|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
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
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