Economics is usually thought of as the black or dismal science. The Great Depression of the 1930s was not widely predicted. Neither was the recession of the mid-1970s. In Taiwan, things were not going well in the latter months of 1973. Inflation was rampant. Export orders were falling off. Imports were soaring as government and industry bid for raw materials in an inflated market. Predictions for 1974 were on the gloomy side with - it turned out - sound enough reason.
According to the Economic Planning Council, the growth of the gross national product was 12 per cent in 1972 and slipped only slightly - to 11.9 per cent - in 1973. The 1974 figure was 0.6 per cent. Taiwan barely made any progress at all, although this had to be compared with the many other countries which showed minus growth figures.
These were some other hard-to-live-with statistics for the period:
Per capita income - Growth of 7.7 per cent in 1972, 7.8 per cent in 1973 and minus 3.0 per cent in 1974.
Agricultural production - 2.4 per cent in 1972, 4.9 per cent in 1973 and 0.8 per cent in 1974.
Industrial output - 21 per cent in 1972, 19.2 per cent in 1973 and minus 1.5 per cent in 1974.
Exports - 45 per cent in 1972, 42.8 per cent in 1973 and 25.2 per cent in 1974.
Imports - 36.3 per cent in 1972, 43.9 per cent in 1973 and 82.9 per cent in 1974.
Money supply - 34.6 per cent in 1972, 47.0 per cent in 1973 and 7.0 per cent in 1974.
Retail prices - 3.0 per cent in 1972, 8.2 per cent in 1973 and 47.5 per cent in 1974.
Wholesale prices - 4.5 per cent in 1972, 22.9 per cent in 1973 and 40.6 per cent in 1974.
In some ways, 1974 could be called the worst year since the return of the Republic of China's sovereignty to Taiwan 1945. Yet no one went hungry. Unemployment was up but to a figure of no more than 5 per cent at the highest. There was no hardship. Most of those laid off by factories were from the countryside. They went back to the farm, where they found their labor in demand. Rural areas had been suffering from a labor shortage and wages were up.
The domestic market held up well in 1974. People had saved the money to buy motorcars and motorcycles. They went on buying them. Housing had been in tight supply because of a temporary construction ban on structures higher than four stories. The price rose as new apartments came back on the market. But people continued to buy. Food, clothing and other necessities did well. Textiles which could not be sold abroad were snapped up by bargain hunters at home.
Even so, no one was especially confident about 1975. There were too many intangibles. Taiwan was too dependent on markets that appeared depressed and disinterested. Forecasts tended to be vague or were not even made. Those bold enough to prognosticate changed their estimates every time a new figure came into view.
When 1975 faded into 1976, the pessimists had been proved wrong, if not confounded, and the optimists seemed to be on the right track. The gross national product showed a modest increase of 2.81 per cent, which would sound better rounded off at 3 per cent. Admittedly, this was well behind South Korea's growth of 7.4 per cent. Korea, however, had statistics that detracted considerably from its spectacular recession period spurt, including retail price inflation of 25 per cent, a trade deficit three times the size of Taiwan's for about the same volume of trade and declining reserves of foreign exchange. Taiwan's per capita income remained substantially ahead of Korea's at US$700. This represented a decline of minus 1.4 per cent in real terms but was not bad considering that the economic decline did not prevent the population from increasing at a rate of 1.8 per cent.
Agriculture showed a healthy recovery in terms of the net domestic product, rising from 1974's 15.7 per cent of the total to 16.3 per cent. Industry fell from 38.4 to 36.3 per cent. Manufacturing alone declined from 29.9 per cent to 27 per cent of the NDP. Services gained - up from 45.9 per cent to 47.4 per cent.
Agriculture was down in terms of its general index - from 108.3 to 105.7, a decline of 2.4 per cent. Farming declined by 2.6 per cent and forestry by 10.5 per cent. Animal husbandry was off 9.4 per cent. The glowing exception to the trend was fishery with a gain of 11.4 per cent.
The production of rice - Taiwan's principal food crop - climbed 1.7 per cent from 1974's 2,452,000 metric tons to 2,494,000 m/t. Rice is sufficient to keep pace with the population and leave a surplus for stockpiling. The second biggest drop was in sweet potatoes-down from 2,788,000 metric tons to 2,397,000, a decline of 14 per cent. Sweet potatoes were formerly a staple food. In Japanese times, the bulk of Taiwan's rice went to Japan's home islands; and the people of Taiwan were left with sweet potatoes as a staple. These days roasted sweet potatoes are sold by street hawkers as a treat, as is corn on the cob. The bulk of the potato crop is used for animal feed.
