This website uses cookies and other technologies to help us provide you with better content and customized services. If you want to continue to enjoy this website’s content, please agree to our use of cookies. For more information on cookies and their use, please see our latest Privacy Policy.

Accept

cwlogo

切換側邊選單 切換搜尋選單

Forum on Taiwan's Future

A New Government Faces Uneasy Realities

When President-elect Ma Ying-jeou takes power on May 20, he will face major challenges-global inflation, U.S. economic recession and higher expectations for Taiwan-China relations. What concrete steps should he take?

Views

99+
Share

A New Government Faces Uneasy Realities

By CommonWealth Editorial Department
CommonWealth Magazine

In the latest in its series of forums titled "Considering Taiwan's Future," CommonWealth Magazine invited BenQ and AU Optronics chairman K.Y. Lee, Citi country officer in Taiwan Morris Li, Academia Sinica academician Ovid Tzeng, and Daiwa Institute of Research chief economic adviser Christina Liu to provide their insights and advice on how Taiwan should chart its future course.

Commonwealth Magazine's deputy editor in chief Sara Wu moderated the discussion.


CommonWealth: Taiwan is currently suffering from the impact of both internal and external economic factors, including an appreciating local currency, inflation, rising crude oil prices, and the United States' subprime credit crisis. What effect will these forces have on local enterprises and individuals and what can be done to counter them?

Morris Li: The world's economic health and development are facing an increasing number of variables from which Taiwan will not be able to shield itself. Following the election, everybody seems to be more optimistic about the local economy. I personally think that people have regained confidence, but the overall economic environment has not changed too much and, if anything, has grown worse. Over the past eight years, Taiwan has averaged economic growth of around 4.5 percent, and I believe that maintaining this moderate level of growth in the future would be fine.

The basic nature of the Taiwanese economy is that of a small-sized, open economic entity. Its strength is its flexibility. Whether the economy is growing or contracting, it's able to adjust quickly. With cross-strait policies likely to be more liberal in the future, expectations are higher.

But the Ma administration's challenges are just beginning. I'll use the latest Citibank economic forecasts as an example. For every percentage point the U.S. economy contracts, Taiwan will suffer a 0.3-percent drop in growth. For every percentage point decline in China's growth, Taiwan's expansion will fall 0.5 percent. Right now, both economies are adjusting their growth forecasts downward, and Taiwan is bound to feel the impact. That's a big challenge.

K.Y. Lee: Current inflationary pressures and the subprime mortgage crisis have essentially resulted from humanity's excessive material demands and an excessive depletion of resources.

Taiwan's high-tech sector has been heavily impacted by the U.S. economic slowdown because of two major factors related to resource use. First, the era of scarce resources is approaching, an indication that the age of man's uninhibited exploitation of natural resources has come to an end.

Second is the question of whether the American way of life can be popularized around the world. The lifestyle in the U.S. is representative of developed countries, and both its resource utilization and per-capita consumption, with individuals living beyond their means, exceed America's share proportionate to the world's population. I think that if developing countries pursue the American lifestyle, they will only expedite resource shortages, and whether companies and society will be able to return to a simpler mode of life and communicate that with consumers will also be a challenge.

 Adopting New Lifestyle Values

Christina Liu: With so many things happening around the globe, I expect the new government to explain these phenomena to everybody. Many studies on the global economy are concluding that the world has entered an age of inflation, and this must be communicated with the people so that they can figure out sooner rather than later how to position themselves and adjust to reduce the impact of rising prices.

The U.S. at present is worried not only about inflation, but also about low growth or recession. Taiwan does not have these same concerns right now, but it must come up with policies to avoid following in America's footsteps.

Ovid Tzeng: Speaking as an average person who doesn't have any understanding of economics, after listening to what others had to say, my first thought was, "Oh no! I know nothing at all about this." That's our problem , we don't have an official information system, so everybody simply voices his or her own opinions. I think the government should quickly help our students and people understand the problems and how individuals can deal with them.

