Moderated by CommonWealth Magazine Editor-in-chief Sara Wu, this panel discussion brought together Wang Jiann-chyuan, vice president of the Chung-Hua Institution for Economic Research, Morris Li, chairman of CTBC Bank, Hiwin Technologies Corp. President Eric Chuo, Formosa International Hotels Group Chairman Steven Pan and Taiwan Labor Front Secretary-General Sun Yu-lien.

Q1: How big an impact will the COVID-19 pandemic have on Taiwan’s economy?

Wang Jiann-chyuan: The OECD estimates that global GDP will decline 0.5 percentage points provided that China contains the epidemic well and that it does not spread [further] in the West. That’s scenario 1.

The second scenario is a broader global spread, in which case GDP growth will decline 1.5 percent. Goldman Sachs also forecasts that China’s GDP will decline 0.5 percentage points if the coronavirus crisis ends with the first quarter. Should it continue into the second quarter, the country’s GDP will contract more than 1 percentage point.

For Taiwan to maintain an economic growth rate above 2 percent is a very hard job. If the coronavirus crisis continues until August or September, then the economic growth rate will decline at least one percentage point.

Q2: How is the coronavirus pandemic affecting different industries?

Steven Pan: Airlines, tourism, and the hotel industry are taking the brunt of this tsunami. In the two months since the coronavirus outbreak, we have virtually been in the hospital for two months, only the hospital has been giving us flu medication the whole time [instead of an effective medication]. We are going to have to fight an uphill battle. In the first week of March, the five-star hotels in Taipei were left with an occupancy of just 10 percent.

This means that presently the airline industry, international travel agencies and the international travel industry and hotels have no sales revenue at all.

The last time we had such a situation was the [2001] September 11 attacks, then the [2002-2004] SARS epidemic and then the [2007-2008] financial crisis. The streets were empty and no one dared to leave the house.

Eric Chuo: However, the situation in China is now better than two months ago or in the 4th quarter of last year. As far as Taiwan is concerned, the machinery industry seems to be doing pretty well in March. We are now rushing a huge amount of orders. We did not work overtime in January orFebruary, yet in March we gave permission for overtime work.

Conventional Industries Hard Hit, Service Industry Pummeled

Morris Li: The major contributor to Taiwan’s GDP are net exports; they account for more than 65 percent. In the coming months, Taiwanese exports and imports will definitely take a hit. Everything will be affected, from directly related industries, indirectly related industries, small- and medium-sized enterprises to market confidence and turnover,.

An interruption of imports will lead to an interrupted cashflow, affecting one sector after the other. One month ago, Taiwan’s imports and exports, consumption and the stock market looked quite normal, but most recently their performance has changed greatly. In the short-term, this will be like a tsunami that unleashes wave after wave.

What everyone wants is cash. I think the central banks around the world are all doing the same thing, providing as much liquidity as they can, so that companies can borrow money and the banks are able to lend money to their clients.

Q3: What should the government do to protect labor rights?

Sun Yu-lien: In one day, two journalists asked me questions: One asked whether the manufacturing industry needed to smash the policy of one day off in seven days in order to increase overtime because of the epidemic. One hour later, another journalist asked me about unpaid leave. This shows that some industries will still grow or maintain [their current level] or need to work overtime.

Presently, the off-peak period might still be a certain distance away. In 2008, Taiwan’s unemployment rate stood at 6.13 percent. This month it might rise a bit month-on-month, but I don’t think it will break through the four-percent mark.

Presently, the Labor Ministry’s policy is still quite practicable. The Employment Stability Fund has allocated some funds to support workers’ livelihood in case of reduced working hours, temporary closure or unpaid leave. 

On top of that, the government implemented employment stability measures [for the insured] after 2002 to stabilize employment — the Employment Insurance Act was formulated, but the hurdle for launching such measures is very high, since the unemployment rate [among the insured] must be higher than 2.2 percent for three months in a row. Last year, the unemployment rate [among the insured] was revised downward to 1 percent for three months in a row, but I still feel that the threshold is too high.

We could list those who are directly and most heavily affected, such as those who work in the industries that are taking the brunt of the tsunami, which is where the government needs to get involved first at the current stage to deal with the situation.

Q4: What kind of relief and pump-priming measures should the government take?

