Economics Minister Chang Chia-juch:
Long-term Battle for Economic Recovery
In this exclusive interview, Taiwan's Minister of Economic Affairs considers the perils facing the island in the emerging international economy, the remedies the government can offer, and what industry needs to do on its own.
Long-term Battle for Economic RecoveryBy Interview by Sara Wu, Jimmy Hsiung, Sofia Lee
From CommonWealth Magazine (vol. 539 )
Adjusting the industrial structure and creating a good investment environment is the remedy that Economics Minister Chang Chia-juch recommends to reverse the downward trend of salaries and wages in Taiwan. The minister sees a need to act, because he is painfully aware that the island's economic growth no longer translates into salary growth.
"No matter how much GDP grows, it's meaningless if the people don't feel it," is the message Chang has tried to drum home many times, urging employers to grant pay raises. At least in the legislature, it fell on deaf ears. Since Taiwan posted less than two percent GDP growth last year, lawmakers punished Chang by halving his year-end bonus and freezing it.
Faced with structural problems that have accumulated over time, Chang believes he had better bear the barrage of criticism and insist on carrying out a long-term restructuring program instead of spending time and energy on staging short-lived economic fireworks. Chang is clearly aware that although Taiwan's service industry accounts for 70 percent of GDP and employs nearly 60 percent of the population, government and business remain stuck in the thought patterns from the days of Taiwan's "economic miracle": Industrial policy still heavily emphasizes the manufacturing industry, while large corporations remain obsessed with the idea that a business can only make more money if it brings down costs.
As investment languishes, enterprises are not willing to raise salaries. Taiwan's super high savings rate has reached a 24-year high, not because citizens are saving more, but because companies are stashing away cash instead of investing.
In recent years new foreign direct investment has hovered around US$4-5 billion per year in Taiwan, while in Singapore it has been steadily rising.
Chang, who comes from an engineering background, lays out his clear, logical thinking, speaking at a deliberate pace that reveals a character of professionalism and persistence.
Since taking over the economics portfolio in February last year, Chang has had his hands full dealing with the controversies surrounding the fourth nuclear power plant and the trade in services agreement with China, as well as the shutdown of a Kaohsiung plant belonging to Advanced Semiconductor Engineering Inc. (ASE) in connection with a water pollution scandal. Adding insult to injury, citizens who are disgruntled over wage levels that have been stagnant for over a decade are directing their anger first of all at the economics minister.
Taiwan cannot afford to spin its wheels any longer. What does Chang intend to do to rescue Taiwan's economy and boost working people's pay?
Following are highlights of the interview:
Q: Investment has been sluggish in Taiwan in recent years. Companies have a large amount of cash on their hands, yet they are not willing to invest. Foreign investors' interest in Taiwan is not high either. What is your take on the situation?
A: Our understand is that Taiwanese companies are still investing, and foreign investment is growing slightly, both in terms of invested amount and number of projects. In 2013, we were able to reach our FDI target of US$10.5 billion (including additional investment in existing FDI projects). But I'm still very concerned, because we have had very few large-scale projects in recent years. In the past, the main investment driver was the manufacturing industry, but now the manufacturing industry invests less and less. It's not a very rosy picture.
Changing Markets, Sluggish Investment
Q: What is the reason behind the decline in large-scale investment?
A: There are both external and internal factors.
There are three external factors. First, we have relied on manufacturing industry exports for a long time and are therefore greatly affected by the global economic situation. Prolonged recessions in Europe and the United States are harming our exports. Since the third and fourth quarter of last year, the economy has begun to rebound, but the speed of recovery is very slow.
Secondly, due to sluggish markets in Europe and the United States, Taiwan's export orientation has been shifting toward China. China, however, has been promoting an import substitution policy in many sectors of the manufacturing industry in recent years, which has led to rising domestic output. Therefore, you need to be highly competitive if you want to export to China.
Third, there is the problem of regional economic integration. Countries around the globe are aggressively signing free trade agreements (FTA), but Taiwan is not moving fast enough and lacks good arrangements.
