taiwan Strait in the correct light. The government has to strive to improve the investment environment here and businesses must regard "keeping their roots in Taiwan" (
Hwang Dar-yeh is director of the Center for Banking and Finance Research at National Taiwan University.
TRANSLATED BY EDDY CHANG
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