Tuesday, February 24, 2015

Economic Prosperity Without the World's Second Largest Economy?

Economic Prosperity Without the World's Second Largest Economy?
China Times Editorial (Taipei, Taiwan, ROC)
A Translation
February 25, 2015

Executive Summary: If the Green Camp loves Taiwan, it must tell the truth. Taiwan must make good use of the Mainland factory, develop the Mainland market, and integrate with the Mainland economy. Taiwan cultural standards are relatively high. It has a people-oriented spirit of service. The service sector is one of Taiwan's unique advantages. Greater China's service industry offers a wonderful opportunity for Taiwan. It is the key to Taiwan's ascent to the next level.

Full Text Below:

As the DPP sees it, the 2016 Republic of China presidential election on Taiwan is a lock. Alas, Green Camp strategy is riddled with economic fallacies. It must make pragmatic changes in the coming year. Otherwise, if it wins, Taiwan's economy will descend into chaos. That would hardly benefit the people. The Ma government stumbled badly. But its basic direction was correct. Taiwan's economic performance over the past year has not been bad. Its GDP growth and unemployment rates were better than those of Japan, South Korea, Singapore, and Hong Kong. People must see the fallacies in the Democratic Progressive Party's economic strategy. They must pressure the DPP to undergo reform. Failure to do so will be catastrophic for Taiwan's future.

First take the “GDP growth figures fallacy”. The Green Camp argues that GDP figures are meaningless. It dismisses them as cold statistics that evoke only public indifference, and must be swept aside. But we on Taiwan complain about low wages and high unemployment. The reason we are experiencing these difficulties is a stagnant economy. Economic growth is inadequate. To live well, to feel pride, we must grow the economy and increase gross domestic product (GDP).

Internationally the use of GDP figures is a foregone conclusion. When Bobby Kennedy ran for president in 1968, he criticized the use of GDP figures. He said “The gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.” But GDP growth is closely correlated with health, education, recreation, literature, family, wisdom, integrity and other indices. A bigger pie may present wealth distribution problems. But absent economic growth, the pie will not get bigger. No one will get a larger slice. Economic growth is essential to a better quality of life.

Green Camp trapped in Fallacies

The most serious Green Camp fallacies have their roots in opposition to the Mainland, hatred of the Mainland, and fear of the Mainland. It fears a "Trojan horse". It fears Mainland interference. Therefore it would rather shut out “the enemy” politically, militarily, socially, and economically -- even if it undermines Taiwan's economic development. Over the past year many netizens have satirized the green camp's blanket rejection of cross-Strait economic and trade exchanges. They have pointed out the green camp's glaring internal contradictions. For example, one netizen wrote, "Allowing capital outflows is condemned as hollowing out Taiwan. Allowing capital inflows is condemned as buying out Taiwan. Allowing talent to leave is condemned as a brain drain. Allowing talent to enter is condemned as inviting the wolf into one's home. Allowing others to earn money from us is condemned as insufferable bullying. Allowing us to make money from others is condemned as buying our affections.” No matter how cross-Strait economic and trade exchanges are conducted, and no matter which way capital and talent flow, they are universally condemned and resisted.

Taiwan has a small, shallow dish economy. Taiwan is a mere 36,000 square kilometers in size. It lacks the natural resources to feed 23 million people. Its economic scale is inadequate. It underwent an economic miracle in the 1980s and became a model for economic development, by dint of hard work on the part of the public, and a successful policy of economic freedom on the part of the government. Under a free economy, Taiwan businesses were energized. Under liberal trade policies, Taiwan burst onto the international scene and demonstrated its mettle.

Mainland China's Economic Rise

But times have changed. Taiwan's spirit remains. But Mainland China and other emerging economies have risen. MIT products are no longer as competitive as they once were in the international market. For the past 30 years economic globalization has been in full swing. Advances in communications technology, transport facilitation, networking without borders, and information flow, have created a global village. New product information is quickly transmitted to every corner of the globe, significantly reducing transaction costs. The world is now flat, and competitors abound. End markets impose harsher demands on language, product quality, market segmentation and lower product prices made possible by regional economic integration. Taiwan's old marketing approaches are no longer feasible.

Globalization Cannot Take Place without the Mainland

Taiwan stands alone. Its markets are small. Internationalization is difficult. In international business and expatriate activity, Taipei City pales next to other Asian capitals. When it comes to business or tourism, Taiwan is often bypassed. Our education system vigorously develops students' foreign language skills. But for whatever reason, language skills on Taiwan are clearly inadequate. On the International English test TOEFL or IELTS, Taiwan scores below the rest of Asia, including Singapore, Hong Kong, Philippines, Malaysia, and the Chinese mainland. South Korea has recently caught up, as a result we have fallen behind them. The only ones we still rank ahead of are Japan and North Korea.  Former colonies such as Vietnam and Cambodia speak French. We have been left in the dust. With other international languages such as German and Spanish, Taiwan holds no advantage.

Regional economic integration includes multilateral trade agreements (RTAs) and bilateral free trade agreements (FTAs). Taiwan's progress on these has been quite slow. Regarding globalization, there is no such thing as globalization without the Mainland. The Mainland is already the world's largest factory and the world's largest market. During the late 1970s Deng Xiaoping's reform and opening introduced “socialism with Chinese characteristics”.  This focused on the market and the liberation of economic vitality. Investments and exports led to gradual economic development. The Mainland now has the world's second largest economy and is the second largest destination for FDI.

Targeting Greater China Service Industries

The Green Camp condemns both large and small Taiwan investments on the Chinese mainland as hollowing out Taiwan, as helping the Mainland China, as stealing Taiwan jobs, and as depriving Taiwan of its wealth. But according to IFRS accounting, Taiwan businesses must prepare consolidated cross-Strait financial statements. Profits earned by businesses on the Mainland are combined with those of the parent company on Taiwan. They must pay taxes on both sides, as well as contribute revenue to Taiwan. Mainland profits earned byTaiwan multinationals or Taiwan businesses that return to Taiwan, boost Taiwan parent company stock prices. Taiwan shareholders and investors profit, capital markets benefit, and Taiwan's economy is revived.

The Green Camp assumes that allowing the two sides to expand economic relations will make Taiwan dependent on the Mainland, and favor the Mainland. But Taiwan has a shallow dish economy. Hitching a ride on the Mainland will revive a stagnant economy and bring sustainable development opportunities. Past reliance on exports to the US and European countries is no longer feasible. Taiwan cannot do with the Mainland market. Seeking a niche on the  Mainland, integrating into Asia, and subsequently into the world" is the ideal development strategy, especially when we enjoy two irreplaceable advantages, geographical proximity and a common language.

If the Green Camp loves Taiwan, it must tell the truth. Taiwan must make good use of the Mainland factory, develop the Mainland market, and integrate with the Mainland economy. Taiwan cultural standards are relatively high. It has a people-oriented spirit of service. The service sector is one of Taiwan's unique advantages. Greater China's service industry offers a wonderful opportunity for Taiwan. It is the key to Taiwan's ascent to the next level.

社論-切割全球第二大經濟體 活水何在?
2015年02月25日 04:10
















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