Things are tough all over, and on top of that the Republic of China has more problems than most moderately successful countries. One difficulty is unique. Diplomatic relations are maintained with only 23 countries of the world and few of these are important in the trade picture. Only one embassy—that in Seoul—is open in Asia and except for the Vatican, none in Europe. Representation in the United States, Canada and Australia is not at the formal level. This handicap is slowly being overcome in diverse ways: trade and cultural offices established on a mutual basis, foreign banks operating in Taipei (there are now 23) and increased visitation. Still, this is not quite the same as having economic attaches at an embassy. Decisions are slower and harder to come by. Then, too, much of the new structure of representation is new, inexperienced and not yet complete. Consider the plight of a Taiwan businessman wishing to visit West Germany, Italy, France and Great Britain. He must obtain a visa for each and that may take several months. By the time he gets there, orders have been placed with the suppliers of other countries. If there is any trouble about a contract, he has no consul to represent him on the spot. He is up against EEC as well as the quotas and other protectionist devices of each country.
The island province of Taiwan has few raw materials and, most serious of all, no petroleum deposits of any consequences — or at least none yet discovered. For the first four months of 1981, imports of crude oil cost nearly US$1,500 million, up 12.4 percent over the same period in 1980 and 20 percent of the total import figure. In April alone, the increase over that month a year ago was 15.3 percent. Japan also is lacking in energy resources but has a much bigger economy to support the expense of oil imports. Construction of nuclear power plants, greater reliance on hydroelectric resources and increased dependence on coal as a fuel eventually will cut the Republic of China's oil bill as a percentage of the gross national product. But this will not help much this year or even in the first half of the 1980s. The price of oil is going to be an albatross around the neck of the ROC economy for some years to come.
The economic take-off of the Republic of China was built on light industries intended to supply import substitutes. Textiles soared to the top of the export list and still occupies first place. Then came electrical machinery apparatus, ranging from television sets to small calculators. These and other light consumer industries have depended heavily on skilled workers employed at a reasonable wage. Today the economy is running out of such workers and the wage is no longer low. Last year's increase in wages amounted to 8.8 percent compared with 7.5 percent for productivity. This disappearance of the low-cost labor pool comes just at the time the economy is transitioning from the labor-intensive phase to an order that will place greater emphasis on technology and capital. Automation is coming, too. That is one of the reasons for increased machinery purchases by Taiwan industry. These changes are not instantaneous, however, and the economy meanwhile requires a labor supply that it doesn't have at a wage cost which no longer exists. Workers and unions cannot be faulted, either, because the wages are rising as a consequence of the competition for help. On the Chinese mainland, the regime would tell the workers they could not change jobs. In the Republic of China, any worker is free to accept the highest bid for his services.
The Republic of China has had a bit of bad luck in developing its petrochemical industry just as the basic raw material became a kind of black gold. The intermediates produced at home are naturally more expensive than those offered for sale by countries which have their own oil. If downstream processors are forced to buy domestic intermediates, they cannot compete successfully in the international marketplace. If they import their raw materials, the nucleus of the petrochemical industry will collapse. The government is wrestling with the problem and trying to make its petrochemical basics competitive, but that presumably can be achieved only through costly subsidization. Thus far there is no thought of giving up petrochemicals as one of the Republic of China's major industries of tomorrow. The future depends on sophisticated production and not the simple import substitutes that started to change the concept of Taiwan as a place to grow sugar, rice and fruit.
Unlike Japan, Taiwan does not have a huge domestic market to consume a large part of its production. For last year, foreign trade equated to nearly 100 percent of the gross national product. This is no doubt the highest figure in the world. Japan has sometimes said it exports to live. In the case of the Republic of China, that is no exaggeration. Trade is holding up fairly well and a deficit of US$600 million in the rust four months of 1981 is not considered especially alarming. In a sense, businessmen and the government are spoiled. They have had a sizable favorable balance of trade for so long that anything else seems unnatural. For April, exports grew by 21.7 percent.
Imports were up by 20.6 percent. The single month was a big improvement over the rust four months, which showed export growth of only 11.8 percent compared with 20.5 percent for imports.