My second point is that I agree that we need to change some of our attitudes related to our lifestyles. In the past, the human race created infinite possibilities from finite resources without any consideration for the concept of sustainability. I think scholars need to come up with a new development model that uses very few resources to create meaningful values and lives. But the connotation of values being "honest and simple" needs to change. In the past, the "simple" life represented hardship and poverty; today it should refer to spiritual fulfillment and a simpler lifestyle. We also need to let the next generation understand that this is the new tide that is overtaking the entire world.

Inflation vs. an Appreciating Currency

CommonWealth: Right now the public is most concerned about how the government will handle inflation, while companies are worried about the appreciation of the Taiwan dollar, but these two issues are bound together. What advice would you give the new government?

Christina Liu: Right now, the most pressing issue is the policy on fuel prices. We can no longer put off coming up with a clear policy. The new administration has suggested it wants to liberalize the market and respect market forces. But has it realized that once fuel prices rise to their market level, the inflation that will follow will affect the costs of every aspect of daily life? At the same time, the government doesn't want to allow the Taiwan dollar to appreciate. So what will happen when these difficulties turn into genuine hardship in people's daily lives? Will the government simply tell everybody, "Well, you'll just have to suffer" ? The new government needs to crunch the numbers and develop a plan.

I've seen a lot of contradictions in dealing with the rise in inflation. The central bank's policy has been to raise interest rates with one hand and allow interest rates to fall with the other. Its policy lacks clarity. Of course, the central bank has also seen the difficulties faced by exporters, but you can't vacillate once you've set a policy. You can only have one direction. When it comes to adjusting fuel prices and the value of the Taiwan dollar, to what extent will the government let them be decided by market forces? There needs to be a clear direction.

What I want to remind people is that policy-making is a real discipline that must be taken seriously.

K.Y. Lee: On the question of the appreciation of the Taiwan dollar, most Taiwanese manufacturers operate across borders, and our costs are not necessarily all calculated in U.S. dollars, so I don't see either an appreciation or depreciation having much of an impact. On the other hand, a lot of our expenses are in Chinese renminbi, and some appreciation of the Taiwan dollar could offset some of the pressure from the strengthening of the renminbi. An appropriate appreciation of the local currency should be considered. The value of the U.S. dollar is currently falling against currencies all around the world; should the Taiwan dollar fall with it? I don't think that's necessary. Companies should figure out how to deal with a rising currency on their own.

Christina Liu: I feel the same way. Under these circumstances, I think allowing the currency to appreciate is one way to fundamentally help the average person enjoy some benefits from economic growth. Right now, the timing, the environment and the human element are all perfect. The international community also believes that Taiwan has been undervalued in many respects. What's more, right now overseas markets are cooling off while the domestic market is hot, so we should take advantage of the opportunity. Appreciating the currency would offset rising commodity prices. And another advantage would be that the higher economic growth is, the stronger your position would be to combat inflation. If you have growth of 7 percent and inflation is 4 percent, you won't feel that hard up.

Ma Ying-jeou prescribed 12 major infrastructure projects to generate economic growth, while (the losing presidential contender of the Democratic Progressive Party) Frank Hsieh advocated cutting taxes, but both of these are really problematic, because they both would impact the country's finances at a time when Taiwan's government has no resources to throw at problems, no matter how clever it is. The one method I've seen that would work in sync with the current situation is the wealth effect (where increases in real or perceived wealth lead to increases in spending). The entire world has experienced the wealth effect in recent years. At one point the indexes of both the Taiwan and Hong Kong stock exchanges were at 8,000 points, but now Hong Kong's market is at 24,000 points while Taiwan's is still at 8,000. Taiwan has too often been absent at critical moments, but it now has a great opportunity. Before the subprime mortgage crisis hit last year, the market was nearly at 10,000 and Taiwan's economy had obviously improved, so, in fact, the strength is there. It's just a matter of revitalizing domestic markets, or else Taiwan will stagnate along with the rest of the world.

Economic Growth through Value-added

CommonWealth: Looking at Taiwan's future, with a global economy full of uncertainty, how should Taiwan position itself? What are Taiwan's competitive advantages and disadvantages?

