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Christina Liu

Restarting Taiwan's Twin Engines of Growth

Restarting Taiwan's Twin Engines of Growth

Source:Chieh-Ying Chiu

Taiwan's chief economic planner ponders the new paradigm shaping up for Taiwanese industry in 2011, as for the first time all sectors compete on a level playing field, letting the market decide the winner.

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Restarting Taiwan's Twin Engines of Growth

By Jerry Lai
CommonWealth Magazine

In an exclusive interview with CommonWealth Magazine, Christine Y. Liu, chairperson of Taiwan's Council for Economic Planning and Development (CEPD), emphasized that Taiwan has entered the era of "twin engine growth." Exports, which have always been the island's growth driver, will continue to increase, while previously sluggish domestic demand will pick up markedly. Liu foresees 2011 as a key year for Taiwan, because for the first time all industries will compete on a level playing field, taking off from the same starting line. The corporate income tax rate has been cut to 17 percent, easing the burdens of industries that rely on domestic demand, while tax incentives for the high-tech industry have been phased out. The old tax incentive policy had come under fire for what many saw as the government's unfair favoritism toward the high-tech industry at the expense of conventional industries. "The winners will be decided by the market," Liu contended, stressing that in the future the government will no longer have a hand in picking the winning industries.

Following are highlights from the interview:


Some people might want to ask: Why invest in Taiwan? What advantages does Taiwan offer? When there weren't any direct flights across the Taiwan Strait in the past, many multinational companies felt that Taiwan didn't offer any good investment opportunities. There were even a lot of companies that relocated to other countries. But over the past two years, cross-strait relations have changed markedly. For example, the first direct cross-strait flight took off only two and a half years ago, but now we already have 325 scheduled cross-strait flights per week, and all flights are booked out. Another example is Taiwan's opening to tourists from China, which also happened just two and a half years ago. This year (2010), the number of Chinese visitors reached 1.5 million, about 30 percent of the five million foreign tourists in Taiwan overall.

These two examples show the huge growth potential that peaceful cross-strait development can unleash. The signing of the Economic Cooperation Framework Agreement (ECFA) will, of course, bring even greater development potential for various different industries. The trade pact is also bound to persuade more multinationals to enter into alliances and strategic partnerships with Taiwanese companies, which again will greatly increase Taiwan's attractiveness.

In the first quarter of this year (2010), Taiwan posted economic growth of 13.27 percent. Second quarter growth stood at 12.53 percent, and the growth rate for the entire year reached 10 percent. Of course, such a high growth rate makes us happy, but our greatest gratification is not just the rising growth rate, but that three quarters of that growth has come from investment-led domestic demand. People may not feel it, but Taiwan's economic structure has actually already begun to change. This means that the employment, consumption and salaried income of Taiwanese residents will gradually catch up. That's very important.

Fair Competition for Taiwanese Industry

Given the changes just mentioned, industrial development will also see some changes. In the past we overemphasized the industrial sector and did not take as much care for the service sector. This year we lowered the corporate income tax from 25 percent to 17 percent, a downward adjustment that will benefit economic development. Furthermore, we know that Taiwan has for a long time granted certain tax incentives to different industries, but the service industry and the conventional industries often did not get their share of these benefits, because we favored the industrial sector and high-tech development. Therefore, the significance of slashing the tax rate to 17 percent is not simply just for the sake of a lower tax rate, but to improve opportunities for fair competition among the industries. Which industries will emerge as the winners? Under a framework of fair competition, we will respect the decision of the market.

Now, if Taiwan offered so many advantages and had an open market in the past, why did companies fail to invest in Taiwan, or even move offshore? Let's see what's different about Taiwan now. Why Taiwan and why now? It's because over the past two and a half years Taiwan has truly undergone massive change.

