Ghostly aura shrouds Taiwanese
economy By Jens Kastner
Taiwan, normally regarded as one of the
proud Asian Tiger states, has not produced rosy
macroeconomic data in a long time. Gross domestic
product (GDP) forecasts for this year are
relentlessly being revised downward, and a
convincing game plan to counter negative global
factors is conspicuous by its absence in Taipei's
bag of tricks.
Bad news concerning the
economy in Taiwan is usually blamed at this time
of year on the "Ghost Month". In the period, this
year from August 17 to September 15, ancestors'
spirits are considered to come out from the lower
realm. It is also a time when Taiwanese consumers
refrain from such inauspicious activities as
buying cars, moving houses or swimming, so that
macroeconomic graphs
annually take a much noticeable nosedive.
But the island's think tanks and the
government find it difficult these days to pin the
blame on the erratic souls of the deceased.
Between January and last month, Taiwan's exports
contracted 5.8%, the worst in the region.
The cabinet-level Directorate-General of
Budget, Accounting and Statistics (DGBAS) has just
scaled down its forecast for GDP growth this year
to 1.66% from the 2.08% it estimated in July, the
eighth time the estimate has been slashed.
In July, unemployment rose to 4.31%, the
highest since last August, while youth
unemployment rate, at 12.96%, was three times the
national average - much higher than what's
accounted for in most similarly developed
countries. Real wages fell 1.68% in July
year-on-year and Taipei firms' mass layoffs have
been reaching their highest in four years.
Killing all remaining hopes that things
might get a little better during the next one to
three months, export orders fell 4.4% in July
year-on-year and 1.2% on a monthly basis, marking
the fifth consecutive month of decline.
The comparison with Taiwan's main export
rival South Korea, which is also hit hard by
slowing demand mainly from China and Europe, adds
insult to injury:
The Bank of Korea, in
its latest forecast (made in mid-July), estimated
the nation's economy will expand 3% this year. The
unemployment rate there fell in July to 3.1% from
3.2% in June. And while Taiwan's exports to China
and Hong Kong from January to July posted negative
growth of 9.1% year-on-year, shipments of Korean
goods to China declined by a comparatively modest
2.1% in the same period.
"That Taiwan's
general economic data is far from being ideal is
due to the global slowdown as well as Taiwanese
manufacturers' excessive clustering in China,"
said Hu Sheng-Cheng, an economist at Academia
Sinica, Taiwan's most prestigious research
institution.
The share of information and
communications technolgy products in Taiwan's GDP
and total exports "surpass 50%, but their demand
is subject to huge fluctuations", said Hu. "As 40%
of Taiwanese exports under all categories are
shipped across the Taiwan Strait, Taiwan's economy
is taking a double punch now that China growth is
slowing."
Hu pointed at what he calls the
"OEM [original equipment manufacturing] trap" as a
significant part of the problem. Since Taiwan's
manufacturers traditionally produce components for
big international companies, they must make do
with meager earnings, which in turn acts to
prevent innovation, he said.
Hu recommends
the hiring of talent and a significant increase in
investment on research and development, which in
Korea is four times higher than in Taiwan. Yet the
government of President Ma Ying-jeou seems to be
betting mainly on a further relaxation of
cross-strait restrictions and in particular
financial exchanges between Taiwan and China.
The development of a financial sector
"with cross-strait characteristics" is key,
according to Premier Sean Chen, who has an
agreement on cross-strait currency clearance on
top of his wish list.
Expansion of
cross-strait tourism is also seen by the
Kuomintang government as a way out of the island's
economic misery. Around 1 million visitors have
crossed the strait to Taiwan so far in 2012, up
66.5 percentage points from the same period last
year. They have been spending over US$230 on
average per day, helping restaurant revenues grow
3.1% year-on-year in July.
A recent
"gambling referendum" on the offshore island group
of Matsu has probably helped to pave the way for
the establishment of casinos in other parts of
Taiwan, so even more of a Chinese tourist boom is
expected in the mid-term.
While
elentlessly promoting ever-closer cross-strait
cooperation, few if any of President Ma's recent
speeches fail to pledge that he is to make Taiwan
ready for the Trans-Pacific Strategic Economic
Partnership Agreement (TPP).
The TPP is a
multilateral free-trade agreement that includes
the United States but not mainland China and South
Korea, and Taiwan's ascension is seen as crucial;
compared with many countries in East Asia, and
especially South Korea, only a tiny proportion of
Taiwanese products enjoy bilateral free trade.
But while Ma talks of an eight-year time
frame for Taiwan's TPP membership, Taipei actually
does nothing to meet that deadline, according to
Tung Chen-yuan, a professor at National Chenchi
University's Graduate Institute of Development
Studies.
"Ma said this policy goal
concerns Taiwan's very survival; but Taipei has
not officially informed existing members of the
TPP of its intention to join or to enter
negotiations, and neither has it come up with
concrete proposals," Tung said.
Instead of
waiting idly by for the TPP, Taipei should
concentrate its resources on simultaneously
negotiating and completing free-trade agreements
(FTAs) with mainland China and the United States,
the island's number 1 and number 3 trade partner
respectively, Tung said. To facilitate such talks,
Taiwan needs to reform its economic structure and
open the economy to world competition.
"Particularly, Taiwan needs to liberalize
its service industry," Tung said. "Protectionism
and government's mindset are major hindrances
here, however."
According to him, Taiwan
must bring into being a domestic consensus between
the ruling party and opposition parties as well as
enterprises and workers in order to carry out
profound reform and opening programs.
But
given the leadership style of President Ma, who is
often criticized by politicians from across the
spectrum that he listens to far too few advisors,
the chances for such an overarching cooperation
remain bleak, Tung acknowledged.
Also the
core prerequisites for FTAs with China and US are
nowhere to be seen on the horizon, according to
him. And not even the end of Ghost Month is going
to to make up for that.
"The Ma
administration has no clear strategy, roadmap and
determination to negotiate FTAs with China or the
USA," Tung said.
Jens Kastner is
a Taipei-based journalist.
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