Taiwan being an island, its economy is essentially different from that of a continent. Because of its limited size and inadequate natural resources, the possibility of its being self-sufficient is far less than that of a continent. The degree of its dependence on international trade is therefore greater. Taiwan's gross national production in recent years averaged about US$2,600,000,000 while the value of its exports and imports (including U.S. Aid supplies) averaged about US$320,000,000. The ratio between the value of Taiwan's foreign trade and its gross national production is 12% as compared with 40% for Great Britain and 20% for Japan, which both have an island economy, and 7% for the United States, which has a continental economy. Since Taiwan still has an agricultural economy, it depends on international trade to an even greater degree than the United States.
The most serious difficulty Taiwan faces today in its international trade is the large import surplus each year which amounts to about US$100,000,000.
This unfavorable balance of payments has to be made up mainly with U. S. Aid supplies and partly with imports brought in with self-provided foreign exchange. The main reasons for the existence of the large import surplus are twofold: First, Taiwan's population has increased from the original 7,000,000, to about 9,000,000 since the Central Government moved its seat to this island in 1949. Furthermore, since the Government has to maintain large armed forces and carryon its military preparedness, the consumption of both the military personnel and civilians has greatly increased. As a result, we have to depend on importation of foreign goods for meeting these requirements. Second, in carrying on our economic reconstruction for the purpose of increasing our production and creating more opportunities for employment, we find we have to depend on imports for the machine tools and raw materials, most of which cannot be produced in Taiwan.
Aside from the above-mentioned long-term unfavorable balance of trade, there are three other difficulties. First, because of the fact that Taiwan's exports are mostly agricultural products or primary products, they are often quite adversely affected whenever there is a buyer's market. Moreover, the lack of flexibility in the supply of agricultural products makes it difficult to maintain the stability of prices.
Second, Taiwan's exports have been so highly concentrated on two products, sugar and rice, which altogether constitute more than 70% of our total exports, that any fluctuation in the prices of those two items would immediately affect our balance of payments. This is the main reason why Taiwan has difficulty in maintaining the stability of its balance of payments.
The third difficulty is that we depend too much on one export market—namely, Japan, which buys 53% of our exports. While we continue to promote trade with Japan, we should also diversify our external markets so as to increase the absolute total quantity while reducing the percentage.
What I have said above is a brief analysis of the importance of foreign trade to Taiwan and the difficulties involved. Now I shall proceed to discuss the role of the Central Trust in international trade and the ways and means whereby we are endeavouring to accomplish our purpose.
The Central Trust engages in international trade and some other business such as banking, insurance, and warehousing and transportation. In its internal organization the Central Trust is divided into the departments of Trust, Purchasing, Trading, Warehousing and Transportation, and Insurance. The Purchasing and Trading departments are responsible for the handling of imports and exports, and may be said to be directly engaged in international trade. The department of Warehousing and Transportation and the department of Insurance have been established for the purpose of facilitating and assisting international trade. As to the Trust department, it promotes international trade through both direct and indirect financial assistance. Now I should like to explain how the Central Trust performs its functions in international trade.
(1) With respect to imports: The role played by the Central Trust has three aspects. The first is the centralized purchasing of imported supplies and equipment required by the Government and the public enterprises. A part of the supplies required by the armed forces is also purchased from abroad through the Central Trust. During the past four and a half years, the value of such supplies purchased for the Government, public enterprises and armed forces totaled more than US$110,000,000. The second aspect is the handling of the importation of U.S. Aid supplies. During the past four and a half years, the value of such supplies handled by us totaled more than US$100,000,000. The third aspect is the handling of the importation of essential supplies such as cotton, cotton yarn, flour, wheat, soybeans, etc. for the purpose of stabilizing commodity prices, supplying the daily needs of military personnel and civilians, and enabling the chief agricultural and industrial enterprises to carryon their production. During the past four and a half years, the value of such supplies handled by us totaled more than US$10,000,000. Besides, the Central Trust has also handled the importation of equipment and materials required by private enterprises, the value of which, however, was comparatively smaller.
Altogether, during the four and a half years from 1951 up to the end of June 1955 the value of all imports handled by the Central Trust totaled more than US$220,000,000, which constituted 24% of Taiwan's total imports during the same period.
(2) With respect to exports: The Central Trust is the chief exporter of Taiwan's products. Its most important work at present is to handle the exports totaling US$94,000,000 called for by the Sino-Japanese Trade Agreement, and the exports totaling US$10,000,000 called for by the Sino-French Trade Agreement. Our export trade with South Korea and the Ryukyus is mostly also undertaken by the Central Trust. The marketing of such large-scale exports as sugar, rice, salt, and coal is either entirely or partly handled by the Central Trust every year.
The Central Trust has made every effort to open up markets abroad and to expand Taiwan's export trade. We are also helping Taiwan's domestic industries to increase the varieties as well as the volume of their exports in order to help China achieve a balanced foreign trade which in turn will improve her balance of payments.
Altogether, during the four and a half years from 1951 up to the end of June 1955, the value of all exports handled by the Central Trust totaled more than US$290,000,000, which constituted 57.7% of Taiwan's total exports during the same period.
(3) With respect to banking: The banking business undertaken by our Trust department aim s both directly and indirectly at helping the promotion of international trade. For example, in the case of public, and private enterprises requiring supplies from abroad, the Central Trust assists them not only by purchasing those supplies on their behalf but also, if necessary, by advancing 60% of the funds needed. The loan thus extended is to be paid back upon the arrival in Taiwan of the supplies purchased from abroad. The object of this arrangement is to lighten the difficulties encountered by the public and private enterprises in raising the necessary funds. During the past four and a half years from 1951 up to the end of June 1955, such loans advanced by the Central Trust for the purchasing of supplies from abroad totaled US$83,000,000.
