“Apples and Oranges” is an example that economists usually use to explain the difficulty of comparison. Taiwan’s economy is facing consecutive double-digit exports declines and repeated cuts to the GDP growth rate. Businesspeople want the manufacturing sector to become warmer — with more Apple Inc purchases from Taiwan. The service industry hopes that tourist numbers from China do not fall for political reasons so more pineapple cakes will be sold. “Apple and Pineapple” is a good way to illustrate Taiwan’s trade.
Apple sold 230 million iPhones last year. According to Merrill Lynch in 2014, integrated chip (IC) and optical components in mobile phones alone cost US$25, and original equipment manufacturing for assembly iPhones earns US$5 per device. If we calculate US$30 for every iPhone, that means Taiwanese firms earned about US$7 billion last year. That does not include other components such as touch screens or connectors that Taiwanese companies made for iPhones.
IPhone revenue is just 65 percent of Apple products; the company also sells iPads, MacBooks and Apple watches.
A Taiwan Institute of Economic Research survey found that Chinese tourists last year contributed NT$180 billion (US$5.6 billion) to the economy.
In 2008, there were 288,000 Chinese tourists, out of 5 million tourists to Taiwan, including 1 million Japanese. Then the government opened the door to Chinese tourists. In 2009, the number of Chinese tourists exceeded 1 million and in 2012 it reached 2.5 million. Last year 4 million Chinese visited Taiwan.
Increasing numbers of Chinese visitors not only benefit the tourism industry, but also help the economy and employment, especially in Nantou, Chiayi and Hualien counties.
This year, Taiwan’s economy still faces headwinds, but the two factors mentioned above will not be able to help us as before due to some problems.
Innovation at Apple seems to have slowed down after Steve Jobs’ death; only the size of iPhones has changed in recent years. The company’s revenue showed its first decline in 13 years last quarter. Analysts predict that 10 percent fewer iPhones will be sold than last year. That means Taiwanese factories’ revenue may be down US$700 million at least from this product.
The most affected industries will be information-technology and IC firms, which represent one-third of Taiwan’s export or manufacturing value.
After the presidential election in January, Beijing reduced its approval of tourists to Taiwan step by step. If tourist numbers decline by 1 million this year, Taiwan’s tourism revenue will be down by NT$45 billion. Business owners and workers in the tourist industry will face new challenges.
With the probable slowdown in purchases of Apple products and pineapple cakes, the question is whether Taiwan should concentrate on one company or one tourism source. To resolve the problem, the new government could do less in the short term.
The five innovation industries that president-elect Tsai Ing-wen (蔡英文) has mentioned could not take effect in this year — a new “quasi-sovereign wealth fund” for industry development needs time for discussion and fundraising.
Meanwhile, Taiwan’s information and communication technology businesses should try cooperating with China’s IT firms such as Huawei or Xiaomi.
As for tourism, we hope the new government not only maintains cross-strait economic relationships, but also tries to attract more tourists from Southeast Asia or other nations.
If business and the government work to reduce risk by diversifying customers to new businesses or new areas, it will make Taiwan’s goods and service trade grow healthier.
Gordon Sun is an economist at the Taiwan Institute of Economic Research.
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