The world economy may be in the doldrums this year, but Taiwan doesn't seem to have caught on.

Slowing global economic growth, U.S. subprime mortgage crisis aftershocks, soaring crude oil prices, growing grain shortages – the world is entering an era of retrenchment, characterized by high inflation and low growth. The International Monetary Fund has predicted that there is only a one-in-four chance of global growth exceeding 3 percent in 2008 and 2009.

Challenge 1: Translating Optimism into Investment

While the world's economy remains in a haze, the small island of Taiwan is more confident today than it has been at any time in the past eight years, according to CommonWealth Magazine's survey of the CEOs of Taiwan's top 1,000 enterprises. Some 84 percent of CEOs expressed dissatisfaction with the economy in 2007. ( Table1-1) But 70 percent believe the economy will gradually recover this year, following the election of a new administration that has made reviving the economy the centerpiece of its agenda.

Also, more than 45 percent of CEOs see Taiwan's international competitiveness improving in 2008.

Local business leaders seem hopeful that a long-lost economic springtime has returned, their confidence buoyed by the election of a Kuomintang administration, the potential for regularly scheduled non-stop flights to China, and expressions of goodwill from authorities in Beijing.

"This is a truly opportune moment. Taiwan's government should rethink its own business model," says Far Eastern Group chairman Douglas Hsu.

But while Taiwan's executives have high expectations for the new administration, they are still waiting to see how it will perform after taking office on May 20. Nearly 60 percent of the CEOs surveyed said they planned to maintain the same level of investment in Taiwan after the transfer of power, with only 40 percent saying they would invest more in the country.

Challenge 2: Stabilizing Prices, Preventing Inflation

The survey found that executives saw planned cross-strait liberalization as a stimulant for Taiwan's economy rather than a permanent cure for what ails it. The KMT government will face many challenges, and the CEOs believed its top priority should be to stabilize soaring commodity prices and avoid an inflation crisis. (Table 2-2)

Quanta Computer chairman Barry Lim, who describes himself as "a refugee in Hong Kong who became a citizen in Taiwan," was one of the CEOs most concerned about the deepening disparity between rich and poor, especially because the poor will be the first to bear the brunt of any slowdown in economic growth.

"Over the past eight years, Taiwan has not taken care of the poor," laments Lim, who said he advised president-elect and fellow National Taiwan University alumnus Ma Ying-jeou to not only focus on wealthy entrepreneurs heading to China to make money, but also to take care of impoverished households at home.

Stabilizing prices and holding off inflation, which will serve to protect the middle class, were cited by CEOs as the most important tasks of Ma's administration. Opening ties with China was seen as only the second highest priority, with "improving government efficiency, eliminating corruption" following closely behind, a clear indication that the private sector will not lower its standard for "clean" government simply because a new party will soon take power. (Table 2-2)

Challenge 3: Direct Flights, Bumpy Ride?

China remains both an opportunity and a threat that Taiwan must confront.

Despite facing a tougher manufacturing environment and rising labor costs in China, and being admonished by China's former vice premier Wu Yi to "not just pull your carts with your heads down, but look up at the road ahead," China-based Taiwanese companies still feel the mainland is the best location for them. Some 60 percent of CEOs said they will not adjust their investments in China, and 27 percent said they would even expand their operations there. Vietnam, which many predict will become the next China, was the next most preferred investment destination. (Table 4-3)

With China's allure undiminished, the CEOs believed that the biggest incentive to attract long-term foreign investment in Taiwan would be to "open direct cross-strait flights." (Table 2-3) Some 70 percent of the executives also think their companies will benefit from more open trade and commercial relations across the Taiwan Strait. In their minds, China is gradually shifting from being the world's factory to the world's market and has already become a strategic R&D center for high-tech firms. (Table 3-2) The global technology sector has cast its eyes on Chinese engineers as a key talent pool.

Taiwan's IC design sector, with a 21-percent share of the global market, began enlisting the help of Chinese engineers long ago. MediaTek Inc., for example, already employs 900 people in China. Relying on Chinese engineers to develop solutions that comply with China's television and communications standards, MediaTek has been able to gain a significant share of China's IC market.

"China is one piece of the global puzzle. It has one quarter of the world's population. If you were to remove it, then you wouldn't have a whole world," asserts MediaTek chairman Ming-Kai Tsai.

But with opportunity comes risk. Cutthroat competition pervades China's burgeoning domestic market. (Table 3-3) Many of Taiwan's small- and medium-sized enterprises that rushed into the China market without upgrading their operations are now struggling to survive amid price wars. 

Economic Growth, a Private-sector Concern

The 20th-century economist Joseph Alois Schumpeter argued that since innovation is the major source of economic growth, entrepreneurs serve as the main engines of that growth. If Taiwan, which in the past has adopted elements of a planned economy, wants to evolve into a high value-added service-based economic entity, it will need to rely on individual enterprises' capacity for innovation. (Table 4-1)

"Every company has to think for itself how to innovate, how to increase its value-added," says Taiwan Semiconductor Manufacturing Company chairman Morris Chang. The strength of the government has fallen behind that of the private sector, meaning that companies must fearlessly bear the full responsibility for economic growth.

Sweeping away the haze of the past eight years, corporate executives are now moving forward, cautiously optimistic that better days are ahead.

Translated from the Chinese by Luke Sabatier

About the 2008 Survey

CommonWealth Magazine's 2008 survey of CEOs of Taiwan's Top 1,000 Enterprises surveyed the CEOs of enterprises likely to be ranked among CommonWealth's leading 1,000 companies in 2008. Of these, 82.7 percent were domestic companies and 17.3 percent were foreign enterprises operating in Taiwan. In terms of distribution by industry, 63.8 percent of the companies were in manufacturing, 27.1 percent in the service sector, and 9 percent were in the financial sector.

The survey was conducted from Apri1 1 to April 16, 2008. Of 2,540 questionnaires sent out, 372 valid responses were received, a response rate of 14.6 percent.