K.Y. Lee: Taiwan has some unique advantages. First, the average caliber of local talent is high, there is a high level of homogeneity, and most of the work force is of similar quality. There's also a high level of consensus on the general outlook on life, except on political issues, where people's opinions diverge.

Second, Taiwan's entrepreneurial spirit ranks among the best in Asia, with many willing to take risks and come up with conceptual and creative breakthroughs. This entrepreneurial spirit is very strong among Taiwan's people.

Third, the quality of life in Taiwan is relatively good, especially when viewed from the perspective of the ethnic Chinese world. Although many people want to go to China's big cities to buy property, China's population features a wide spectrum of classes. Big differences in quality of life can exist in the same location. Right behind a new building, the alley might be extremely run-down. Taiwan has mountains and the ocean. Its good living environment, its cultural environment, the huge area that's now accessible within two hours by high-speed railway – these are all rarities in most Chinese communities. The existence of this environment can inspire unique lifestyle trends and cultural creativity. 

With these three advantages in mind, I think Taiwan needs to be even more out-front in its consideration of this issue. In confronting the crisis of global sustainability, the government cannot treat it as simply an economic problem. It has not explained how it will face the issue or what everybody's role should be in dealing with the problem. As a matter of policy-making, we should engage in strategic thinking and not simply be bound to GDP growth.

The new president-elect has committed to economic growth of 6 percent, but, to be honest, I don't think that's reasonable. He should think about how to use higher value-added to add the two percentage points he needs to get to 6 percent. The government needs to present this vision and should inform the people where the challenges lie.

Reducing Dependency on the U.S.

In terms of how Taiwan should position itself, the Asian market is growing in importance as a proportion of the world market. The recent subprime mortgage financial crisis has swept across the globe. But will we in the future have the ability to help reduce the Asian market's reliance on the U.S. and consume what we produce? This, of course, depends on our attitudes toward the Chinese and Indian markets. I think that the fast pace of growth in China and India are opportunities for us.

Ovid Tzeng: It would be to Taiwan's greatest advantage if it didn't limited its talent pool to Taiwan itself. Something that in the past we weren't able to accomplish, because of certain political factors, but the new government needs to do right away is to transform the talent scattered around the world into one integrated body of wisdom. Taiwan also has regional advantages. Its researchers are very strong in the area of basic science and cannot be matched by nearly any country in Southeast Asia.

Another Taiwanese advantage is that its population, transportation network, health care system, educational standards, environment and lifestyle are all very attractive, creating an opportunity to draw more people to Taiwan. Taiwan's population of 24 million is of an appropriate scale, sufficient for almost any kind of investment, research or development. Southeast Asia knows that it will be hard to catch up with the U.S. and Europe in basic science. But if you take Taiwan's foundation and work together with other Southeast Asian countries, we can be a very good "ocean." Southeast Asia has many ethnic cultures of common origin with Taiwan and if they are properly tapped and brought together, this scholarly force can quickly integrate Taiwan and Southeast Asia.   

Time Is Right to Attract Foreign Capital

Christina Liu: Taiwan's main disadvantage is obvious ?w it's the dominance of politics. Right now, our economic strength is extremely fragile, which is our vulnerability. I think Taiwan has been asleep for eight years and fallen behind the other Little Dragons of Asia (South Korea, Hong Kong and Singapore), and as a result many qualitative changes and new trends of thought have passed us by. We have isolated ourselves not only from China, but also from the rest of the world.

The good thing is that we have finally awakened. With storms still gusting through world markets, international investors are looking for new targets, and I think we should take advantage of this moment to promote Taiwan to the world and tell investors the advantages we have. I've noticed that many Taiwan indexes are undervalued ?w as though something is tainting Taiwan and lowering its asset values. A good example of that was Standard Chartered's acquisition of Hsinchu International Bank.

K.Y. Lee: I just want to clarify that Taiwan may have been asleep for eight years, but the private sector wasn't. We've already become the biggest producers in the world of a number of products, including flat panels and LEDs. We will still have opportunities.

