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Taiwan's economy finds itself at a crossroads

Publication Date : 05-12-2013

 

As exports decline and the local IT sector loses its edge in innovation, Taiwan now stands at a crossroads. The island's next steps in its economic development plan will determine the country's future.

Last year, the Council for Economic Planning and Development (CEPD) promised a prosperous 2013, and indicated that GDP growth might exceed 4 per cent. However, the Cabinet's Directorate-General of Budget, Accounting and Statistics (DGBAS) recently adjusted Taiwan's economic growth rate predictions downward to 1.74 per cent for 2013.

The DGBAS said weak exports were the main reason behind the worse-than-expected economic growth rate this year. This claim, however, contradicts evidence that worldwide exports were measured to have grown in November.

As a result of this worldwide export growth, the Institute for Supply Management (ISM) in the US reported growth in the purchasing manager index (PMI), a gauge of the manufacturing sector, in November. The score reached 57.3, the highest seen since April 2011. The export order index also reached its highest point in the last two and a half years or so. High demand from markets in Europe, Japan and China drove growth momentum, the ISM said.

As a result of strong exports, Japan's PMI reached 55.1, its highest number in four years. The eurozone's PMI was pegged at 51.6, which was higher than expected and also marked a two-year high. Analysts said that exports drove manufacturing sector growth in the eurozone.

As exports contribute more than 60 per cent to Taiwan's GDP, the fact that the country's exports have suffered recently as exports surged elsewhere around the world signals a warning that deserves our attention.

It appears that nations around the world have placed more focus on developing their manufacturing sectors, and it has become clear that Taiwan will face even greater competition with foreign firms in the future.

Scholars from several research institutes indicated that the competitiveness of local companies appears to have declined over the years. As the electronics and optical industry produces the bulk of Taiwan's exports, Taiwan's IT sector has a pressing need to innovate.

Supply Management Institute Taiwan Executive Director Steve Lai recently said that Apple has decided to stop purchasing parts from Taiwan for assembly work on its iPhone. As a result, Taiwan has been left with only contract manufacturer work in its partnership with Apple.

Declining demand from China, Taiwan's largest export market, over the past two years has taken a heavy toll on Taiwan's exports. Chinese leaders are currently carrying out an overhaul of that country's economic structure, while at the same time working to develop domestic supply chains. As such, analysts predicted that exports to China may decrease further in the future.

A bleak economic outlook forced local smartphone maker HTC to delay some of its product launches planned for the Christmas shopping season until the Chinese New Year. It is another testament to the challenges that Taiwan's IT industry are facing in the years ahead.

Legislators recently lashed out against CEPD Minister Kuan Chung-ming for failing to deliver the goal of a minimum 2-per-cent GDP growth set by the government this year. Economic Affairs Minister Chang Chia-juch has also taken some blame for the sluggish economic performance.

We cannot blame Taiwan's disappointing economy on these two officials, since it is the nation's fundamental economic structure that needs correcting. However, they can and should be blamed for painting an overly rosy economic future, thereby creating a false impression of Taiwan's growth among the public.

With many challenges ahead, the government must take drastic steps to overhaul Taiwan's economic structure and break out of the current state of economic stagnation. A strategy is needed to help Taiwan adjust its economic structure and continue steady growth.

Taiwan now finds itself standing at a crossroads. The government should draw wisdom from various elements of society. President Ma Ying-jeou's administration might achieve this by holding national conferences and inviting experts in industry, academia and politics to draw up a new economic development plan that will help Taiwan to realize its full potential.

 

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