Six leading Chinese economists have made several recommendations on financial and economic policies of the Republic of China.
The economists urged:
- Control of rising prices on an overall basis and not item by item.
- Control of the money supply to combat inflation. They suggested the rate of increase be in the 15-20 per cent bracket annually.
- Floating of the foreign exchange rate and interest rates.
- Establishment of a money market. Treasury bills and commercial paper would be traded. Interest rates would be allowed to find their own level.
- Strengthening of land tax and land value increment tax collections.
- Raising of income tax exemptions threefold to benefit people with low incomes.
The six are Dr. T.C. Liu and S.C. Tsiang, both of Cornell University at Ithaca, N.Y.; Prof. M.H. Hsing, director of the Institute of Economics, Academia Sinica; Dr. Y.C. Koo, professor of the Department of Economics, Michigan State University, East Lansing, Mich.; Dr. Gregory C. Chow of the Econometric Research Program, Princeton University, Princeton, N.J.; and Dr. John C.H. Fei of the Economic Growth Center, Yale University, New Haven, Conn.
All are members of the prestigious Academia Sinica.
Per capita reaches level of US$672
Per capita income reached a level of US$672 in the first half of this year.
The Economic Planning Council said income was NT$12,776 (US$336.2) per head in the January-June period, an increase of 48.3 per cent.
The real gain was only 1.1 per cent because of inflation during the second half of 1973 and early 1974.
These figures also were given:
- National income in the six-month period rose to NT$200,900 million, up by 51 per cent over the 1973 period (2.9 per cent real growth).
- The gross national product increased to NT$258,800 million, up by 51.6 per cent (6.5 per cent in real growth).
- Prices at the end of June were 17.6 per cent above those of a year before.
- Agricultural output registered an increase of 2.7 per cent, mining 2.8 per cent and manufacturing 9 per cent.
- Exports rose by 55.5 per cent (14.3 per cent in real growth) while imports increased by 99.8 per cent (36.3 per cent in real growth).
Industrial growth down to 8.3 per cent
Industry grew 8.3 per cent during the first half of this year, William Wei, director of the Industrial Development Bureau of the Ministry of Economic Affairs, said.
He attributed the drop from 24.1 per cent in the first six months of 1972 to the slowdown in exports.
US$2,710.3 million worth of industrial products was exported during the January-June period of this year, representing 94.8 per cent of the total.
Wei said the growth rate will increase during the second half of this year as exports improve. A 10 per cent increase is expected for the year.
This was the breakdown for industrial growth in the first half of 1974:
- Manufacturing: 9.4 per cent (compared with 25.8 per cent for the same period in 1973).
- Public utilities: 5.8 per cent (13 per cent in the same period of last year).
- Mining: 2.7 per cent.
- Construction: minus 5.4 per cent due to the high rise ban imposed by the government. The industry had a growth rate of 22.1 per cent for the January-June period of last year.
GNP will show 8.5 per cent growth
The gross national product for 1974 will reach NT$444.2 billion with real economic growth of 8.5 per cent, according to the Economic Planning Council.
The Council said that because of rising commodity prices, spending on private consumption will reach NT$233.1 billion, 52.5 per cent of the total.
Government expenditures will be 16.4 per cent of the GNP, up from last year's 15.9 per cent as a result of social welfare programs and increased pay for government employees.
Government spending will amount to NT$72.9 billion.
Investment in major economic and infrastructure construction projects and heavy and sophisticated industries will be NT$142.9 billion, constituting 32.2 per cent of the GNP compared with last year's 26.5 per cent.
NT$73.26 billion or 51.3 per cent of investment will come from private enterprises.
The Council predicted a trade deficit of US$410 million. Exports will be up 6 per cent to account for 57.6 per cent of the GNP.
Despite anti-inflationary measures taken by the government, prices are expected to rise by 14.6 per cent.
Unemployment up but only fractionally
Unemployment registered a slight increase to 1.04 per cent in the February-April period, the Taiwan Manpower Research Institute reported.
Unemployment was 1.01 per cent in January. The increase was attributed to a recession for small and medium industries.
The number of employed stood at 5,251,000 in April, accounting for 33.56 per cent of the population.
A breakdown showed 1,597,000 persons working in agriculture, 1,857,000 in industry and 1,800,000 in businesses and services.
