Will Ma Ying-jeou's Three Arrows Miss their Marks?
China Times editorial (Taipei, Taiwan, Republic of China)
August 5, 2013
Summary: Shinzo Abe's three arrows created the desired effect. The key was not the three arrows. The key was the archer's determination and courage. He was determined to restore long lost Japanese national confidence. Can Ma Ying-jeou's three arrows free the economy from the doldrums? Can his arrows reach their targets? Or will arrow upon arrow miss its mark? That will depend on the archer.
Full text below:
Taiwan's economic growth during the first quarter of this year was a meager 1.67%. The attempt to ensure a 2% growth rate during the second quarter was successful, but only barely. Many variables bedevil the second half of the year. The Comptroller General predicts that second-quarter GDP will increase 0.29%. He defines this as a "soft expansion." The annual GDP is expected to remain the same -- 2.4%. A 2% growth rate this year is no problem, but 3% is beyond reach.
The economic malaise lingers. President Ma Ying-jeou recently announced "three major movers" to promote Taiwan's economic growth. They are the Free Trade Zone Pilot Program, additional public works, and increased exports, particularly service sector exports. To rescue Taiwan's economy, President Ma Ying-jeou fired three "Ying-jeou arrows" into the air. Will they hit their targets? Will they enable to administration to think outside the box? Or will all three Ying-jeou arrows miss their mark?
The Ma administration is promoting the Free Trade Zone Pilot Program. Initially only four major industries were included. They are smart logistics, medical tourism, value-added agriculture, and industrial cooperation. CEPD Chief Kuan Chung-ming advocated including the financial industry. Former FSC chairman Chen Yu-chang disagreed. Finally, at the last moment, President Ma Ying-jeou approved its inclusion. On Thursday, Premier Jiang Yi-hua approved the Free Trade Zone Pilot Program. The 4+N pilot industries began operation.
Smart logistics, medical tourism, value-added agriculture, and industrial cooperation are the four major pilot industries. The CEPD intends to use the "shop in front, plant in back" concept to maximize efficiency. But its proposal differs from existing international free trade zones with "shop in front" planning. Take medical tourism for example. The Taipei and Taoyuan Airports are the "shops in front." Tourists arrive at the airports. They promptly enter the "plants in back," i.e., 39 international medical facilities, for health checks or medical treatment. This plan clearly benefits the Free Trade Zones economically. Some worry that Mainland Chinese visitors may vanish into the crowd soon after entry. But we truly need not impose such constraints upon ourselves. We want the program to be comprehensive. But we cannot refuse to open ourselves up out of fear.
The industrial sector expects even more from the Free Trade Zone Pilot Program. It wants expanded scope, added industries, and more tax incentives. The Chinese National Federation of Industries and Minister of Economic Affairs Chang Chia-chu held talks. They recommended another increase in the scope of the Free Trade Zones. They need not be limited to five harbors and one airport. The science parks, export processing zones, even the six light industrial parks could be included. They could be linked into a comprehensive free trade island.
The most eagerly anticipated industry is the financial industry. Newly appointed FSC Chairman Chang Ming-chung and CEPD Chief Kuan Chung-ming have reportedly planned to include the financial industry. Offshore funds and structured products would be given priority through the OBU And OSU (International Securities Business Group). Restrictions against investment by foreign professionals would be relaxed. The ultimate goal would be to enable Taiwan to become an offshore RMB center.
Taiwan's qualifications as an offshore RMB center are, in all fairness, far inferior to those of Hong Kong, Singapore, or London. Hong Kong and London have received public support from the Mainland authorities. Singapore has revealed its ambition to become the biggest offshore RMB center outside of Hong Kong. In July 2010, the Monetary Authority of Singapore and the People's Bank of China signed a 150 billion RMB bilateral currency swap agreement. Singapore has allowed the trading of RMB-denominated securities. It has established conditions favorable for an offshore RMB center.
By contrast, Taiwan authorities still impose many limitations on the free inflow and outflow of RMB. RMB-denominated commodities are in short supply. Mainland industries cannot issue bonds to raise capital on Taiwan. This handicaps Taiwan in its fight to become an offshore RMB center. The incorporation of the financial sector into the Free Trade Zone Pilot Program must await the liberalization of the financial sector. An offshore RMB center is still a long way off.
The second of the three Ma Ying-jeou arrows is more public works. More public works requires more money. Where is the money coming from? According to statistics, four years ago ROC investment in public works was about 446 billion NT. This year it is only 385 billion NT. Every year public funds for public works fall short. They are limited by the debt ceiling and the deterioration of public finances. No matter how clever one may be, one cannot make bricks without straw.
The central government complains that it has no money. But lest we forget, whenever the stock market fluctuates, Four major funds, including the Bureau of Labor Insurance, serve as a fire brigade and prop up the market. They can guide public works investment. They can solve the problem of inadequate financial resources. They can allow the stock market to return to conducting normal market transactions, reducing artificial intervention into the market.
The third of Ma Ying-jeou's three arrows is increased exports. The exchange rate is an important factor in export competitiveness. Central Bank President Peng Huai-nan defended the rights of 15 million scooter riders. The NT exchange rate will remain stable. The devaluation that exporters wanted was explicitly rejected. June export orders unexpectedly declined 3.5%. This was yet another warning.
Therefore, increased exports must be freed from outdated electronics industry-orientation. The government should fully support the more promising e-commerce market. Service industry exports should replace traditional manufacturing industry exports. The liberalization of third-party payments is clearly more urgent and important.
Shinzo Abe's three arrows created the desired effect. The key was not the three arrows. The key was the archer's determination and courage. He was determined to restore long lost Japanese national confidence. Can Ma Ying-jeou's three arrows free the economy from the doldrums? Can his arrows reach their targets? Or will arrow upon arrow miss its mark? That will depend on the archer.