Large quantities of maize are being imported for feed. Domestic production is therefore encouraged and there was a gain of 24.3 per cent from 1974 to 1975. The volumes were small, however: 107,000 and 133,000 metric tons. Bananas were down drastically - from 334,000 to 197,000 metric tons - as the Japanese, the only major importer, bought more of the fruit from the Philippines and Latin America. However, the Taiwan banana is still the sweetest and is expected to begin a comeback on the Japanese market this year. Other agricultural reverses were experienced in mushrooms, down from 61,000 to 49,000 metric tons (minus 19.7 per cent); asparagus, 111,000 to 80,000 m/t (27.9 per cent); lumber, 983,000 to 840,000 cubic meters (14.5 per cent); and hogs slaughtered, 462,000 to 380,000 m/t (17.7 per cent). The fishery advance was from 698,000 to 777,000 metric tons.
Building construction was the big gainer in the industrial field - up by 19.4 per cent as the building of high-rise apartments was resumed. The index (1971=100) rose from 169.3 to 202.1. Public utilities came in second with a gain of 11.4 per cent. Mining advanced by 4.5 per cent after a slump of several years. The manufacturing gain was a modest 3.8 per cent.
The biggest industrial climb was credited to man-made fibers. Production rose from 191,000 to 289,000 metric tons (51.3 per cent). Plastic powder was second at 41.6 per cent and cotton yam third at 15.3 per cent. Power generation advanced by 11.5 per cent and cement output by 8.4 per cent. The biggest decline was for transistor radios. The manufacture of cheap and simple small radios is giving way to more sophisticated electronic products. The recession hit television sales hard, too. Canned foods were off by 24.1 per cent (from 8,922,000 standard cases to 6,772,000).
Taiwan's insular economy prospers because of foreign trade. Although the decline from 1974 to 1975 was 10.7 per cent (US$12,604, 800,000 and US$11,253,600,000), the export loss was only 5.6 per cent compared with a decline of 14.8 per cent in imports. The 1974 export volume of US$5,639 million compared with US$5,321.2 million in 1965. Imports dropped sharply from 1974's US$6,965.8 million to US$5,932.4 million.
Textiles performed admirably in a difficult year. The gain of 1.9 per cent was the best record among Asia's textile "big four" of Japan, Hongkong, South Korea and Taiwan. Exports were US$ 1594.3 million in 1974 and US$ 1,624 million in 1975. The biggest export advance was for fishery products - up 37.6 per cent from US$161 million to US$221.5 million. Plastics and products climbed 4.8 per cent from US$353 million to US$369.8 million.
Major export decliners were machinery (including electrical apparatus), down from US$1,519.5 million to US$1,209.8 million (20.4 per cent); plywood and products, US$375.3 million to US$329.1 million (12.3 per cent); sugar, US$301.6 million to US$270.5 million (10.3 per cent); and canned foods, US$151.3 million to U$$140.2 million (7.3 per cent).
Among imports, the only gains were recorded for food and feed grains: wheat, soybeans and maize. The combined advance was 5 per cent - from US$535.7 million to US$562.4 million. Declines were paced by basic metals, US$776 million to US$509.7 million (34.3 per cent) and electrical machinery apparatus and parts, US$772.6 million to US$534.6 million (30.8 per cent).
Timber was down 35 per cent from - US$225.2 million to US$146.3 million. Other import reductions: cotton and synthetic fibers, US$251.4 million to US$221 million (12.1 per cent); machinery and tools, US$1,196.7 million to US$1,055.9 million (11.8 per cent); crude petroleum, US$699.7 million to US$619.7 million (11.4 per cent); chemicals, US$657.6 million to US$6 I 0.8 million (7.1 per cent); and transportation equipment, US$466.2 million to US$442.5 million (5.1 per cent)
Continued growth of the domestic economy was shown in the gains for transportation and communications. Only letter mail - hit by a doubling of the basic rate - was down (3.9 per cent from 837,000,000 to 804,000,000 pieces). Domestic telephone calls were up 17.5 per cent, freight traffic by 14.5 per cent, outgoing international phone calls by 10.1 per cent, passenger traffic by 5.1 per cent, harbor loadings and unloadings by 2.2 per cent and parcel post by 1.2 per cent.
The record of combating inflation was one of the best in the world. The wholesale price index was cut from the 180.4 of 1974 to 171.3 (1971=100), down 5.1 per cent. Consumer prices were held to a gain of 5.2 per cent with a 1974 index of 164.3 and a 1975 figure of 172.9.
