Taiwan Needs Planned Response to Mainland Economic Slowdown

Taiwan Needs Planned Response to Mainland Economic Slowdown
China Times editorial (Taipei, Taiwan, Republic of China)
A Translation
April 21, 2014

Summary: Cross-Strait inter-industry competition will gradually eclipse cooperation. At this point, the government may wish to convene a private entrepreneurs summit, drawing on industrial heavyweights from both sides of the Strait. They could promote cross-strait economic strategic dialogue and policy coordination within the ECFA framework. They could transform competition to cooperation, and enable cross-Strait industrial transformation and upgrading for mutual benefit.

Full text below:

The Mainland government's National Bureau of Statistics has released its latest statistics. This year's first quarter GDP growth was 7.4%. This represents a 0.3% decline over the fourth quarter. It also falls below the 7.5% official target. If the Mainland continues experiencing an economic slowdown, is there the risk of a hard landing? What impact will a slowdown have on the RMB exchange rate and international capital movement? Taiwan and Mainland China enjoy increasingly close economic and trade relations. What challenges will the Mainland economic slowdown bring? How should Taiwan respond? These and other related issues have attracted widespread concern that must be explored in depth.

Mainland GDP growth in 2011 was 9.2%. Since then however it has been on a downward slide. GDP growth in 2012 and 2013 slipped to 7.8% and 7.7% respectively. During the National People's Congress in March this year, the government set the economic growth target at around 7.5%. Premier Li Keqiang stressed that some deviation is tolerable. But the precondition is full employment. This reflects the fact that the Mainland economy has fallen significantly from a high growth rate over 9%, to a medium growth rate under 8%.

There are two main reasons for the Mainland's continued economic slowdown. One. The original growth model was highly dependent on exports and investments. Changes in the environment, both inside and outside the Mainland, have made this model unsustainable. Two. The original large-scale policy measures to stimulate economic growth led to serious overcapacity and financial bubbles. These too proved unsustainable. Last year the International Monetary Fund (IMF) released a report. It warned that if the Mainland did not accelerate reforms, by 2020 economic growth could fall to about 4%. This is why once Xi and Li took office, they deepened reforms and sacrificed GDP growth. They traded short-term economic pain for long-term economic gain.

But the biggest problem facing Beijing currently is that deepened reform has led to a gradual slowing of economic dividends. The new government cannot make up the difference by means of "deleveraged structural adjustment" austerity measures. As a result economic growth has fallen to 7% or less, and the risk of a hard landing has increased. Given this increasingly serious situation, the Mainland's State Council introduced micro level stimulus measures earlier this month. On Wednesday it announced a cut in the reserve ratio for some farm and commercial bank deposits. If the second-quarter economic situation continues to deteriorate, further economic stimulus measures and loose monetary policy will become a necessary evil.

Substantial reductions in export growth and the trade surplus have made devaluation of the RMB exchange rate one of the policy tools Beijing may use for funding.Last month the People's Bank of China increased the float range for the RMB exchange rate. It used this to devalue the RMB up to last week. The RMB depreciated against the U.S. dollar by 2.8% over the year. This nearly matched the 2.9% depreciation last year. This should have a stimulus effect on exports. But recently the U.S. Treasury publicly expressed dissatisfaction with the Mainland, saying it has undervalued the yuan. In its semi-annual report it called the the decline in the value of the RMB "unprecedented." The United States is clearly worried that the prolonged rally of the RMB may change directions. The Treasury tried to pressure Beijing to put the RMB exchange rate back on the growth track. But it is generally believed that the Mainland's economic slowdown means the yuan will fall not rise. This fall cannot be expected to turn around and rise again until the second half of the year.

The RMB exchange rate has gone from endless appreciation in the past to alternating appreciation and depreciation in the present. Capital flows are key influences. In the past a steady stream of hot money flowed into the Mainland. This flow is reversing itself. This is sure to increase overall financial risk on the Mainland. It is sure to affect local bonds, corporate bonds, the housing bubble, and shadow banking. It is sure to increase the number of economic variables.

The Mainland has the world's second largest economy. Its economic growth rate has a significant impact on other Asian countries and emerging markets. Taiwan serves as both as a factory and market for the Mainland. The impact on its economy may be even more severe than it is for others. Therefore the government must prepare. It must attract Taiwan investments in the Mainland back to Taiwan. It must take advantage of the change in Mainland as OEM Factory export model. It must help Taiwan businesses expand into alternative markets, and establish a global presence. This two-pronged approach  will help Taiwan businesses stabilize export markets and global supply chains.

Meanwhile, the Mainland's economic growth has slowed. To a considerable extent, economic restructuring and adjustment are transient phenomena. Taiwan has advantages and disadvantages. On the plus side, although Mainland industrial production has slowed, it enjoys relatively strong growth in the service sector. The proportion of GDP in the service sector continues to rise. Therefore Taiwan must take advantage of this trend. It must make use of its service sector advantages to develop the Mainland market. This will enable it to breakthrough the bottleneck of the domestic service industry. From this perspective, the importance of the STA should be self-evident. We must complete Legislative Yuan review as soon as possible, so as not to miss any opportunities.

On the minus side, the Mainland is undergoing "structural adjustment." It is actively promoting industrial restructuring and updating. It is focused on nurturing new industries, including high-end equipment, green energy, biotechnology, and next generation information and communication industries. These are very similar to Taiwan's main industries. Cross-Strait inter-industry competition will gradually eclipse cooperation. At this point, the government may wish to convene a private entrepreneurs summit, drawing on industrial heavyweights from both sides of the Strait. They could promote cross-strait economic strategic dialogue and policy coordination within the ECFA framework. They could transform competition to cooperation, and enable cross-Strait industrial transformation and upgrading for mutual benefit.