Despite its current difficulties, the Republic of China has been trying to reduce its favorable balance of trade with the United States — probably the only country in the world to embark upon such a program of economic unselfishness. The effects are already visible. In the first four months of 1981, exports to the United States rose by only 7.5 percent while imports were soaring by 24.6 percent. The favorable ROC balance for the period was US$490 million compared with US$677.5 million in the first four months of last year. The Japanese were not reciprocating the ROC's dedication to balanced trade. In the rust four months of 1981, the ROC deficit with the Japanese was US$1,230.6 million compared with US$966.6 million in the equivalent period of 1980.
Just home from the United States is the Republic of China's sixth special purchasing mission. In two months, the team visited 24 cities and placed orders for US$1.1 billion worth of American goods. This is not a stunt or mere exercise in goodwill. The intention is one of trade fairness. If the Republic of China is to sell to the United States, it must also buy from the United States. This is the essence of free trade. Most of the US$6 billion worth of goods procured by the six purchasing missions could have been obtained elsewhere. For example, the ROC is renewing contracts to buy US$4 billion worth of U.S. soybeans, wheat, maize and barley over the next five years. All or much of this could have been acquired from Australia, Canada, Argentina or other countries.
Convened in Taipei in mid-May was the Second ROC-US Trade and Investment Forum attended by more than 700 Chinese and American government officials and business leaders. The 227 U.S. participants included representatives from all 50 states, many of them governors, lieutenant governors or legislators. In a message, President Chiang Ching-kuo said: "The Republic of China and the United States have many things in common. Both of us believe in market economy and the welfare of the people. Both of us believe in the democratic system of government and the dignity of man. Both of us work diligently and constantly in defending and developing our free societies. It is only natural that our two countries have been closely related for so many years. It is only natural that the economic relations between our two countries have been steadily growing and expanding. We will go on promoting these mutually beneficial economic bonds as we have done so earnestly in the past by not only selling more to but also by purchasing more from the United States. As the biggest economic power in the world and our leading foreign trade partner, the United States has much to offer the Republic of China. We shall not only try to satisfy our present needs but also to meet the demands of our future development."
Premier Sun Yun-suan told the Forum that the ROC's favorable balance in U.S. trade was reduced 38 percent in 1980 as compared with 1979. He called attention to the high visibility of ROC products in the United States. Consequently, he said, protectionist sentiments are easily aroused. U.S. products in Taiwan are less visible but exist in volume and play an important part in the economy. The Premier mentioned nuclear reactors, turbine generators and coal imported as a substitute for Middle Eastern oil. "I sincerely hope that our two-way trade will continue to increase in a balanced way, with the smallest possible hindrance from artificial restraints," he said.
U.S. investment in the Republic of China exceeded US$110 million last year, the Premier pointed out, a gain of 37 percent over 1979. As the ROC seeks more high-technology industries, he continued, the United States should continue to be a major supplier. At the new Hsinchu Science based Industrial Park, 7 of 20 approved projects are wholly or partly American owned. The Republic of China is boosting its own overseas investments, including several in the United States. In 1980, the capital outflow for investment was US$42 million, of which US$35 million went to American projects. Expressing hope for continued access to U.S. Export-Import Bank financing, the Premier said: "We have long had strong trading ties with large export-oriented U.S. firms and would like to broaden that base as we learn more about those smaller firms which are also able to offer high quality products, materials and services."
ROC-U.S. trade was US$11.4 billion last year and is expected to reach US$14 billion this year. The estimate for the decade of the 80s is US$200 billion. Taiwan demand is increasing for such U.S. products as coal, nuclear fuel, maize, wheat, barley, soybeans, petrochemicals, power generating equipment, pharmaceuticals, agricultural chemicals, sophisticated machinery and advanced technology. Barriers against U.S. products, including motor cars, have been steadily reduced. The only sizable cloud on the horizon is U.S. protectionism addressed to such products as textiles and shoes.
David Kennedy, chairman of the USA-ROC Economic Council, brought from President Ronald Reagan a note expressing his personal interest in the Forum and indicating the importance attached by the U.S. government to the development and enlargement of trade with the Republic of China. Kennedy said the ROC is moving to the center stage of international commerce in the Far East. He noted the government's development of ports, containerization and accommodations for trans shipments.
