Thursday, August 6, 2015

Economic Headwinds Ahead: Ma Government Must Respond

Economic Headwinds Ahead: Ma Government Must Respond
United Daily News Editorial (Taipei, Taiwan, ROC)
A Translation
August 7, 2015

Executive Summary: The Comptroller General's Office announced last week that the Republic of China's economic growth rate fell to 0.64% in the second quarter, far lower than the former estimate of 3.05%. This sharp decline in economic growth signals an abrupt reduction of estimated growth from 3% to 2%. It means an economic headwind is blowing.

Full Text Below:

The Comptroller General's Office announced last week that the Republic of China's economic growth rate fell to 0.64% in the second quarter, far lower than the former estimate of 3.05%. This sharp decline in economic growth signals an abrupt reduction of estimated growth from 3% to 2%. It means an economic headwind is blowing.

During the first half of the year, heads of government ministries charged with fiscal and economic affairs repeatedly predicted economic development taking a turn for the better in the second half, and make up for an underperforming first half. But August is already here, and economic indicators still show no sign of improvement. It is increasinly hard to be optimistic. The chill economic winds are mainly due to the twin impact of an export recession and weak domestic demand. The Ministry of Finance announced import and export statistics today. Estimates are that July exports will perpetuate the six month long recession. They will reach the lowest point for exports since the "Six Straight Lows" of 2012.

Taiwan's export decline is due mainly to the weak global economic recovery, the crowding effect of Mainland China's red supply chain, lower crude oil prices, and weakening domestic petrochemical product exports, all of which are interconnected. Economists worry that Taiwan's export declines cannot be remedied by short-term policies. The problem will only become more serious. Downturns in Taiwan's exports have become more frequent in recent years. In the past, export slumps occurred every four or five years. Now they are occuring every three years.

Take domestic demand. Excess savings will rise to 15.52%, a 28 year high. Ultra high savings rates means that the private sector cannot find anywhere to invest their capital. No matter where they park their money, it remains idle. Because private investment and government investment were insufficient, excess savings increased nearly a trillion dollars over the past year. This money cannot be turned into engines of economic growth.

The second half was supposed to be high season for exports. But Taiwan's exports encountered economic headwinds. Domestic demand also cooled. FSC Chairman Tsao Chung-ming said he was "surprised as hell". The Executive Yuan convened an emergency meeting of ministries. They proposed measures to save the economy, generated few sparks. The Executive Yuan proposed "Measures to Strengthen the Economy". They included three measures: industrial upgrading, export expansion, and investment promotion. Premier Mao Chi-kuo set the tone. The "Measures to Strengthen the Economy" would be a "midterm review and reinforcement of existing programs". But these are apparently old hat, and offer nothing new.

The public expects much from the business sector. Of course it expects more than mere "review and reinforcement". It expects a spark of hope, along with genuine initiative. In recent years, government plans to rescue the economy were often confined to shouting slogans about industrial upgrading and export expansion. These were invariably ineffective. People experienced no sense of economic revitalization. One reason, as Premier Mao noted, was that industrial restructuring is a long-term project. It will not yield immediate results. But a bigger problem is that the Ma government and the Mao cabinet are apparently already "in transition". They have apparently begun sitting out the last days of their administration. They have thrown in the towel, lost all ambition, and are merely biding their time.

Admittedly, the Ma government's appointment of officials charged with fiscal and economic affairs was bungled. It was a main contributor to economic stagnation. We are not talking about government guidance for industry, or the allocation of national resources for certain industries. We are saying that the current fiscal and economic brain trust is simply not up to the job. It does not understand Taiwan's economic advantages and disadvantages. How can it be expected to make far-sighted decisions about Taiwan's economic future? During the boom years, the Ministry of Economic Affairs and the Council for Economic Planning And Development played the role of locomotive. Today however, the Ministry of Economic Affairs is clueless. The CEPD has been restructured and upgraded. It is now known as the National Development Council or NDC. Its most visible function appears to be economic forecasting.  Without a locomotive at the head, how can any train generate economic momentum?

As Central Bank President Perng Huai-nan suggested, when the economy is bad, the government should implement an expansionary fiscal policy. The priority should be domestic public works. Next year the government's public works budget will increase from 177.2 billion NT, to over 180 billion NT. To make proper use of this budget, the government must have more accurate planning. The Public Works budget for next year must allow for the construction of sewers, improvement of farmland hydraulic projects, reinforcement of unsafe school buildings and other infrastructure. These include improvements to airport transit, the Suhua Highway, the west coast expressway, the Kaohsiung underground railway, and other major public works projects. We must improve construction quality and remain ahead of schedule, so that the public and businesses will be properly served. State-owned enterprises should also increase domestic investment. Taipower should phase out old, polluting generators. In particular, it should encourage industrial investment in the emerging energy industry. Not only should it promote investment. It should also address the cumulative effects of air pollution.

In order for Taiwan to survive the economic winter, the government must act. It must have both short and long term plans. It must pay attention to domestic opportunities. Publc works projects must help the common man. The government must implement economic policies with tangible results in order to win public support.

經濟大逆風來襲 馬政府不能再坐而談










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