Taiwan is facing some major economic problems, but then so is everyone else, and nothing suggests that the island is on the verge of collapse. What measures is the government adopting to turn things around, and how do they play with observers?
"The lights used to burn all night, and they'd ask us to work overtime to keep the assembly lines running at full capacity," recalls Kuo Su-yun, who worked in one of southern Taiwan's export processing zones for more than twenty years. "But now it's dark and quiet at night. Some factories have closed or relocated overseas, and others have their lines running for just two days a week. Things have really changed a lot recently." Her electronics factory was one of the casual ties. It closed without warning last year, and six months later she still cannot find an equivalent job. "The government needs to figure out ways to revitalize the local economy and boost job openings right now," she says, adding ominously: "Otherwise there are going to be serious social problems."
Various government statistics bear out this emotive description of a weakening industrial sector coupled with a shrink ing job market. The number of factories that closed during the first four months of this year was 2,622, 86 percent up on the same period last year. In April the island's unemployment rate hit a sixteen-year-high of 3.96 percent, with the number of those out of work reaching 385,000, mainly owing to loss of jobs in the manufacturing, construction, and commercial sectors. Many students in Taiwan's colleges and universities are said to be opting for graduate school rather than play musical chairs in the market.
Nevertheless, companies are still hiring, and of course these figures have to be set in a global perspective: Germany's rate of unemployment ran close to 10 percent last year, with France and Canada not far behind with 9.7 percent and 7 percent respectively. Even the United States is looking at a projected jobless rate of 4.5 percent. The International Monetary Fund has adjusted downward its forecast of the 2001 global economic growth rate to 3.2 percent from the previous 4.8 percent. The corresponding figures for the United States and Europe, Taiwan's two major export markets, have been reduced from 5 percent and 3.4 percent to 1.5 percent and 2.4 percent respectively. This is a global pandemic, not a local sickness, in other words. Moreover, Taiwan's economy continues to grow, although at a slower rate. In the first quarter of this year, it expanded just over 1 percent, the lowest in a quarter of a century, according to the Directorate General of Budget, Accounting, and Statistics.
"The hard times are coming," warned Lien Chan, chairman of the opposition Kuomintang (KMT), and his pessimistic outlook is shared by many, both here and abroad. The crisis in the island's overstretched banking system that was predicted by The Economist last year did not materialize, but overseas financiers remain wary and at home the arguments continue to rage. For most analysts, two questions need to be answered. Is the ruling Democratic Progressive Party (DPP) to blame for Taiwan's current economic woes, or are other factors at work? And more importantly, what needs to be done to keep Taiwan afloat?
There are those who believe that the performance of the Chen administration has been lackluster. Some critics go so far as to blame the Cabinet for everything that has gone wrong with the economy, and would like to oust the existing administra tion. Less abrasive observers counter that any such prolonged political strife will only serve to aggravate public dissatisfac tion and dampen investor confidence. But what do ordinary people think?
As far as the younger generation is concerned, Amy Huang is perhaps typical. Huang, a college student, was among several thousand participants who staged a march on Labor Day to demand that the government take immediate action to improve domestic economic conditions. "I had high hopes of the new government," she says. "But I'm disappointed with its failure to address the problems effectively, especially the rise in unemployment. The new administration isn't only to blame, though. Some lawmakers just try to pull the legs off the government by boycotting the screening of bills, making it difficult to implement policies."
Although Huang does not advert to it, another line of argument centers on the Chen government's "inheritance." This attributes much of the present weakness and uncertainty to the previous KMT administration, which was notorious for crony economics and propping up banks that were little more than fronts for money-laundering.
Richard Vuylsteke, executive director of the American Chamber of Commerce (AmCham) in Taipei, attributes Taiwan's economic ailments to a combination of the bursting of the stock market bubble, transformation of the domestic industrial structure, and the impact of the global economic slump. Given all that, plus the all-too-familiar trend toward globalization, it follows that downsizing and unemployment are inevitable. "Whoever was elected last year was going to face the same issues, some international, some inherited, and they're not President Chen Shui-bian's fault," Vuylsteke says. Wu Hui-lin, a research fellow at the Chung-Hua Institution for Economic Research (CIER), agrees with him. "Our economic problems came in sequence, not together. They didn't just start happening after the DPP came to power."
No doubt the arguments about whose fault it was will continue, but most ordinary people are much more concerned about what is being done to set things right. They understand that mere tinkering will not do. Taiwan has lost its former role but has yet to find another. "Today's primary problem is that we have been original-equipment manufacturers for some thirty years. That's way too long," says Joseph Chou, director-general of the Ministry of Economic Affairs' Economic Processing Zone Administration. "With the continued rise in the cost of labor and land, as well as growing environmental concerns, Taiwan needs to change its role."
