Mon, Aug 29, 2016 page6

• Two ways out of the economic doldrums

  • By Kuo Kuo-hsing 郭國興
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  This is an exploration of two ways that could help revitalize Taiwan’s economy and trade.

  The first suggestion is the creation of a new export model in the form of an Asian innovation corridor.

  Processing trade — trade that involves product processing and assembly — is shrinking globally, while China is cultivating a “red supply chain.” These factors have caused Taiwan’s exports to fall for a record 17 consecutive months.

  To break free of the disturbance of these hindrances to growth, Japan and Taiwan should establish a mutually beneficial export strategy, or an “Asian innovation corridor.” This would involve the transferring of technology from Japan to Taiwan and the formation a strategic alliance. Japan would sell key raw materials to Taiwan, while Taiwan would quickly upgrade its technology, process these raw materials into high-end components and sell them to the ASEAN and India. ASEAN nations and India would then assemble the intermediate goods from Taiwan into finished products and sell them on the global market.

  Many Japanese companies are pulling out of China and moving to Southeast Asia, and this has been accelerating. By leveraging Japan’s influence as a long-term investor and aid provider to the ASEAN, along with its infrastructure deployment in that region, the establishment of an Asian innovation corridor could enable Japan, Taiwan, ASEAN nations and India to share division of labor trade profits, while also providing an outlet for Taiwanese exports, given that the nation would not be able to join the Trans-Pacific Partnership or the Regional Comprehensive Economic Partnership any time soon.

  The second suggestion concerns boosting confidence and making use of Taiwan’s large private financial assets. There is no shortage of private capital in Taiwan, but people do not dare spend their money. In response to the economic downturn, the central bank has been relaxing monetary policies and reducing interest rates in an attempt to stimulate private spending and investment and boost effective demand. However, these measures have been of little benefit, and the economy stagnated.

  The government needs to urgently boost consumer confidence and encourage businesses to investment in ways that stir up private finances held in banks and make it flow toward consumption and investment.

  One possible way to achieving this takes into account the rapid decline in student enrollments at elementary and high schools in Taipei and New Taipei City because of falling birthrates. The government could repurpose entire school campuses and build affordable housing for sale or rent, thus resolving the accommodation problem faced by many young people. This course of action would be appreciated by the young members of the “bomb generation” and stimulate the economy by boosting consumer confidence. It would help release excess reserves that are idle in the hands of financial institutions. It would also have the knock-on effect of boosting private investment.

  As Taiwan becomes mired in L-shaped stagnation, the two best ways to invigorate the economy are undoubtedly to bolstering export trade and expanding domestic demand.

  The government must come up with growth strategies for exports and domestic demand alike. Taiwan is from suffering the affects of weak global trade, as well as structural factors.

  However, if the government works toward a new, forward-thinking mindset, the nation can surely return to the world trade stage with its head held high.

  Kuo Kuo-hsing is a visiting scholar at the London School of Economics and a visiting associate professor at the University of Tokyo.

  Translated by Julian Clegg
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