Pan: Relief and pump-priming measures are exactly what need to be the last mile in this pandemic.

The government is providing a relief budget worth NT$60 billion for the tourism, aviation and travel industries. If this NT$60 billion is focused on keeping those with severe symptoms alive to prevent a jobless wave, it will be much more effective than spending NT$600 billion in the future to save all people.

You need to administer the right medicine for an illness; you cannot just give everyone flu medicine.

To cite an example, U.S. President Donald Trump met with American hotel owners at the White House a couple of days ago. They reached a consensus that guaranteeing employee income and preventing an increase in the unemployment rate are the most important measures to take now in protecting the economy amid the epidemic.

That’s why the American hotel bosses suggested that the government provide US$100 billion in relief to subsidize the salaries of all employees in the hotel sector. These funds would be treated as subsidies later on as long as employees were not made redundant in the coming six months.

Now priority must be given to enabling industries to retain their employees instead of making workers take to the streets to protest and then have the government come in again to provide relief.

Presently liquidity is most important. If we don’t handle this well, we will see a surge in joblessness in the order of several hundred thousand people after April. Already now, some smaller hotels are beginning to experience a rise in redundancies.

The tourism industry is facing a threefold monetary issue – salaries, taxes and rents.

We can’t continue to compete by cutting prices, as everyone is protecting the rights and income of their employees. We definitely need government assistance regarding salaries, which is the most important of the three monetary issues.

Li: Over the past decade, Taiwan’s banks registered double-digit growth every year. Last year they made NT$35 billion, a historic high. Their bad debt ratio stands at around 0.3 percent, the lowest worldwide.

Therefore, every bank is certainly backing the government’s relief policy in these times.

If we want to take relief measures, these must be targeted, and their efficacy must be reinforced. Although the GDP ratio of the industries that need relief might be very low, the second wave of impacts will arrive very soon. The government should have some complementary measures to stimulate certain industries in the medium and long term.

Chuo: The government must pay attention to small- and medium-sized enterprises (SMEs); they need relief, but the banks should not be asked to lower interest rates; interest [rates] are already low enough.

It would already be very helpful for small- and medium-sized manufacturers if loan payments could be extended beyond their due date. Moreover, employment must be guaranteed since people only dare to consume if they have jobs. 

Sun: At the current stage, I agree that we first stabilize employment. The relief measures proposed by the Ministry of Economic Affairs resemble those taken by the United States. After receiving government relief, companies must pledge not to fire people...such complementary measures are very important.

Second comes the Employment Stability Fund. My suggestion is to remove the 1 percent threshold, since if we don’t save jobs at the current stage from this short-term impact, if we drag it out until everyone feels the pain, and then it will be too late.

In the medium term, several airline companies, for instance, have their own labor unions. Management and labor can both see the current situation, so they could probably discuss salary cuts, but the airlines must also promise the employees who go through this difficult time side by side with them to set up a labor-management agreement once they are profitable again, to jointly overcome this difficult time.

Q5: How will the coronavirus crisis affect industrial supply chains?

Chuo: During the Obama administration, the United States wanted to “reindustrialize.” If we take a medium- and long-term look at the manufacturing industry, we must incorporate this factor into our thinking. From Taiwan’s perspective, this means it will definitely be good for us in the medium and long term if we are able to put down roots in the United States. 

Let’s get back to looking at Taiwan’s medium- and long-term prospects. We shouldn’t overvalue Taiwanese businesses that return from China. At least as I see it now, a lot of people went to China to make money in the past, but after returning to Taiwan they find that employees and salaries have changed, that land prices are very high. Returning Taiwanese businesses are forced to engage in research and development; if they don’t do R&D, they won’t stay here for long.

Li: Over the past dozen years or so, globalization has reached a peak. The current pneumonia pandemic has made countries around the world close their borders. In the future, manufacturing, trade, production will all become scattered.

Taiwan, for its part, will have to face another crisis in the coming three to six months. How will the supply chains be transformed and move up the value chain given their dependence on exports to China?

Taiwan’s top strengths are high-end manufacturing and high-end services. If the government were able to attract investment, which would require incentives, these two industries where we possess core competitiveness would rise.

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Translated by Susanne Ganz
Edited by TC Lin
Uploaded by Judy Lu