According to Chou, if Taiwan wants to maintain its competitiveness it must focus on research and development, design, making own-brand-name products, marketing, and the supply of key components. "Taiwan will have to learn how to spin money out of wisdom and knowledge, rather than product processing," he predicts, and in fact that has been the government's major policy objective over the past year since President Chen Shui-bian's administration took office.
Even in his May 20, 2000 inauguration speech, the president was spelling out the future direction of Taiwan's economic development. "Faced with the impact of fast-changing information technologies and trade liberalization, Taiwan must move toward a knowledge-based economy," he said. "High-tech industries need to be constantly innovative, while traditional ones must transform and upgrade."
The president's is by no means a lone voice crying in the wilderness. There is widespread consensus that the island must become a higher-end, value-added R&D center, or die. The challenge is knowing how to do it. In August last year the government approved the "Plan to Develop a Knowledge-based Economy in Taiwan," which is framed in general terms but does serve to identify the goals: setting up mechanisms to encourage innovation and foster new ventures, promoting the application of information technology and the Internet, and providing the requisite infrastructure to support the development of knowledge-intensive industries.
The nitty-gritty of Taiwan's drive to become a Green Silicon island is harder to come by, however. Chen Po-chih, chairman of the Council for Economic Planning and Development (CEPD), maintains that fifty-seven measures have been formulated, and an estimated NT$36.3 billion (US$1.1 billion) is to be spent on them over the next five years. "The future belongs to knowledge- and technology-based economies," he says, acknowledging a need for the government to assist in the fields of biotechnology, Internet multimedia, wireless communications, and pharmaceuticals. "Over the past year, we've formulated a lot of plans and they're not short-term countermeasures but long-term objectives."
Despite these sweeping assertions, few people would claim to understand the details of the Cabinet's economic policy. Taiwan's foreign business community in particular has long been pressing for clear, detailed economic policies and priorities, preferably after the government has consulted with those most closely affected. "There is broad agreement that the Chen administration has come out with many good ideas to develop Taiwan, but the problem is how to get there," says AmCham's Richard Vuylsteke. "We have trouble finding out what the details of the government's economic plans are, and because of that we can't evaluate them adequately."
Similar views were expressed by the CEOs of Taiwan's top 1,000 companies in a survey conducted earlier this year by the local monthly, CommonWealth magazine. Approximately 77 percent of those polled urged the government to push for ward with a concrete, practicable economic policy, while 63 percent wanted to see improved efficiency as the top administra tive goal.
But it is undoubtedly the expatriates who make the running here. In its 2001 White Paper, AmCham emphasizes that reforms, particularly deregulation, should be carried out in such a way as to boost operational efficiency and attract more foreign investment. "Taiwan's regulatory environment has restricted the development of many of its industries," Vuylsteke notes. "To boost its global competitiveness, as well as give local consumers access to a broad range of high-standard goods and services, Taiwan needs to drastically streamline and upgrade regulatory procedures and create a level playing field for foreign businesses operating here."
For example? He cites the excessive amount of time and money required to have a new company registered in Taiwan. "We'd like to see the establishment of a one-stop service window," Vuylsteke says. "In the long run, Taiwan isn't going to be a major player in world markets if it still exercises protectionism."
CIER's Wu Hui-lin expresses similar concerns. "The root of our existing economic problems lies in the implementation of regulatory policies," he says. "In comparison, the reason why Taiwan enjoyed such rapid development during the 1960s and 1970s was because it moved faster than its competitors to open new markets." But then, in the 1980s, protectionism reared its ugly head again. "The only way Taiwan is going to survive is if it's open, open, open," Wu says. "Let everything depend on market mechanisms, without government intervention or the extension of a protective umbrella."
Lin Yi-fu, political vice minister of the Ministry of Economic Affairs (MOEA), is in broad agreement with that, although he does highlight a difficulty. "The relaxation of regulations that impede fair competition is one of our major objectives," he says. "But to make progress, we need the cooperation of the legislature." Given the obstructive attitude so far adopted by legislators, however, that may be easier said than done, at least until after the end-of-year elections.
Once the legislature does get its act together, however, the MOEA has plenty of material for its consideration. The Cabinet began by setting up a committee to review the organization of the island's legal structure. Eighteen representatives from government, business, and academia were recruited to work together with administrative departments to weed out oppressive regulations. In light of their recommendations, the MOEA has completed draft revisions to laws affecting the opening up of the electricity and petroleum sectors to private enterprise, company registration, recruitment of experts from overseas, and land zoning.
Most of these have already been sent to the legislature for approval, and some of the revisions are immensely detailed. For example, the draft amendments to the island's Company Law affect a total of 214 articles. Among the proposed changes are that company licenses and permits be scrapped, procedures for reviewing business categorization be simplified, and that the time scale for authorizing corporate mergers be shortened. There are also a host of minor alterations affecting things ranging from company demergers to debt ceilings.