Right now we need to sign agreements with China on trade in goods and services. It's not because we're eyeing their market, it's because if we can't normalize and systemize our trade relations with China, we don't need to even think of negotiating FTAs with other nations, and we won't be able to open up other markets. These are the political realities.
Getting Ready for Liberalization
Q: Taiwan's marginalization amid the global trend for regional economic integration is cause for concern. Which policy responses has the Ministry of Economic Affairs adopted?
A: In order to join various regional economic integration schemes, such as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), Taiwan needs to have points that make it attractive and must fulfill conditions for participation.
We need to give up our old thinking that we can take from others without giving anything. Here in Taiwan we need to change our mindset with regard to market liberalization and opening as quickly as possible. Participation in regional economic integration comes at a price. While some industries will gain better development opportunities, others will inevitably be negatively affected.
Whenever we discuss FTAs, our counterparts are sure to mention the China problem. We need to convince them that Taiwan, China and the signatory nation have a trilateral relationship. Now that Taiwan has signed FTAs with New Zealand and Singapore, other countries are beginning to show interest too.
It's not that we are helpless or lack a strategy. But systemic deregulation will face a lot of resistance domestically. If we can't manage to remove these resisting forces we will have great difficulties finding a way out.
Q: Can you elaborate on the internal factors behind the decline in large-scale investment?
A: There are three major internal problems.
First, the land problem. Some of our industrial zones sit idle and empty, while others are so sought-after that interested companies can't get in. And then there are other cases, where investors have bought land but don't produce, while those who really need the land can't move into the zone due to this imbalance between supply and demand.
We need to take stock and reconsider the situation, do overall financial planning and allocation. It would be best if we only leased land instead of selling it or if we set a deadline for development after land has been purchased.
Balancing Development and Environment
Second, there is the problem of environmental impact assessment and bureaucratic procedures. Environmental awareness is very strong in Taiwan. Even if a company smoothly completes administrative procedures, this often takes much too long, so that business opportunities are missed.
Third, local governments aren't doing enough to solicit investors, because they don't get much out of [business] tax revenue. Many local governments demand that companies solve disputes with local residents on their own or even hope that the companies relocate their factories elsewhere.
Q: Does the Ministry of Economic Affairs have proposals as to how to address these problems?
A: In 2013 we held about 20 roundtable discussions with different industries to understand their problems. We also set up a taskforce for eliminating investment obstacles, which handles individual cases.
Moreover, we have reached an understanding with the Ministry of Finance to adjust our policy on the allocation of centrally funded tax revenues. In order to give local governments a greater incentive to solicit investment, we will consider their contribution to industrial development when deciding [central government] subsidies.
Companies Need to Adopt New Thinking
Q: Although salaries do not fall under the economics ministry portfolio, what is your view on the problem of declining pay?
A: There are quite a number of companies in Taiwan that make money. We are looking into how these could be encouraged to raise salaries. Japan uses tax breaks to encourage companies to pay higher salaries, but since Taiwan already has too many tax incentives, doing that would be inappropriate.
With regard to salary raises, companies still need to change their thinking. They need to retain talent on their own account and regard talent as an investment, not a cost, so that talent can pay back to the business. Even if the government used a whole host of different measures to encourage companies to raise pay, I'm afraid it wouldn't be very effective.
Q: What kind of pump-priming measures are now being planned by the Ministry of Economic Affairs?
A: The ministry's view is that a host of fundamental problems need to be solved, including what we just mentioned – investment, exports, industrial structure, manufacturing industry transformation, higher-margin products, international trade integration and so on. If we don't solve these problems, the competitiveness of our products will be severely limited.
We are not proposing short-term solutions. Our efforts right now are devoted to medium and long-term measures that are coordinated among the cabinet agencies and in concert with local governments to remove investment problems case by case. We need to take a step-by-step approach to solve these problems, because Taiwan's economic transformation is a structural problem.
Translated from the Chinese by Susanne Ganz