The Economist Intelligence Unit (EIU), part of the UK-based company that publishes the Economist magazine, released a study on Taiwan two months ago, saying that its financial sector has no future because it has chosen to isolate itself while wasting effort on internal struggles.
In response to the study, I wrote an article in this newspaper ("Economic report misses the target," Aug. 14, page 8) saying that the EIU may be right about Taiwan being in a predicament, but that it had nothing to do with self-isolation.
Rather, Taiwan's problems are a result of Taiwanese firms' cash outflow to China. As the banking industry is tightly linked to local interests, if local enterprises were to reduce their dependence on China and increase their investments at home, domestic demand for capital will rise and help alleviate most of the banking industry's problems.
Three weeks later, a senior finance official related a fable which appeared in the Chinese-language Economic Daily News on Aug. 29 to describe the situation. A scientist tried to train a flea to jump over his finger on command. The flea was able to do so, even after the scientist cut off its forelimbs. However, after all its limbs were cut off, the flea was unable to jump at all, so the scientist concluded that it had become deaf after losing all its limbs.
The finance official then said that Taiwan's hopeless financial industry was like the flea that couldn't "jump" into the future because the government has cut off its limbs through the investment ban, which has gradually cost the financial industry its competitiveness. He also supported the EIU's conclusion, cautioning that people should not misjudge the causes of failure like the scientist.
I like the metaphor, but would interpret this story from another angle.
Taiwan's financial sector -- like the flea -- proved that it could jump during the economic boom in the 1980s. After its fore-limbs were cut off by the outflow of the country's traditional industries in the early 1990s, it was still able to operate even after losing part of its business.
However, after the departure of the high-tech industry, the financial sector suffered because the remaining domestic industries couldn't support it.
In short, the financial sector has no future owing to Taiwanese companies' excessive investment in China, which has not only hollowed out industry but also damaged its competitiveness.
For the financial sector to recover, we need to increase investment in the country to boost the industries that support it, just as a flea can jump only if it has strong and healthy limbs.
Why do two people have such different interpretations of the same story?
It's basically a question of how you look at it. I am viewing this from Taiwan's perspective, while the EIU and its adherents are viewing it from China's perspective -- the so-called "Chinese economic view."
The way China sees it, Taiwan's growing investments are positive and can satisfy its corporate needs. Many people therefore believe that there is no reason for the government to stop them. Even though Taiwan's investment in China is already excessive, they can always find an excuse for why it's good for Taiwan, too.
Viewing the industry exodus from the Taiwanese perspective, however, tells a different story.
People looking at the issue from Taiwan's point of view see the adverse impact of the investment outflow on the domestic economy. They know that the "China fever" favors China, while Taiwan loses its capital and control over its economy, as well as suffers from unemployment and stagnant industrial development.
This is bad for Taiwan's overall condition, so they support necessary restrictions, such as the 40 percent cap on Taiwanese companies' investment in China.
The public's view on financial issues vary as well. Those concerned with China believe that as Taiwanese industries head across the Strait, the only way for the financial sector to survive is to go there as well.
But those who consider Taiwan as part of the global picture are aware of the potential impact on the banking industry should it follow industry's exceesive investment across the Strait.
Does Taiwan's financial sector really have no future, as the EIU claimed?
Thanks to pro-localization academics and the Taiwan Solidarity Union's efforts to block relaxation of the investment ceiling from being discussed at the Conference on Sustaining Taiwan's Economic Development in July, Taiwan now has a future.
Standard Chartered Bank announced on Sept. 29 that it would buy Hsinchu International Bank for NT$40.5 billion (US$1.22 billion). If Taiwan's financial sector has no future, would Standard Chartered dare make such a purchase?
Huang Tien-lin is a former national policy adviser to the president.
Translated by Eddy Chang
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