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April 2009
Emphasis on Taiwan's Post-Tsunami Industrial Structure related Problems
 
The global financial tsunami triggered by the subprime mortgage in the United States not only hit the exports and manufacturing sectors but also led to rapid shrinkage of civil investment, leading to an economic recession by 8.36% in Taiwan's 4th quarter in 2008. The unforeseen sharp decline of the global boom was revealed in the recent bulletin of the national economic growth rate issued by the Directorate General Office of Budget, Accounting and Statistics, Executive Yuan, R.O.C (DGBAS). There was a 6.63% decline as compared to the earlier forecast, resulting in the largest scale of recession ever in a season. The economic growth rate forecast in 2009 was -2.97%, and the data of national income statistics showed negative economic growth of 5 consecutive quarters. It is speculated that the figure will turn from negative to positive in the 4th quarter in 2009.

Why have economic data such a huge gap in a short period of 3 months? According to DGBAS, no one had anticipated such rate and scale of export decline. In November 2008, DGBAS's 2009 economic growth rate forecast was 2.12. By February 2009, this figure was revised down to -2.97%. The original export recession forecast was 9.59% for 2009, but was later revised down to 20.1%. The recession forecast of 8.28% for 2009 was revised down to 24.71% for Q4 of 2009 as shown in the preliminary statistical results. In the 3rd quarter of 2008, the economic growth rate of -1.05% was further decreased by 0.03% as compared to the earlier forecast. The preliminary statistical results of 2008 shows an annual economic growth rate of 0.12%, the lowest since 2001 and the longest period of recession in history.

In-depth Study of Taiwan's Industrial Structure related Problems

Surprisingly, according to the DGBAS, the economic growth rate would have sustained a -5.74% decline had the Government not proposed the economic revival policy in 2009 that covers the issuance of consumption vouchers (NT$ 85.7 billion), Expansion of Investment in Infrastructure Construction(NT$150.7 billion), Short-term Skill Plus Program (NT$16.8 billion), employment promotion (NT$6.5 billion), subsidy for near poor (NT$17.7 billion), short-term employment (NT$7.9 billion), vehicle excise tax reduction, and manufacturing sector tax reduction measures stipulated in the Sunset Clause of Industrial Advancing Promotion Act. In the face of the unprecedented adversity in economic development, President Ma Ying-jeou gave hearing to the relevant analysis and report of Council for Economic Planning and Development to discuss countermeasures to save the declining economic situation on February 23-24 and asked the Executive Yuan to draft an industrial development strategy within 3 months.

It is a relief to know that the Government has finally realized industry/industrial structure related problems in Taiwan. The domestic economic depression was not caused only by rapid declination of international markets, it is also due to Taiwan's inability to steer clear from impacts of the financial tsunami as a result of industrial structure related problems. Apparently, due to relatively weakened domestic demand over the past few years, Taiwan's economic growth was mainly reliant on foreign net demand. 40% of Taiwan's exports were directed to China particularly electronic parts, machinery equipment, raw materials, and products. This is because Taiwanese businessmen who invested in China in the past returned and purchased electronic parts, machinery equipment and raw materials and products from Taiwan. (i.e. investment-driven trade) However, this type of investment-driven trade gradually declined two years ago. According to statistics, this type of investment-driven trade was no longer effective against the impact of the financial tsunami. In other words, the industries in China, whether domestic or foreign-owned, have turned to the upstream manufacturing sector, which gradually weakened Taiwan's investment-driven trade in recent years. Based on data below, it is inferred that the export value was the highest in a single month and the growth rate reached 13.9% in August 2008. Over the same period, China's exports to the United States have increased by 14.82%; In September, China's exports to the United States were a record high. Export growth rate reached 15.39%, but Taiwan's exports to China had a negative growth rate of -16.3%. Later, the growth rate of China's exports to the United States in October, November and December were 12.44%, -6.13% and 4.14% respectively. However, exports from Taiwan to China fell to -19.9%,-38.5% and -54.0% respectively, Evidently, Taiwan's exports were subject to sharper declines when China's exports to the United States declined. At the moment, there is greater concern over whether or not Taiwan's industrial structure related problems will hold it back when the global economy resuscitates.

Taiwan's Middle and Long Term Industrial Structure Adjustment

What countermeasures should Taiwan take against the impact of the financial tsunami? It is believed that while the Government faces financial difficulties, the resources should be allocated efficiently to cater for the needs of the short-term revival plan and long-term industrial structural adjustment. Indeed, the short-term measures may not be that effective in changing the rapid domestic economy decline at present. Some researchers even see the problem as ‘beyond help.' However, it is the Government's responsibility to look into the problem and create job opportunities. The general public has little knowledge of complex statistical figures (i.e. economic growth rates), nor do they care. What is of concern to them is whether they will be able to get by under economic recession. Therefore, creating jobs is the least the government can do for its citizens. After all, economic unrest will lead to social chaos and the political turmoil that follows will be detrimental to future economic recovery.

In terms of middle and long term structure related problems, it is evident that the impact of the financial tsunami on the local economy of Taiwan is more than just short-term problems; there are also middle and long term problems such as reliance on exports and concentrated products and markets in recent years. In fact, other than the government's focus on the information and electronics industry, other industries with development potentials should also receive equal attention like the South Korean Government did. With a population of 23 million, the domestic market of Taiwan is considerable in scale. The domestic market and domestic demands for education and medical services that improve the quality of life received little attention in the past. The government needs to support the economy when its exports are subject to unpredictable impacts. The cross-strait structural problem is another long-term problem to ponder on. The government needs to pay attention to whether the financial tsunami has caused changes to the Chinese business environment and in comparative advantage or change to the cross-strait industrial competitiveness. Meanwhile, when investors in China turn to the upstream manufacturing sector, will the investment-driven trade be weakened as a result? Will industries in Taiwan have a chance to turn to downstream OBM? These issues must be probed into when handling industrial structure related problems in Taiwan in the future.

Lastly, the Government is once again called upon to resolve Taiwan's industrial structure related problems caused by the financial tsunami. In addition to taking immediate actions to resolve the short-term difficulties, the government ought to deal with the middle and long term problems, and engage in middle and long term planning in order to turn the situation around. The government needs to fundamentally resolve the present industrial structure related problems in order o ascertain the niche for future development and sustain economic recovery.

 

 
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