William N. Morell Jr., president of the USA-ROC Economic Council, spoke of cooperation with the American Institute in Taiwan, the Congress and the U.S. executive branch in serving the social, political and security interests of the Republic of China as well as its economic needs. "The social progress that has been made in Taiwan," he said, "has unfortunately been masked by the country's enormous economic progress, and we feel it's important that the Congress and American business understand the great social changes that are taking place here that are adding substantially to the long-term stability of the country." The Council, he continued, feels that the "whole question of long-term military sales to Taiwan will have an important bearing on the business climate." He expressed the hope of the Council for a favorable policy decision from the Reagan administration.
Mr. Morell expressed approval of the government's economic policy of focusing on economic stability even at the cost of a temporary setback for the growth rate. "Over the next five years and over this decade," he said, "I am confident that the rate of (ROC) economic growth will continue to be among the best in the world, despite the need to take measures to ensure stability. I also believe that most experts look for a rate of growth over the next 10 years of somewhere around 8 percent. We still feel that for the decade of the 1980s, U.S. trade with Taiwan should exceed US$250 billion.
"I also expect that there will be important institutional and structural changes on Taiwan over this 10-year period. We're already seeing early signs that Taiwan will become more and more a center of international financial activity in Asia. There are now well over 20 foreign branch banks in Taiwan, a growing number of representative offices and an increasingly large volume of international trade to be financed through these banks. Moreover, Taiwan is moving its certificates of deposit and notes into European markets; and more and more the Europeans are receptive to these moves by the ROC banking community. The U.S., of course, has been receptive for some time.
"We can also expect Taiwan over the next decade to become a major international transshipment center in Asia for air cargo and shipping. Kaohsiung, which is already the sixth largest container port in the world, will certainly improve this rating over the next 10 years and we can look for a major expansion in free port areas on Taiwan.
"In industry, we will not only see exceptionally rapid growth, as exemplified by a tripling in the capacity for steel making, a tripling in the capacity for power output (which includes a much faster rate of growth, incidentally, for nuclear power), and an increase (in constant prices) of four times or more in machinery output. And, of course, this will be more than just a quantitative upsurge in industrial production; we will also be seeing an impressive modernization of Taiwan's industries, and major infusions — as well as domestic development of new technology. Taiwan, at the end of the 1980s, will hardly be recognizable as the Taiwan of 1979.
"As industry grows in size and complexity, and as the economy becomes more technologically advanced, we can expect a growing variety of investment from the U.S. and also, increasingly, new investors coming in from Europe. Electronics will continue to be a dominant area for U.S. investment. But this investment will have much greater variety in the future, as our electronics communications and information industries and those here on Taiwan become more innovative and move into new areas.
"If we look at the investment from the U.S. during 1980, we see evidence of a growing variety in U.S. ventures covering such production lines as epoxy resins, integrated circuits, equipment for nuclear power, pharmaceuticals, containers for beverages, tires and parts for the expanding automotive industry, electronic switching, equipment for cable and over-the-air pay TV, etc. U.S. approved investment on Taiwan is now approaching US$800 million total, and it will not be long before it crosses the US$1 billion mark.
"We should also not disregard the rapidly rising financial involvement of U.S. and other foreign banks on Taiwan. In a recent report to the U.S. Congress, a summary of foreign loans showed a total of over US$1.2 billion (in loans to the ROC), including over US$300 billion from private banks and over US$400 million in Eximbank loans." Concluding, Mr. Morell said, "Having watched the management of this economy for some 13 years, I'm betting on its continued future success."
President Chiang Ching-kuo is one of 200,000 interested visitors at the week-long first exhibition of European products ever held in the Republic of China. (File photo)
The First European Products Exhibition brought 293 suppliers from 13 countries to Taiwan, many of them for the first time. Most agreed that they were impressed with the size of the potential market. About US$1.5 million worth of business was done during the course of a week and more than another US$13.5 million worth was under consideration. More than 200,000 persons attended the week-long show. Trade with Europe grew twelvefold in the 1970s. With the ROC enjoying a comfortable favorable balance, European countries have become increasingly interested in the Taiwan market. Most of the European banks represented in the Republic of China have opened their offices in the last couple of years.