Morris Li: Getting back to Taiwan's advantage as a flexible, small-sized open market, we have to follow a very precise and practical course. The key to a liberalized, small-sized economic entity is that it is in fact open, so the question becomes how to ensure that incoming capital is not speculative. An important point on this issue is that the exchange rate is a lever ?w if I adjust it by a percentage point, how much will that improve asset performance? In the future, dollar-denominated funds that enter Taiwan will be invested here and then remitted back out of the country. How to adjust the exchange rate so that over the long term these funds will be invested in Taiwan, rather than speculatively, involves the long-term strategic direction of the government's policy on economic development. 

Expectations for Relations with China

CommonWealth: Looking at cross-strait relations, what are your expectations for the new government and the new president? What advice do you have on taking advantage of China's extensive commercial opportunities, and dealing with its threats, such China's improving technical standards, and the pressures Taiwan may face to reinvent itself?

Christina Liu: I don't have too many expectations for cross-strait relations. Actually, I only have one, and that's the "1992 Consensus." (Note: The term refers to the formula of having China and Taiwan recognize there is one China, but with each side having their own interpretation of what that means.) This is the most fundamentally important issue, to finally determine if there is a formula that everybody can accept. I hope that the government can summon the wisdom and skill needed to find a point of equilibrium.

Second, on cross-strait relations, the need for consensus between the ruling and opposition parties cannot be overlooked. The Democratic Progressive Party received more than 5 million votes in the presidential election, a force that should not be ignored. That, of course, doesn't imply that they do not approve of the "1992 Consensus," but many DPP supporters still do not accept it. If the KMT as the ruling party unilaterally negotiates with China without regard for the opposition, there will still be internal wrangling. So the ruling party still needs to hold discussions simultaneously with China and the DPP. 

There was considerable debate during the election campaign over allowing Chinese investors to invest in Taiwan's real estate market. As I was listening to the presidential debates, I kept wondering if the candidates really believed that China would accept whatever terms Taiwan wanted. On March 20 (two days before the election), China's commerce minister Chen Deming said that to protect mainland investors, any investment in Taiwan's property market would have to come under the premise of the "one-China" principle.

The only area where China has not insisted on a "one-China" framework is tourism. But for all other issues, the "1992 Consensus" is still the main barrier that needs to be overcome. I hope the ruling party will be able to successfully handle this issue.

Easing Regulatory Barriers

K.Y. Lee: From the point of view of the private sector, as long as the government is able to establish more open cross-strait relations, there will be a very large number of companies and entrepreneurs who will have confidence in Taiwan. Restrictions that limit local companies to investing a maximum of 40 percent of their net worth in China or restrictions on enterprises returning to Taiwan to list on the market, including that they cannot list if they do not have operations here ?w these issues cannot be solved by the Taiwan Stock Exchange's rules; the prevailing mindsets on these questions need to be altered substantially.

I think easing restrictions is very important. The many Taiwanese businesses in China and Southeast Asia remain hindered by regulations in Taiwan, so it's hard to lure them back to list publicly in their native land.

Ovid Tzeng: From an academic perspective, much of Taiwan today does not understand how rapidly China's academic sector is advancing, and that's a big problem. How to further open Taiwan's education system and use talent from around the globe is very important. Academia Sinica has international researchers, but we do not allow scholars from China, Hong Kong or Macau. You want to recruit talent but won't allow them entry. Taiwan needs a free flow of talent, so the government's policies should encourage this kind of free flow. By recruiting different kinds of talent, Taiwan's students will see different kinds of competitiveness.  

Taiwan needs to upgrade itself or else it will become invisible to the rest of the world. When scholars from the U.S. and Europe visit Asia in the future, they may only stop in Tokyo and Kyoto and then Beijing, Nanjing, and Shanghai before heading home. What can Taiwan do to get them to come here? There has to be a strategy. Taiwan should consider establishing research institutes in the U.S. and other advanced countries so that our researchers can gain the attention of people there. 

One other major problem with closer cross-strait relations is the fostering of talent. If the government continues to put off investing in education, our competitiveness will gradually fade away.

(Compiled by Hsiang-Yi Chang)

Translated from the Chinese by Luke Sabatier

Views

99+
Share

Keywords:

好友人數