First, direct cross-strait flights opened in July 2008. Second, visits by Chinese tourists were allowed in July 2008, and beginning next year (2011) Chinese tourists will be allowed to travel to Taiwan independently (rather than on escorted group tours). Third, in January 2009 the estate tax rate was lowered from a maximum of 50 percent to 10 percent. So flight capital is returning. And then Taiwan was opened to Chinese investment in July 2009. Moreover, the corporate income tax rate was slashed from 25 percent to 17 percent in May 2010 (retroactive from Jan. 1, 2010). Hong Kong's corporate income tax rate is 17 percent, and Singapore's is 16.5 percent. But we're really competing with Korea – South Korea has a rate of 22 percent – because our economies are very similar in nature. From that perspective our 17 percent rate is very competitive.

With the signing of ECFA in June this year (2010), our economy was given another boost. On top of that, Taiwan has very ample capital at home and has repeatedly performed well in international competitiveness rankings. Under these conditions we want to tell investors around the world as well as Taiwanese businesses at home and abroad that we are working hard to attract everyone to come back to invest in Taiwan. We are determined to be the most effective in clearing away any problems or obstacles that may arise.

The government has set up an organizational framework for soliciting global investment. The convener of the Executive Yuan's Global Investment Promotion Task Force is Premier Wu Den-yih, while Vice Premier Sean Chen is the deputy convener. Underneath that task force we have established a Global Investment Promotion Committee (for which the CEPD is responsible for planning and promotion), and the InvesTaiwan Service Center (ITSC, a one-stop service window under the Ministry of Economic Affairs with individual cabinet agencies in charge of implementation).

Taiwan has many outstanding products, so what we need now is integrated marketing. In the past the central government agencies went abroad to find investors, and the local governments did the same. Now all these efforts have been bundled, which will improve our visibility. For example, nowadays we can buy products from all over Taiwan at 7-Eleven convenience stores. Among the government agencies, the CEPD plays the same kind of role. The Department of Health offers international medical care, the Council of Agriculture has high-end agriculture, the Council for Cultural Affairs has cultural and creative products, the Ministry of Transportation and Communications has all sorts of infrastructure products, and then there are urban renewal projects under the Ministry of the Interior. Each cabinet agency offers good products.

The CEPD's Global Investment Promotion Committee sorts these products and puts them on display so that investors can take their pick. Interested investors can consult with the relevant cabinet agency. In the end the MOEA's one-stop window places the order and provides assistance on all fronts, be it providing capital or establishing a factory. From A to Z, all of Taiwan will be bundled together to improve our visibility and efficiency.

Market to Pick Best Industries

But where do the products on the display shelves come from? We have the i-Taiwan program, a total of twelve infrastructure projects, involving the expenditure of NT$3.99 trillion over eight years. About 30 percent or NT$1.2 trillion worth of these projects will be carried out with private sector participation as BOT (build-operate-transfer) projects.

Aside from infrastructure, there are the six emerging industries including biotechnology, tourism, green energy, medicine and health care, high-end agriculture, and the cultural and creative industries. Then there are four emerging intelligent industries (such as cloud computing) and ten key service industries, including the internationalization of Taiwanese cuisine and international medical care. So when you add them up, these 12 i-Taiwan infrastructure projects and 20 emerging industries are the future industries of Taiwan.

Many people would like to know which industry will stand for Taiwan in the coming decade. Of course, not all twenty will do that. In the past our industrial policy was to pick a few special industries and give them preferential treatment. We won't do that anymore. The 20 emerging industries that I mentioned have already been carefully selected. Following the financial crisis, the external global environment has seen some changes. First of all, the economic center of the Western world is slowly moving east. Secondly, improved cross-strait relations have handed Taiwan a larger market. Thirdly, Taiwan possessed many strengths to begin with. But which of these 20 industries will grow most vigorously? We will leave that decision to the market. Only those that have been picked by the market will prove the most competitive internationally. That's also the main objective of our global investment promotion. We want to parade our industries abroad, so that Taiwan's people, Taiwanese investors and foreign investors all understand them and are familiar with them. We firmly believe that after we've done this, a focus is going to emerge, and Taiwan's best industries will naturally come to the fore.

Translated from the Chinese by Susanne Ganz

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