Besides, whenever a certain export commodity cannot be sold abroad because of a sudden drop of its price on the international market, the Central Trust usually supports the domestic market by purchasing the product to keep the producers in business. When an opportune moment arrives, the product thus purchased by the Central Trust is to be sold abroad so that the nation may not lose its foreign exchange. The most striking instances of this policy were the purchasing of citronella oil two years ago and the recent purchasing of green tea, which will be exported to North Africa in the near future.
In recent years, in order to coordinate with the national policy of encouraging increase of production, the Central Trust has also extended a considerable amount of loans to the various public and private enterprises. Although these loans were not directly connected with foreign trade, they have been quite helpful in boosting Taiwan's productive power and promoting Taiwan's industrialization, which will have a beneficial effect on its balance of payments.
What has been said above is an explanation of the three great tasks in international trade with which the Central Trust has been charged. At present, its business activities have largely been confined to dealings with the Government and the public enterprises. This is due to the fact that under Taiwan's present economic structure the Government and the public enterprises are not only large consumers but also large producers of goods, with the result that the goods they need to import and export are enormous both in volume and in value. They have found it necessary to place the handling of imports and exports in the hands of a single organization which is well acquainted with the intricacies of foreign trade. But the Central Trust never has any intention to drive out private traders. On the contrary, we have been making every effort to help them develop their trade. For example, all import transactions entrusted to the Central Trust are handled through open bid so as to give traders all possible opportunities to engage in foreign trade. In the case of exports, the Central Trust has been encouraging and assisting the exportation of the products of private enterprises by supplying these enterprises with the necessary capital, technique and marketing information. Sometimes, the Central Trust even goes so far as to buy up, at the risk of incurring losses, products for export when prices on the international market are too low, as has been mentioned above.
However, we still feel we have not done enough. I should like to say a few words, therefore, about the goal we shall set for ourselves in continuing our efforts in the future.
(1) Expansion of procurement services: As I have just pointed out above, the Central Trust has been undertaking procurement of supplies for both the Government and the public enterprises, including also U.S. Aid supplies which used to be handled by ECA themselves. Since the Central Trust handles these procurements in a most economical and effective way, its business has been expanding year after year. Though the Central Trust charges a surprisingly low commission, it still earns a profit. In the past the Central Trust has also handled the importation of materials and equipment for .the private enterprises, though only in a small quantity. Now we intend to increase the services to the private enterprises by advancing 60% of the fund needed to buy material, equipment and foods for productive purposes as well as for meeting essential daily or defensive requirements. Meanwhile, we hope to improve our efficiency so that we can render more and better services to public and private enterprises.
(2) Increase of export trade: As I have already said above, it is quite necessary to achieve a balance between exports and imports by expanding the export trade. The expansion of Taiwan's export trade depends, on the one hand, on an increase in the varieties and volume of exports, and on the other hand, on the opening up of new markets for these exports. The latter, indeed, is a prerequisite for the former, because there can hardly be any increase in the varieties and volume of exports unless there is an expanded market. So far as Taiwan's present export market is concerned, our exports to Japan in 1954 amounted to 53% of our total exports, those to the United States and Hongkong 18% each, and those to the Sterling area 1.25%. From this it may be seen that our export market is limited to only a few places. Furthermore, as I have stated above, Taiwan's exports consist of only a few limited items. These are the reasons why it has been difficult to achieve stability in Taiwan's international payments.
From now on, what we should do is to expand our export market and increase the varieties of our exports. The Central Trust has representatives stationed in the United States, Japan, South Korea, Southeast Asia and Western Europe, who in recent years have done much to promote the sale of Taiwan's sugar, rice, canned pineapple, tea and coal which are our chief exports. Hereafter, we should continue to intensify our efforts in this direction.
(3) Assistance to the public and private enterprises in promoting their exports: In recent years, the Central Trust has already made considerable contribution in promoting exports by assisting the public and private enterprises in the solution of difficulties encountered in their business. In the future, our efforts will be directed to four types of work. First, the staff of the Central Trust stationed abroad should do their best to submit to us the fullest reports on foreign markets. Special stress will be laid on competitive prices which Taiwan exports are likely to face, local propensity of consumption, possibility of opening up new markets and introduction of local importers with whom our public and private exporters may profitably seek contact.
Second, all possible financial assistance should be extended to the public and private enterprises to facilitate the exportation of their products so that they may not be handicapped by shortage of operating capital. Recently the Central Trust has been planning for the extension of export loans. That is to say, when an enterprise having products for export has already received an order as well as a letter of credit from abroad but is in need of capital for purchasing native products or materials, it may arrange for obtaining packing credit from the Central Trust.
Third, the Central Trust is ready to provide the public and private enterprises with warehousing and transportation facilities so as to help the exportation of their products, and, if necessary, to advance loans to them for facilitating their transportation.
Fourth, whenever necessary, the Central Trust will, in accordance with the approved policy of the Government, buy up those export products which do not have a ready market abroad, and then have them exported at a later date, so that there may be no sudden drop in their prices on the home market and no serious adverse effect on the producers. By taking up the responsibility for the exportation of these' products the Central Trust will make it possible for the Government to obtain more foreign exchange.
In one word, the Central Trust is now shouldering very complex and heavy responsibilities in connection with Taiwan's foreign trade and the execution of the national economic policy. Since we have endeavoured to the best of our ability to promote Taiwan's economic stability and development in the past, it goes without saying that we shall continue to make redoubled efforts along this line in the future. In discharging our responsibility, we need all the cooperation that Free China's businessmen could give, us. We have always appreciated it, and sincerely hope to have more of it in the days to come.