Government economists are taking a cautiously optimistic view of 1976. The official forecast is for economic growth of 6.4 per cent in real terms, although the outlook for the full period of the new Six-Year Economic Development Plan (1966-81) is 7 ½ per cent annually. The Ministry of Economic Affairs said industrial growth of 8.1 per cent can be expected this year with this breakdown: mining, 1 per cent; manufacturing, 8.3 per cent; heavy industry, 8.4 per cent; light industries, 8.3 per cent; construction, 7.7 per cent; and public utilities, 8.2 per cent. The construction estimate is probably low. New buildings are sprouting up again in every Taiwan city. Many of these will be completed in 1976; others will be started.
Economics Minister Y.S. Sun at preview of products earning a special mark (inset) for the maintenance of outstanding, consistent quality. (File photo)
The 6.4 per cent figure for the year is based on expectation that trade will increase by a little over 11 per cent, that domestic consumption will rise by from 4 to 5 per cent, that investment will increase by 7 to 8 per cent and that per capita income will rise 7 per cent to US$750. Premier Chiang Ching-kuo and other ranking government officials have taken the view that growth must be accompanied by stability. They have no wish to return to the 10 to 12 per growth rates of recent years - at least not while the danger of renewed inflation hangs over the economy. Another obstacle to a big economic spurt is the investment required for the Ten Basic Construction Projects. This essential enlargement of the infrastructure is going to cost US$6.5 million - possibly more - over a five-year period. There is also concern about the economy's heavy dependence on foreign trade. The combined total of exports and imports is equivalent to nearly 89 per cent of the gross national product, one of the highest figures in the world. By contrast, the domestic market is relatively undeveloped.
Some economists of business, industrial and academic circles expect Taiwan to do considerably better than 6.4 per cent this year - provided the developed countries continue to recover from the recession at the pace achieved in late 1975 and early 1976. One forecasts calls for a trade increase of nearly 21 per cent to US$13.3 million. Y.T. Wong, director general of the Board of Foreign Trade, looked at the January performance and said a figure of at least US$13.2 million should be possible. The first month of 1976 produced a Customs total ofUS$986.8 million with a favorable balance of US$59.4 million. Foreign exchange settlements for January trade showed a surplus of US$163.3 million. The US$13.3 million estimate for the year includes an export gain of 25 per cent to volume of US$6,625 million and a 15 per cent advance in imports to US$6,670 million. Judging from the January experience, the favorable balance could be larger than expected. When the trade study was made, there was hope that the United States would buy 34 per cent of Taiwan's export production. In January, the United States took 35.8 per cent of exports (US$187.2 million), while imports from the U.S. stood at US$107 million.
Industrialists and businessmen tend to be bullish about the economic prospect. The China Investment and Trust Company surveyed 248 companies and found that three-quarters expected to increase production and one-fourth expected to maintain output at the level of the second half of 1975. Sixty-seven per cent said they would increase the use of their productive equipment, 32 per cent thought that the current rate of use would be sufficient and only 1 per cent expected to effect a reduction.
Cement manufacturers expect to continue increasing their output to satisfy the demands of the Ten Basic Projects and private construction. Less than a third of the industry plans to maintain the status quo. When plants now in the building stage begin producing, Taiwan will have a cement capacity of 9 million tons, up by 32 per cent, with nearly 2 million tons available for export.
Glass makers expect increased export sales and half are looking toward bigger domestic sales. Production at the Chutong plant of the Hsinchu Glass Works was resumed in December after a shutdown of several months. Other plants were operating at 60 per cent of capacity last year and expect to raise the tempo in the first half of this year. Taiwan Glass will begin making tinted glass in 1976. Taiwan glass prices are competitive and three-fifths of output has been going into export channels.
Of tire makers, 75 per cent are prepared to increase output in the first half of 1976. Expectations for a rising domestic market exceed those who hope for expanded exports. With Taiwan headed toward the 2 million mark in vehicles, the tire industry seems to have no place to go but up.
The plastics industry is especially confident of rapid progress. More than 90 per cent of the companies surveyed said they planned to increase production for both the domestic market and export. A sufficient supply of ethylene from the China Petroleum Corporation's naphtha crackers will reduce imports of raw materials and keep Taiwan plastic competitive. CPC's third cracker is under construction to serve the needs of a petrochemical complex that eventually may be come Taiwan's biggest industry.
For synthetic fibers, the outlook is mixed. Fifty-eight per cent of producers said they anticipated expanded output, 35 per cent expected to maintain the status quo and 12 per cent predicted cutbacks. Only 23 per cent hoped for larger domestic sales, while 40 per cent thought that exports should do better.
