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Taiwan's economic future lies in enhancing core competencies
Publication Date : 07-01-2014
While the government of Taiwan continues to stress the importance of liberating the domestic business environment and establishing extensive trade relations with other countries, we must not forget that the key to Taiwan's economic competitiveness lies in beefing up local industries' core competencies.
Taiwan had a disappointing economic performance last year. The economic growth forecast in 2013 was recently adjusted to 1.74 per cent, substantially lower than the original forecast of 4.58 per cent. Export growth in the fourth quarter was forecast at -2.03 per cent, down from an initial 2.78 per cent outlook. The unemployment rate was pegged at 4.15 per cent in November, which is higher than the rates in Singapore, Hong Kong and South Korea.
To pull Taiwan out of its economic quagmire, the government of Taiwan promoted the ideas that further economic integration in the global community and liberating the domestic business environment are keys to rescuing Taiwan's economy. More specifically, it has said that Taiwan needs to sign free trade agreements (FTA) with more countries to further economic integration, and the launch of the free economic pilot zone project will serve to liberate the business environment.
The rationale behind all this is simple: Exports account for over 65 per cent of Taiwan's GDP. As an export-oriented country, Taiwan relies much on strong trade performance to boost its economy. While it is important that Taiwan signs FTAs with its trade partners to establish terms to makebusiness with Taiwan more beneficial, it is also important to enhance the core competency of local industries.
This theory is not only true for Taiwan, but for other countries as well, as reflected in fiscal policies rolled out by the US and Japan.
After the 2008 financial crisis, the US Fed has been applying quantitative easing (QE) measures to stimulate its domestic economy. The government kept printing money and threw in US$85 billion every month to purchase financial assets from commercial banks and other private institutions. This expansionary monetary policy has so far helped boost the US economy.
Japan has been taking a similar route. Abenomics, launched by Prime Minister Shinzo Abe, is characterised by “the three arrows”, with the first arrow representing unprecedented aggressive monetary easing to target 2-per-cent real GDP growth. The Bank of Japan printed a lot of money to support the local economy.
Nevertheless, these two countries are also well aware that printing money is not a sustainable method to produce real economic growth in the long run. The US Fed has begun to taper off quantitative easing. In a mild first step, bond purchases have been trimmed to $75 billion per month. In Japan, the third arrow of Abenomics is a programme of reforms to achieve growth-stimulating private investment, which is by far more vital.
Both countries recognise that they must beef up domestic industries. The US' manufacturing sector is again growing. The third arrow of Abenomics essentially tries to cultivate local businesses, which in turn will drive more exports for the country.
In the end, keeping money flowing into the financial system will not save the economy. It is strong industry that is creating real value, by providing real goods and services. Without creating real value, economies are as fragile as actual bubbles.
Strong businesses drive investments, tap the full potential of human resources, improve companies' technical skills and enhance the fundamentals of economies.
While the goal of liberating the business environment and signing FTAs with more countries is important, the government of Taiwan must not forget that it is industries' core competencies that will determine Taiwan's economic future and competitiveness in the world.
Only strong businesses can provide quality goods and services to win customers from around the world. Without providing real value, no businesses are able to survive fierce competition, even in a liberated market.