If entrepreneurs step up development of capital-intensive industries and modernize, there will be no shortage of manpower in the next 10 years.
This was the conclusion of the Economic Research Institute of the Academia Sinica in a research report.
The Institute said that if the average annual economic growth rate is 8 per cent, the average employment growth rate will be 2.37 per cent.
Agricultural employment will rise slightly until 1976, then fall. Non-agricultural employment will rise continuously. The increase in manufacturing will be especially rapid.
Dr. Yu Chung-yao said Taiwan will have a population of 18,048,000 and a labor force of 8,320,000 in 1982. If the average economic growth rate is 8 per cent, the working population will number 5,998,000, lower than available manpower. Assuming that the unemployment rate is 2.5 per cent, there will be enough manpower.
Dr. Yu said entrepreneurs should emphasize capital-intensive industry to be sure of sufficient manpower.
Top priority given seven basic projects
The 10 major construction projects now under way will cost NT$190,500 million, of which seven projects, or NT$105,400 million, are infrastructure, Economic Affairs Minister Y. S. Sun said.
Sun said none of the seven infrastructure projects can be dropped. "We are behind schedule in our infrastructure buildup and should catch up as quickly as Possible," he said.
Sun made the remarks in response to suggestions the government should drop or delay some projects to relieve inflationary pressure.
The seven infrastructure projects and their price tags are: Taoyuan international airport, NT$9,900 million (begun in 1973 and to be completed in 1977); railroad electrification, NT$14,000 million (1974-1980); Taichung port, NT$11,700 million (1969-1979); Taiwan area freeway, NT$46,200 million (1971-1978); nuclear power plants, NT$14,300 million (1970-1977); Suao port, NT$4,300 million (1974-1981); and Suao-Hualien railroad, NT$5,000 million (1974-1978).
Other projects are: an integrated steel mill, NT$27,600 million (1973-1977); Kaohsiung shipyard, NT$7,300 million (1974-1978); and petrochemical industries, NT$50,200 million, including both upstream and downstream industries and construction of a petrochemical industry zone.
Steel mill will be producing in 1977
The Kaohsiung steel mill of the China Steel Corporation will start production in 1977.
Chen Shu-hsun, deputy engineering general manager, said the plant will have initial capacity of 1.5 million tons of steel.
Capacity will reach 2.7 million tons in 1980 and 6 million tons in 1983.
The plant will cost US$725.2 million. US$346.1 million will come from long-term loans provided by foreign banks and from domestic bank loans.
Chen said the plant will use 1.14 million tons of coke, 2,139,000 tons of iron ore and 481,000 tons of limestone annually to make pig iron, steel ingots, steel plates and steel wire and rods.
Eighth American bank plans branch
The United States Chemical Bank will open a Taipei branch in December. It will be the eighth American bank in Taiwan.
Stewart H. Cole, a vice president of the bank's international division, will be general manager, assisted by Kung Chiang, formerly a senior employee of the International Commercial Bank of China in New York and Tokyo.
The Chemical Bank, founded in New York more than 150 years ago, has assets of US$21 billion to rank sixth in the United States.
The branch will be in the Taiwan Glass Building on Nanking East Road, which also houses the U.S. Trade Center.
U.S. banks with branches in Taipei are American Express, Bank of America, Continental Bank, Chase Manhattan Bank, First National City Bank, Irving Trust Co. and United California Bank.
Another new bank will be opened in Taipei late this year with half of its capital of US$12 million to be raised by overseas Chinese throughout the world.
Overseas subscribers are from Hongkong, the Philippines, Thailand, Indonesia, Singapore, South Vietnam, Japan, the United States, Spain, Portugal, Holland, Canada, Bolivia, Brunei and Laos.
Food stockpiling will be continued
The government will continue to stockpile food supplies as a defense against inflation Economic Affairs Vice Minister Liu Shih-cheng said the wholesale price index for the first half of this year was up 31 per cent over the second half of 1973. Retail prices rose 33.2 per cent in the same period.
Prices have stabilized in recent months. The wholesale price index dropped by 6.3 per cent between March and June.
As of the end of June, Taiwan had stockpiled 240,000 metric tons of soybeans, 300,000 metric tons of wheat and 360,000 metric tons of maize.