社論－大陸經濟減速 台灣須全方位因應
2014年04月21日 04:10 中國時報 本報訊

上月中國人民銀行藉由擴大人民幣匯率浮動區間，順勢引導人民幣貶值，迄上周為止，人民幣兌美元匯率較年初累計貶值2.8％，幾乎等同去年全年2.9％的升幅，對刺激出口應有一定的效果。（資料照片）
上月中國人民銀行藉由擴大人民幣匯率浮動區間，順勢引導人民幣貶值，迄上周為止，人民幣兌美元匯率較年初累計貶值2.8％，幾乎等同去年全年2.9％的升幅，對刺激出口應有一定的效果。（資料照片）

大陸國家統計局公布最新統計數據，今年第一季GDP（國內生產毛額）增長率為7.4％，較去第四季下跌0.3個百分點，也跌破7.5％的官方設定目標。大陸經濟持續走緩，是否會有「硬著陸」風險？對人民幣匯率及國際資金移動會有何影響？台灣和大陸經貿關係日趨緊密，大陸經濟減速將帶來何種挑戰？台灣要如何因應？這一連串相關的問題備受各方關切，有必要深入探討。

大陸GDP增長率在2011年尚有9.2％，但之後一路下滑，2012及2013年GDP增長率分別滑落至7.8％及7.7％；今年3月全國人大將政府經濟增長率目標訂在7.5％左右，國務院總理李克強強調就是容忍高低偏離的彈性，但前提須保證充分就業。這反映大陸經濟已明顯從逾9％的高速增長落入低於8％的中速成長階段。

追根究柢，近年大陸經濟持續走緩的主要原因來自兩方面：一是原有高度依賴出口及投資的增長模式因內外環境改變而不可持續；二是原有大規模刺激經濟增長的政策措施引發產能過剩及金融泡沫等嚴重後遺症，亦難以為繼。去年國際貨幣基金（IMF）發布報告曾警告大陸若不加速推動改革，到2020年經濟增長率可能腰斬至4％左右。這也是何以習李上任之後，堅持深化改革，容忍犧牲GDP增長率，以短痛換取經濟長效的關鍵原因。

然而，當前北京面臨的最大難題是，深化改革所帶來的經濟紅利漸進且緩慢，不足彌補以「去槓桿、調結構」為主軸的新政所導致的緊縮效應，因而經濟增長率滑落至7％以下的「硬著陸」風險正持續升高。鑑於情勢日益嚴峻，大陸國務院在本月初推出微型刺激經濟措施，上周三又宣布將調降部分農村商業銀行存款準備率，若第二季經濟走緩情勢持續惡化，則更進一步的刺激經濟措施及寬鬆貨幣政策，恐將成為必要之惡。

在出口負增長及貿易順差大幅減少情況下，人民幣匯率貶值亦成為北京可資運用的政策工具之一。上月中國人民銀行藉由擴大人民幣匯率浮動區間，順勢引導人民幣貶值，迄上周為止，人民幣兌美元匯率較年初累計貶值2.8％，幾乎等同去年全年2.9％的升幅，對刺激出口應有一定的效果。惟日前美國財政部對大陸壓低人民幣匯率公開表示不滿，在半年度報告中稱人民幣跌勢「前所未見」；美國顯然是擔憂持續多年的人民幣升勢可能逆轉，財政部表態意在向北京施壓，以促使人民幣匯率重回升軌。惟一般預料，受大陸經濟增長走緩的影響，近期人民幣仍將貶多升少，最快須到下半年才可能由貶轉升。

人民幣匯率從過去單向升值轉為有升有貶，對資金流向亦有關鍵影響力，過去源源不斷流向大陸套利套匯的熱錢勢將反轉，對大陸日益惡化的地方債、企業債、房市泡沫及影子銀行等問題如雪上加霜，整體金融風險勢必升高，亦增添大陸經濟的變數。

大陸是世界第二大經濟體，其經濟增長減緩對亞洲國家及新興市場將產生可觀衝擊；台灣既以大陸作為工廠，又以大陸作為市場，可能受到的衝擊更甚於其他國家。因此，政府必須作好各項因應準備工作，一方面須積極吸引大陸台商回台投資，趁勢改變「以大陸為工廠」的代工出口模式；另一方面，須積極協助台商拓展替代市場，進行新階段的全球布局，雙管齊下，穩住台商的出口市場及全球供應鏈。

另一方面，大陸經濟增長減緩，在相當程度上，是經濟轉型和調整的過渡現象，對台灣有利也有弊。從有利的一面來看，大陸工業生產雖然趨緩，但服務業增長相對強勁，GDP中服務業所占比重持續上升，因此，台灣須掌握此一趨勢，利用本身服務業優勢，積極拓展大陸市場，藉此突破國內服務業發展的瓶頸。從這個角度來看，兩岸服貿協議的重要性和迫切性不言而喻，及早完成立法院審查程序，才不致錯失良機。

再從不利的方面來看，大陸為「調結構」，正積極推動產業轉型換代，其重點扶植產業，包括高端設備、綠能、生技、新一代的資通訊產業等，和台灣主力產業高度雷同，致兩岸產業間的競爭性逐漸超過互補性，鑑此，現階段，政府可先借重兩岸企業家峰會等民間重量級組織，配合ECFA架構下的兩岸經濟合作會議，推動兩岸經濟戰略對話及政策協調，化競爭為合作，讓兩岸產業能夠同步轉型升級，互利雙贏。