Premier Sun told European representatives that the Republic of China will not propose any drastic economic measures immediately as a result of the softer trade picture this year. Although some industrial and business interests have advocated deflating the New Taiwan dollar, the government has so far taken the view that this could be counterproductive. The export advantage would soon be lost but the damage to import price levels would go on and on. The ROC had inflation of about 20 percent in 1980 and is conscious of the damage that continued price increases of this level could do. The rate should be down considerably in the first half of 1981.
To make exports more competitive, the Board of Foreign Trade headed by H.K. Shao recommended a program including these points: Raising the quality of products. Exploring new markets for both farm and industrial products. Increasing trade representation abroad. Advocating more free trade to combat the trend toward protectionism. Further diversification of markets. Seeking new products from agriculture and industry. Collection of more detailed market information. Exploration of Eastern European sales possibilities. Modification of restrictions to encourage private companies to become more active abroad. Collection of information on Chinese Communist competition and adoption of countermeasures.
The Chinese Communists were increasing their purchases of ROC goods through Hongkong, Macao and Tokyo. Although the government prohibits trade with the mainland, it has no control over goods sold to businessmen outside the country and then transshipped, The new purchases were concentrated in textiles and differed from the electronics apparatus (principally television sets) bought earlier in an effort to use ROC goods for propaganda purposes. Seemingly the textiles were acquired because they were needed, because the price was right and because the quality was high, This may be a reflection of the inability of the Chinese Communists to make everyday necessities for the mainland people. Sources in Hongkong speculated that the Communists might be trying to increase ROC dependence on the mainland market with an eye to exercising political influence by turning the spigot off and on. The Hongkong and Japanese estimates of volume were in the neighborhood of 1 percent of the Republic of China's exports for 1980, not large but a sharp increase over the 1979 level,
Whatever the Communists were up to, their own trade was a pale imitation of the ROC's considering their 1 billion people and 3.7 million square miles of area, With fewer than 18 million people and a land area of less than 14,000 square miles, the Republic of China on Taiwan has a larger volume of foreign commerce than the mainland, On the mainland, modernization ground to a halt before it was off to even a modest beginning. To feed the people, the Communists have been compelled to return to emphasis on agriculture and on industry to serve the agricultural sector. In the Republic of China, modernization has progressed through basic industrialization to the point where sophisticated and heavy industry are taking over from light industry, The financing is no problem. Banks throughout the free world agree that the ROC is one of the best credit risks in the world. Although the government and private enterprise must borrow in order to buy sophisticated machinery and advanced technologies, the lid has steadfastly been imposed on indebtedness,
Some of the old fashioned virtues of free enterprise are included in the ROC economic philosophy and outlook. Debt is frowned on. This is why many of the family-owned companies have taken so long to expand and take advantage of export markets. They have been content to stay small and solvent. At the same time, they have on occasion failed to modernize management and eventually found themselves in a difficult competitive position, Although Taiwan did not have a consumer movement until very recently, some of the leading companies of the island have been producing high quality products and standing behind them for decades. The buyer has trusted the brand name without regard to product dating and expressions of contents or even guarantees, The Taipei stock market has been limited in size by the failure of many companies to go public.
Still, with the guideline of Dr. Sun Yat-sen's Three Principles of the People, the Republic of China has modernized the province of Taiwan with amazing speed, Twenty years ago the ROC economy was hard put to produce anything that moved. Simple brooms, dustpans and wooden clogs were the industrial norm. When electric fans came, people marveled. When bicycles gave way to scooters and motorcycles, millions of people climbed aboard, Today's biggest social problem is what to do with all cars to which motorcycle riders are graduating.
The Republic of China is a country on the move. If the speed of advance has slowed down a little to conform with the world's traffic pattern, there is no great alarm. People are still working hard, Industrialists are finding ways to paddle along and ride out the calm. Having opted for development and progress, the Republic of China has no lack of confidence that these are enduring values. One look at life on a Chinese mainland which is unable to modernize is enough to convince even an economic pessimist that he is better off in the ROC and that difficulties of the present will be transcended and the "learning from Taiwan" show put back on the road to reach still greater heights.