Electrical machinery apparatus makers constitute Taiwan's biggest industry after textiles. Most exports go to the United States, and a business pick-up began in the second half of 1975 as inventories were used up and Americans started buying durable goods again. The survey showed 77 per cent of the industry optimistic and 23 per cent expecting to mark time in the first half of this year. Sales of transistor radios fell sharply in the second half of 1975 and probably will not recover unless markets other than the United States can be found. Americans are moving up from cheap transistors to radio recorders. Competition from other developing countries is also keen. Admiral announced plans to make small color television sets in Taiwan, which has been the biggest U.S. supplier of portable black and white sets in recent years. Electronic watches and calculators are promising products.
Electrical appliances are not exported on a large scale, largely because of pricing problems. The domestic market is fairly well saturated with smaller appliances and makers cut prices last year. Only 55 per cent of producers thought they would raise output in the first half of 1976.
Electric wire and cable makers looked to the Middle East, Africa and Latin America for increased business. The Ten Basic Projects will provide a sizable domestic market but loan agreements often provide for purchases from the countries putting up the money. Only 33 per cent of manufacturers are looking forward to an immediate increase in production.
Paper inventories are large and plants have been operating at 70 per cent of capacity. The export prospect seems brighter than that for bigger domestic sales. Forty-seven per cent of producers are looking for increased output, 33 per cent for a decrease and 20 per cent for no change.
Plywood is 80 per cent geared to export and the industry was hard hit by the construction recession in the United States and strong competition from South Korea. Only 70 per cent of capacity was employed in the second half of 1975. The 1976 outlook is much brighter. U.S. building is gaining momentum. Of the plants surveyed, 79 per cent hoped for an export upturn and 58 per cent for larger domestic sales.
Yen Ching-ling, chairman of the organizing committee, presides at a showing of industrial products. (File photo)
Iron and steel processors operated at only 50 per cent of capacity last year and the prospect for 1976 is about the same. The Taiwan industry produces only unsophisticated products and production costs are high. When you are down, there is no place to go but up, however, and 79 per cent of the industry expects to increase output in 1976. The steel picture will change when the China Steel Corporation begins production at its integrated Kaohsiung plant in 1978. Taiwan then will have plate and other advanced products for its own use and subsequently for export. Meeting the competition of Japan and other developed countries may not be easy, however.
The textile industry has a new problem - that of barriers erected by the European Economic Community. Sales in 1975 were larger than the quotas imposed in 1975. These will be subtracted from the allowable sales this year. The revised textile agreement with the United States has enlarged that market and hopes are high for developing the Middle Eastern market.
Light industry - the making of a thousand and one small products for daily use - receives little attention from the economists. Yet thousands of such small plants are thriving in Taiwan. They make everything from dolls to fishing baskets, from skateboards to padlocks. In the beginning they depended largely on cheap labor. This is changing as they acquire experience and step up the level of productivity and the quality. They have also learned the whereabouts of markets and the channels of selling. For last year, manufactured products made up nearly 80 per cent of exports. Textiles had the lion's share of 30.5 per cent and electrical machinery was second at 13.6 per cent. But not to be ignored were wood products at 6.2 per cent and machinery and metal products at 6.9 per cent.
The Industrial Development Bureau reported that 11 of 22 leading industrial products showed production increases in 1975. These were the gainers:
- Rayon staple, 46,489 metric tons, up 3.9 per cent.
- Polyester fiber, 141,920 metric tons, up 92.9 per cent.
- Polypeptide fiber, 62,948 metric tons, up 45.4 per cent.
- Polyacrylonitrile fiber, 35,052 metric tons, up 35.1 per cent.
- PVC powder, 194,000 tons, up 41.6 per cent.
- Iron bars and steel shapes, 1,051,000 tons, up2.1 percent.
- Power tillers, 5,773, up 36.5 per cent.
- Washing machines, 192,000, up 0.5 per cent.
- Automobiles, 30,836, up 6.6 per cent.
- Motorcycles, 327,383, up 6 per cent. Ships, 364,000 gross tons, up 2.2 per cent.
These were products showing a decline in out put for 1975:
- Rayon filament, 2,678 tons, down 13.7 per cent.
- Paper and paperboard, 747,000 tons, down 0.4 per cent.
- Aluminum ingots, 27,778 tons, down 11.3 per cent.
- Sewing machines, 1,050,000, down 14.5 per cent.
- General machinery, 264,000 tons, down 16.5 per cent.
- Air conditioners, 42,333, down 7.9 per cent.
- Transistor radios, 6,689,000, down 48.3 per cent.
- Black and white TV sets, 2,694,000, down 25.5 per cent.
- Color TV sets, 345,000, down 17.5 per cent.