Liu gave this rundown on prices and expected trends:
Rice - Prices rose sharply in January and February, then stabilized.
Hogs - Prices rose three times in July. Farmers again are interested in raising pigs.
Vegetables - Barring typhoons, prices and supply will remain normal.
Timber - The Executive Yuan lifted the ban on the export of cypress in May and of processed wood products in June.
Soybean oil and meal - Supply is adequate and prices will remain stable.
New regulations for foreign firms
The Ministry of Finance has promulgated a supplementary standard for the levying of business and income taxes on foreign firms which have branches in the Republic of China:
A. Business tax:
1. Sales of goods and services:
In principle all foreign firms which have branches in the Republic of China and which sell goods or provide customer services in Taiwan should pay business tax to the Chinese government, but the following circumstances are exceptions:
- If the foreign firms manufacture machinery and equipment for or supply a large amount of goods to their customers in the Republic of China in compliance with the specifications of these customers. If these goods are not produced by the foreign firms frequently and cannot be stored and marketed by their branches in Taiwan frequently and also if this transaction cannot be approved by their Taiwan branches, then the foreign firms concerned need not pay business tax to the Chinese government.
- If the foreign firms have established branches in Taiwan and have signed contracts with their customers in Taiwan for the provision of services, but the service is not provided in Taiwan.
- If it is proved that the sale of goods or services is not made through their branches in Taiwan.
2. Purchase of goods: When the foreign firms buy things from Taiwan through their branches on this island, their branches must pay tax on the income derived.
3. Other customer services: If the foreign firms provide patent rights to Taiwan firms for use in Taiwan and if the contract for the provision of these patent right is signed by the head offices of the foreign firms with their customers in Taiwan directly, the head offices of these foreign firms are regarded as operating in Taiwan and must pay business tax through their branches; the income shall be included in the income of their branches.
B. Income Tax:
If the income belongs to the branches of foreign firms in Taiwan, then the income tax should be paid by these branches. But, if the business volume does not belong to their branches in Taiwan, then the employer in Taiwan must withhold the money to be taxed.
The Ministry of Finance said the regulations are retroactive to the 1973 fiscal year.
Reform to emphasize income tax revenue
Establishment of a taxation system with the income tax as cornerstone is the goal of the Republic of China.
King Wei-hsin, director of the Department of Taxation, Ministry of Finance, said income tax constituted only 7.5 per cent of government revenues in 1968. This share had risen to 15.5 per cent by the last fiscal year, representing an increase of more than 100 per cent.
Revenues from direct taxes accounted for only 26 per cent of tax revenues in fiscal 1974.
In the United States direct taxes accounted for 64 per cent of tax revenues in 1969.
King said revenues from "consumer taxes" should not be ignored while emphasizing direct taxes. He defined "consumer taxes" as commodity tax, business tax and revenue stamp tax.
"No country can rely wholly on direct taxes," he said. "In developing countries, revenues from direct taxes should not exceed 50 per cent of the total."
King reported the tax burden in free China is relatively low. In fiscal 1972, tax revenues and receipts from monopoly sales accounted for 17.7 per cent of the gross national product.
In 1969, taxes made up 25.5 per cent of the GNP in the United States, 31.4 per cent in Britain, 22.7 per cent in France, 25.2 per cent in West Germany, 25.7 per cent in Australia, 15.8 per cent in Japan and 10.3 per cent in the Philippines.
Tax holiday will be made flexible
The tax holiday will no longer be limited to five years under a draft revision of the Statute for Encouragement of Investment.
The revision will provide flexibility based on the length of time required for an enterprise to become profitable.
These will be guidelines:
- Labor intensive industries whose profit realization and depreciation of fixed assets are rapid will be given shorter holidays.
- Capital and technology intensive industries whose profit realization and depreciation of fixed assets are slower will be accorded longer holidays.
Tax incentives will be given the electronics industry to encourage manufacture of complex components and parts, the Industrial Development Bureau said.
The Bureau has a short-range plan to encourage production of consumer products. A long-range plan will stress electronics for communications, medicine and engineering.
Emphasis will be placed on manufacture of integrated circuits.
Because of the wide uses of IC, the government will spend US$6 million on research and production directed by the Union Industrial Research Institute.
