Taiwan’s economy needs urgent reforms to rescue its middle class and medium sized businesses.
Jiang Suhui, President of the Taiwan Business Association (HK) Ltd. 24 December 2008
Due to the global recession and unstable domestic demand, Taiwan’s forecast economic growth rate for 2009 is 3.34 percent, a sharp decline from a forecast 5.5 percent in 2008. As stock prices tumbled around the world, Taiwan’s share index fell by half from its high of 9,303 on May 20, 2008. Troubled by shrinking personal wealth and consumer price inflation, Taiwanese have become more reluctant to spend.
Taiwan began an economic ascent in the 1980s with a social structure built around a middle class. However, the DPP’s leadership, unfavourable economic circumstances and shortcomings in political ideology led to a steady reduction of the middle class. Over the past 10 years, Taiwan’s middle class has fallen by nearly 2 million, equal to nearly 10 percent of the total population. Many have moved to the mainland.
Since the middle class has the greatest desire and ability to consume (most auto and home buyers are among the middle class), and large numbers continue to emigrate, the Taiwanese market will wither and economic progress will be difficult. Taiwan’s private consumption rate has fallen to about 2 percent from 7.3 percent. But due to a cross-strait trade surplus, Taiwan has been able to maintain a 4 percent growth rate.
During the 2008 election campaign, the new leader Ma Ying-jeou offered a plan he called “6-3-3.” He promised to raise the economic growth rate to 6 percent during his term, reduce unemployment to 3 percent, and achieve GDP of $30,000 per capita. “Premier” Liu Zhao-xuan identified the goal of “creating a solid and stable middle class.” However, after Ma came to office, the burden of Taiwan’s weak economy, along with global financial turmoil and the unstable world economic situation, forced him to back down from his campaign promise that Taiwan’s economy would “improve soon” and instead pledge that it would “slowly improve soon.”
Amid the credit crunch and inflation, which put the world economy in a predicament, Ma’s administration could not achieve its goals immediately after the election. Ma unexpectedly announced that the “6-3-3” promises would be difficult to fulfil, and that the plan would not be realized until the final year of his second term. This statement received a strong negative reaction, and Taipei’s share prices crashed to a 20-year low. The stock market was like a straw poll, demonstrating that people had no confidence in the incumbent’s financial and economic management abilities.
Ma faces a deep recession. In response, the Ma administration proposed policies to liberalize trade with the mainland. The first step would be to increase limits on Taiwanese enterprises’ investments on the mainland, and liberalize regulations for Taiwanese businesses that go to the mainland. However, the mainland also started tightening fiscal and economic policies to adjust its economic structure, limiting smokestack industries, cancelling rent and tax preferences for Taiwanese businesses, and implementing an employment contract law, which increased employee benefits. Thus, Taiwanese businesses in traditional industries have turned to Vietnam, where production costs are relatively lower. The result is that Taiwanese businesses will not benefit much from liberalized regulations for cross-strait trade.
The main focuses of Ma’s economic proposals are “liberalizing” and “reconstructing.” In addition to liberalizing cross-strait trade, his priorities include increasing internally directed investment. At the center of Taiwan’s problem are the “three middles” – the mid-south district of the island, the middle class, and small- to mid-sized businesses that are most in need of government assistance. If increasing domestic demand cannot solve the problems of the “three middles” and improve the economic structure, Taiwan cannot avoid the problems of weak spending and a recession.
Ma, facing a society that needs healing and an ailing economy, must depend on good cross-strait relations. He normalized charter flights to expand mainland tourism to Taiwan and liberalize investing rules for mainland funds in Taiwan.
During the 2008 campaign, Ma even raised the prospect of a cross-strait common market, unfortunately, political struggles have hindered progress and will force the Ma administration to slow down some important initiatives, such as opening Taiwan to mainland funds.
1 comment:
Global Financial Crisis: Taiwan Stumbles
Taiwan’s economy needs urgent reforms to rescue its middle class and medium sized businesses.
Jiang Suhui, President of the Taiwan Business Association (HK) Ltd.
24 December 2008
Due to the global recession and unstable domestic demand, Taiwan’s forecast economic growth rate for 2009 is 3.34 percent, a sharp decline from a forecast 5.5 percent in 2008. As stock prices tumbled around the world, Taiwan’s share index fell by half from its high of 9,303 on May 20, 2008. Troubled by shrinking personal wealth and consumer price inflation, Taiwanese have become more reluctant to spend.
Taiwan began an economic ascent in the 1980s with a social structure built around a middle class. However, the DPP’s leadership, unfavourable economic circumstances and shortcomings in political ideology led to a steady reduction of the middle class. Over the past 10 years, Taiwan’s middle class has fallen by nearly 2 million, equal to nearly 10 percent of the total population. Many have moved to the mainland.
Since the middle class has the greatest desire and ability to consume (most auto and home buyers are among the middle class), and large numbers continue to emigrate, the Taiwanese market will wither and economic progress will be difficult. Taiwan’s private consumption rate has fallen to about 2 percent from 7.3 percent. But due to a cross-strait trade surplus, Taiwan has been able to maintain a 4 percent growth rate.
During the 2008 election campaign, the new leader Ma Ying-jeou offered a plan he called “6-3-3.” He promised to raise the economic growth rate to 6 percent during his term, reduce unemployment to 3 percent, and achieve GDP of $30,000 per capita. “Premier” Liu Zhao-xuan identified the goal of “creating a solid and stable middle class.” However, after Ma came to office, the burden of Taiwan’s weak economy, along with global financial turmoil and the unstable world economic situation, forced him to back down from his campaign promise that Taiwan’s economy would “improve soon” and instead pledge that it would “slowly improve soon.”
Amid the credit crunch and inflation, which put the world economy in a predicament, Ma’s administration could not achieve its goals immediately after the election. Ma unexpectedly announced that the “6-3-3” promises would be difficult to fulfil, and that the plan would not be realized until the final year of his second term. This statement received a strong negative reaction, and Taipei’s share prices crashed to a 20-year low. The stock market was like a straw poll, demonstrating that people had no confidence in the incumbent’s financial and economic management abilities.
Ma faces a deep recession. In response, the Ma administration proposed policies to liberalize trade with the mainland. The first step would be to increase limits on Taiwanese enterprises’ investments on the mainland, and liberalize regulations for Taiwanese businesses that go to the mainland. However, the mainland also started tightening fiscal and economic policies to adjust its economic structure, limiting smokestack industries, cancelling rent and tax preferences for Taiwanese businesses, and implementing an employment contract law, which increased employee benefits. Thus, Taiwanese businesses in traditional industries have turned to Vietnam, where production costs are relatively lower. The result is that Taiwanese businesses will not benefit much from liberalized regulations for cross-strait trade.
The main focuses of Ma’s economic proposals are “liberalizing” and “reconstructing.” In addition to liberalizing cross-strait trade, his priorities include increasing internally directed investment. At the center of Taiwan’s problem are the “three middles” – the mid-south district of the island, the middle class, and small- to mid-sized businesses that are most in need of government assistance. If increasing domestic demand cannot solve the problems of the “three middles” and improve the economic structure, Taiwan cannot avoid the problems of weak spending and a recession.
Ma, facing a society that needs healing and an ailing economy, must depend on good cross-strait relations. He normalized charter flights to expand mainland tourism to Taiwan and liberalize investing rules for mainland funds in Taiwan.
During the 2008 campaign, Ma even raised the prospect of a cross-strait common market, unfortunately, political struggles have hindered progress and will force the Ma administration to slow down some important initiatives, such as opening Taiwan to mainland funds.
Post a Comment