As to delays in registering new businesses, the MOEA recently conducted a trial of the new one-stop registration and application centers at fourteen industrial parks. In consequence, it is now possible to obtain permission to start up a new enterprise in ninety days, a marked contrast with the previous one hundred and thirty-one days. Since July 1, the same procedures have been available in all of Taiwan's fifty-two industrial zones.
The ministry intends to address another perennial source of complaint by improving its communications with the busi ness community through seminars and breakfast meetings. "Right now we are at the stage of putting down a lot of roots," Lin says. "They may not produce immediate results, but they're poised to benefit Taiwan's long-term economic development."
The financial services sector has not escaped scrutiny either. The Ministry of Finance has initiated a series of reforms to address the ubiquitous problem of nonperforming bank loans, help restructure bankrupt organizations, and improve supervi sory procedures, while encouraging financial institutions to put their own houses in order through mergers, the diversifica tion of financial services, and the pursuit of economies of scale. The Banking Law and the Financial Institutions Merger Law will be revised, and important new legislation is scheduled, including the Financial Holding Company Act and the organic law governing the Financial Supervision and Control Commission.
Given that the government has come up with plenty of good ideas for transforming the lagging economy, what are the prospects of implementing them in time to stave off disaster? Opposition New Party lawmaker Lai Shyh-bao admits that the Cabinet is working hard to formulate helpful measures, but goes on to point out that time is short and so far progress has been slow. "The government has held several meetings to solicit opinions from different sectors, and it knows exactly what to do," he says. "But there are a lot of obstacles in its way. Among them are the lack of stable legislative support, and a shortage of qualified government personnel with the requisite economic and financial skills."
An initiative that has generated some controversy is the government's bid to spend its way out of trouble, allocating NT$810 billion (US$23.8 billion) to a raft of public infrastructure projects. This ambitious scheme will bolster the island's transportation, utilities, and environmental and cultural preservation systems, as well as provide new schools and industrial facilities. Some projects originally scheduled to be launched in 2002 have also been brought forward in the hope of kick-starting growth. In a further move to combat unemployment, the Council of Labor Affairs has banned companies with contracts for infrastructure projects from employing overseas laborers, and has staged job fairs islandwide to help people find work in conjunction with vocational training courses. Premier Chang Chun-hsiung has ordered progress reports to be tabled at the Cabinet's weekly meetings.
"In the short term, these large-scale infrastructure projects are estimated to boost domestic consumption by creating 100,000 job opportunities to relieve the current unemployment problem," says CEPD Chairman Chen Po-chih. "In the long run, the plan will improve Taiwan's living standards, strengthen its economic foundations, and upgrade its investment climate."
The trouble is knowing where to find the cash. The Cabinet has problems forcing the most mundane budget proposals through the hostile legislature, it has recently agreed to pay a lot of money to upgrade the island's defense capabilities, and as yet there is no knowing whether a call on the island's treasury for the amount required to fund these infrastructure projects will be met with a sympathetic hearing.
One result of the deteriorating economy is that the Cabinet can no longer defer a decision about whether to relax investment in mainland China. Many industrialists are urging the government to ease the rules as a matter of urgency. AmCham is also calling for direct links with the mainland, arguing that it would ultimately benefit Taiwan's economy by luring more foreign investment. At the same time, critics warn that failure to do so could lead to Taiwan's becoming increasingly marginalized. "For multinationals, Taiwan is definitely not the final market," legislator Lai Shyh-bao points out. "The main reason why they're here is to use Taiwan as a springboard into the vast mainland Chinese market."
President Chen has emphasized that there were good historical reasons for the ROC government's "go slow, be patient" policy with regard to China, including security issues that still need to be addressed. But he has accepted in principle that the policy must be modified, on the ground that mainland investments are a necessary link in contemporary global business strategies. He has therefore asked the Cabinet to balance "active opening up" with "effective administration."
Looking ahead, the president has also indicated that, in a move to break the existing political stalemate, he would be prepared to orchestrate a coalition government through party-to-party negotiations, once the new composition of the legisla ture has been determined in December. Most analysts agree that no one party is likely to secure a majority, thus making a coalition seem like the only solution if laws having a far-reaching impact on people's livelihood, the economy, and social welfare are to pass.
But above all, President Chen is calling for national cooperation. "In the long term, Taiwan faces lower economic growth and higher unemployment. It's a war that Taiwan must fight," he notes. "But administrative agencies cannot fight it alone. Only with the wisdom of the private sector, and of the governing and opposition parties, will it be possible for Taiwan to win."
Given the unfavorable economic climate at home and abroad, the island faces a tough uphill battle. What are the pros pects? "Time is short, but I'm cautiously optimistic about Taiwan's economic outlook," concludes AmCham's Richard Vuylsteke. "The bottom line is that there must be clear, real, solid economic planning, and the political parties must sort out their differences and work together for the public effective." Perhaps only time will tell how good Taiwanese are at pulling together for the sake of the common weal.