Easier exit permits for businessmen
The Ministry of Economic Affairs has decided to further liberalize regulations governing exit permits for businessmen and professional people. Wives will be allowed to accompany their husbands.
Illiterates will no longer be excluded from business travel.
Restrictions on tax payment and business volume will be liberalized.
The ministry received 48,408 applications for business trips abroad in the first seven months of 1974, an increase of more than 50 per cent over the like period last year.
Pleasure trips abroad under the guise of business promotion will not be allowed. Travel agencies may not organize trade mission.
Before a trade mission leaves the country, it must give a brief account of its itinerary and the purposes of the trip.
JCRR spending to spur agriculture
The Joint Commission on Rural Reconstruction will pump NT$384 million into agriculture in fiscal 1975 to achieve a 4.1 per cent growth rate this year.
JCRR will spend the money as follows:
- Farming, forestry, fishery and animal husbandry production and marketing: NT$26,700,000.
- Development of agricultural resources: NT$8,100,000.
- Improvement of farm villages: NT$312,900,000 (including mechanization).
- Village construction on offshore islands: NT$3,000,000.
- Farmers' Associations: NT$33,290,000 (including NT$6,000,000 for the Asian Vegetable Research Center).
JCRR expects 1974 production of 2,500,000 metric tons of rice, 3,600,000 metric tons of sweet potatoes, 130,000 metric tons of peanuts and 150,000 metric tons of maize.
Forestry funds will go to reforestation, improvement of bamboo and wood products and construction of forestry roads.
Fishery funds will help raise the catch to 820,000 metric tons. Animal husbandry spending will help improve cattle and hog raising.
The money from the Sino-American Fund for Social and Economic Development will help improve public health in farm villages, provide a better marketing system for farm products and spur soil and water resources development.
Agricultural production was up 2.6 per cent in the first half of this year.
Crops showed a gain of 4.6 per cent and animal husbandry of 4 per cent.
Fishery was down 8.5 per cent and forestry 10.5 per cent.
JCRR reported US$408,700,000 worth of agricultural products were exported in the six-month period, an increase of 39.6 per cent.
Report lists volume of biggest companies
Business volume of Taiwan's 100 major private enterprises totaled more than NT$100 billion last year, according to a survey by the China Credit Information Service. Profit was NT$14.3 billion before taxes.
Companies with business volume of NT$470 million are considered major enterprises.
Twenty-seven of the 100 companies registered business volume of more than NT$1 billion.
The big 10 were:
- Nan Ya Plastics Corporation: NT$5,300 million.
- Tatung Company: NT$3,500 million.
- Taiwan Chemical Corp.: NT$3,500 million.
- Formosa Plastics Corp.: NT$3,360 million.
- Taiwan Cement Corp.: NT$2,590 million.
- Far Eastern Textile Company: NT$2,160 million.
- Matsushita Taiwan: NT$2,020 million.
- Yu Loong Motor Company: NT$1,960 million.
- Sanyo Taiwan: NT$1,920 million.
- Tai Yuen Textile Company: NT$1,910 million.
Ten enterprises had a growth rate exceeding 100 per cent. Chen Tai Steel Works led with 270 per cent.
The 100 enterprises and affiliated companies employ a tenth of the island's labor force and account for a third of business volume. The 100 enterprises and 700 affiliates employ 250,000. The biggest enterprise employs 25,000.
Assets of the 100 enterprises total NT$200 billion.
The 100 companies and affiliates are owned by about 100,000 shareholders. Only about 2,000 are major holders of shares.
Average age of 300 top executives is 50. Sixty-five per cent were born in Taiwan.
A fourth of the executives are college graduates and another had only a primary school education.
75% of big ships call be made at home
The Taiwan Shipbuilding Corporation will build yards at Hualien and the new ports of Taichung and Suao. Sites have already been chosen.
TSBC will expand its facilities at Keelung. Ships of the 250,000-ton class will be built and annual output increased to 800,000 tons.
The corporation said it is encouraging Taiwan industry to make products used by shops, including furniture, wiring and cables pipes and certain deck facilities. These items make up about 20 per cent of the cost of a ship.
With completion of the steel mill at Kaohsiung, about 75 per cent of a big ship may be made at home, TSBC said.