Only Cross-Strait Cooperation can Resolve Economic Difficulties
China Times editorial (Taipei, Taiwan, ROC)
May 1, 2013
Summary: The global economic picture is changing. The
cross-Strait economy has suddenly encountered hardships. The solution
requires a clear understanding of the situation. The two sides must work
together. They must look to a new era of cooperation. They must throw
open their doors. They must increase economic cooperation. They must
give themselves more room to breath.
Full Text below:
Two days ago, the Executive Yuan Office of Budget and Accounting released its first quarter GDP growth figures. The economy grew a mere 1.54%. This represents a massive 1.72% downward revision from 3.26%. The failure to maintain a 3% growth rate was expected. But this was much worse. People are worried about a repeat of last year, when the growth rate was revised downward again and again. During the middle of last month, Mainland China's National Bureau of Statistics announced that the Mainland's GDP growth rate for the first quarter of this year was 7.7%. This was below market expectations. It was also a replay of the fourth quarter of last year, with its continuous decline in economic growth. Both sides of the Strait are issuing economic alerts. The global economic downturn affects both sides' exports. It also reflects long-term structural problems in the cross-Strait economy. The two sides must give serious thought to these economic difficulties, and solve them through cooperation.
Taiwan's first quarter GDP growth rate is substantially lower. This is due mainly to sluggish exports and private consumption. But the two factors have a structural basis. Taiwan is too dependent on exports to the European, US, and Mainland Chinese markets. Exports concentrate too much on information and communication technology products. The operational model posits Taiwan as the upstream base, the Mainland as the factory along the middle and lower reaches of the production chain, and Europe and the United States as markets for the final product. This is the triangular trade and OEM export model. But this export model has been undermined by several factors. They include shrinking end-market demand, brand name manufacturers supply chain changes, and emerging market competition. A crash is imminent. Much of the decline in exports is irremediable.
This OEM export economic growth model cannot raise Taiwan salary levels. In fact, salaries have been declining. They are now at late 1990s levels. This is inhibiting the growth of private consumption. The engine of domestic demand is about to flameout. Neither Taiwan's OEM export growth model nor its industrial structure have undergone substantive change. Economic performance is worsening. Even if the economy improves, any improvements will be difficult to sustain.
Now consider the Mainland's economic problems. Currently the Mainland's most serious economic difficulty is excess investment and excess capacity. It must rely on exports as an outlet for excess capacity. This is necessary for stable economic growth. But the Mainland economy has leapt to second in the world. Clearly it can no longer rely on traditional exports for growth. Also its main export markets, Europe and the US, are undergoing long-term economic restructuring. Therefore the Mainland must change its economic growth model. It must upgrade its export structure. It must increase domestic demand. Only then can it maintain economic growth momentum.
But the Mainland has encountered difficulties upgrading the export structure and increasing domestic demand. The development of service industries has been delayed. Industrial transformation remains under the thrall of expanding capacity. The result has been a long-term slowdown in economic growth. During the first quarter of this year, exports to the mainland rose to 13.4%. But exports to Hong Kong and special economic zones experienced abnormal, significant increases. Obviously false export reports camouflaged hot money inflows. One must discount the inflated exports component. During the first quarter the Mainland's GDP growth must have been less than the 7.7% figure recently released. The severity of the Mainland's economic problems can be imagined.
The two sides of the Strait are economically interdependent. The problems they face are related. To break through current difficulties, the two sides must be open-minded. They must look further ahead. They must work together. They must ride out the storm together. They must create a shared vision of the economy.
The Mainland wants to develop service industries. It wants to promote urbanization. It wants to learn lessons from Taiwan and integrate that experience with its own. This is the fastest and most effective way to do so. Therefore Beijing should be bold and allow Taiwan businesses to enter the Mainland service sector and domestic market. It should allow Taiwan businesses to swiftly expand into the service sector and increase urbanization. Taiwan can use the "Mainland as factory" model and transform it into a "Mainland as market" model.
The two sides should expand cooperation in both the global market and the regional economy. They should make full use of the ECFA cross-strait economic cooperation framework agreement. They should increase industrial cooperation. They should build common brands, establish common standards, enhance cross-Strait export competitiveness in the global market. The Mainland should evince political toleration. It should actively help Taiwan take part in regional free trade negotiations. This will increase mutual trust as the two side pursue a shared vision.
In sum, the global economic picture is changing. The cross-Strait economy has suddenly encountered hardships. The solution requires a clear understanding of the situation. The two sides must work together. They must look to a new era of cooperation. They must throw open their doors. They must increase economic cooperation. They must give themselves more room to breath.