- Electronic parts and components with value of NT$6,711 million, down 13.6 per cent.
- Bicycles, 994,000, down 8.3 per cent.
Tourism is the industry without chimneys and with minimal investment requirements. Despite higher travel costs, Taiwan attracted 853,140 visitors last year for an increase of 4.1 per cent over 1974. Revenues were nearly US$360 million, which made the industry one of the nation's top foreign exchange earners. Foreigners numbered 715,630 and overseas Chinese 137,510. The count of Japanese was 419,259 - nearly 50 per cent of the total. Americans were in second place among the foreigners at 123,550, a gain of 5.4 per cent.
Then came visitors from Singapore, 26,594, up 54.7 per cent; Malaysians, 26,301, up 28.9 per cent; British, 14,563, up 32.1 per cent; Indonesians, 13,734, up 35 per cent; Australians. 12,908, up 22.1 per cent; Thais, 12,623, up 1.5 per cent; Germans, 11,478, up 14.3 per cent; and South Koreans, 6,910, up 1.9 per cent. More travelers also came from France, the Netherlands, India, Switzerland and South Africa. Of those countries supplying the largest number of tourists, only the United States and South Korea have diplomatic relations with the Republic of China. Nationals of all non-Communist countries are welcomed in line with the policy that those who are not enemies are friends of free China regardless of governmental relationships or lack of them.
The Tourism Bureau said that the average tourist stayed 6.3 days and spent US$421.21. The daily expenditure was down by over US$ 10 from 1974 but the period of stay increased by two days. At least 900,000 visitors are expected this year.
More than US$1,400 million has been invested in Taiwan by foreigners and overseas Chinese over the years. However, the volume has been decreasing since the record of US$249 million in 1973 - largely as the result of recession. Investments totaled US$189 million in 1974 and US$118 million in 1975. To reverse the downward trend, the government announced it would take steps to encourage the inflow of capital for technology-intensive and capital-intensive industries.
Procedures governing investments by overseas Chinese from Southeast Asia have already been relaxed. Investment seminars have been held in Thailand, Singapore, Indonesia and Japan. Business leaders have been invited to visit Taiwan and study the investment climate. Special incentives are in the planning stage for entrepreneurs prepared to invest in industries the government wishes to encourage. Further revision of the investment law is under study.
The foreign investment volume was nearly US$71 million in 1975, of which US$41,165,000 came from the United States and US$2,348,000 from Japan. Overseas Chinese provided US$47,235,000 million, of which US$29,532,000 came from Hongkong. The chemical industry was the 1975 favorite with US$30,568,000, or 25.78 per cent. Construction was second at US$27,250,000 (23.06 per cent) and electrical machinery apparatus third at US$24,701,000 (20.9 per cent).
A meeting of government and business leaders in mid-February heard some counsels of caution. Yu Kuo-hua, governor of the Central Bank, said not to expect a quick return to boom times. "It's true that we have pretty good economic prospects this year," he said, "but don't let yourself be mesmerized by the illusion that everything will be all right." He pledged continued financial assistance to export industries so as to maintain growth with stability.
Prof. Sun Chen, vice chairman of the Economic Planning Council, warned against any expectation of a return to trade growth figures comparable with those of the early 1970s. "This is the time for us to look inward and readjust our own economic structure to cope with external changes," he said. Noting that labor is in short supply and wages rising, he urged increased emphasis on industries requiring large amounts of capital and advanced technology.
Taiwan probably has the "biggest little economy" in the world. Although trade was down last year, it may have surpassed that of the Chinese mainland again (as in 1972 and 1973) despite the inequity in size and population (14,000 square miles versus 3.7 million and 16 million people versus 900 million). The Republic of China had 1975 two-way trade of nearly US$3,500 million with the United States alone, compared with about US$460 million for the Chinese Communists and the United States. The fact of this trade relationship and of the US$500 million private American investment in Taiwan had to be weighed by the State Department as it considered further "relaxation of tensions" between Washington and Peiping.
The free Chinese economy is prosperous because it is free. This does not imply laisser faire. Some of Taiwan's industries and services are government monopolies: sugar, for example; liquor and tobacco; aluminum; power; railroads; and so on. Most fertilizer production is from government owned plants. The political and economic philosophy of the Republic of China comes from the Three Principles of the People of Dr. Sun Yat-sen. The political system is democratic with as much freedom as people and society can support. The economy is a mixed one which gives first priority to the People's Livelihood, which also may be defined as social welfare.
Taiwan's economy was one of the first to emerge from the trough of the recession. The credit for that belongs to people, government, industry, business, foreign friends and a society in which economic decisions can be made freely so long as they are in the best interests of the people.