Wednesday, January 2, 2013

Challenge 2013: Enhance Competitiveness at Structural Level

Challenge 2013: Enhance Competitiveness at Structural Level
China Times editorial (Taipei, Taiwan, ROC)
A Translation
January 3, 2012

Summary: This year's forecast is for over 3% growth. This is much higher than last year's 1.13%. Although better than last year, it is nowhere near a "perceptible improvement." The most serious challenge for our industries and government is not the growth rate. It is the need to revamp our industrial structure and to upgrade our economic competitiveness. This is the real problem industry and government must tackle this year.

Full Text below:

Taiwan's economy over the past year has been a roller coaster ride. Sudden peaks were followed by equally sudden valleys. It was a thrill a minute. We were optimistic at the beginning of the year. Predictions were that our economic growth rate would lead the Four Asian Tigers. But the numbers suddenly plummeted. setting off ten blue warning lights in a row. We could no longer be sure even of maintaining a 1% growth rate. Newly re-elected President Ma and the public had high hopes for the new cabinet's economic advisors. But public approval plummeted along with the growth rate. The good news is that the economy is on the mend and expected to climb back out of its hole. The bad news is that risks remain. Especially the problem of Taiwan's economic structure, which remains unsolved.

Last year the global economy was turbulent. One disaster followed another. The initial forecasts from all quarters were that the economy would bottom out in the first quarter, then bounce back. The global economy would recover in the second half of the year. But the European debt crisis intensified. Europe fell into recession. The UK and italy experienced negative growth. France experienced zero growth. Even Germany experienced less than one percent growth. Over the last two to three quarters, the European Union experienced negative growth. This is the definition of a recession. The United States threw money at the problem with quantitative easing. But the unemployment rate hovered at about 9%. It dropped to under 8% toward the end of the year. The recovery however, remained weak.

Even more surprising was the Chinese mainland's economic slowdown. The U.S. and European economies slowed. This led to fewer exports than expected. This in turn led to small and medium enterprises on the Chinese mainland closing down. They closed down to avoid becoming part of the asset bubble. For many years this emerging economy maintained double-digit growth rates. During the first quarter of last year however, this growth slowed. During the second-quarter economic growth fell below 8%, to a mere 7.6%. It fell to record lows in the aftermath of the financial tsunami. The Mainland government was compelled to put "steady growth" economic policy first. Several other prosperous emerging economies, including India and Brazil, experienced minimal growth following the financial tsunami.

The environment is hostile. The economic performance of the Four Asian Tigers, including Taiwan, is far from ideal. Export growth rates were negative in the second half of the year. The economic growth rate was supposed to be 4% to 5%, It has been gradually revised down to between 1% and 2%. Taiwan's export growth rate fell first, before the other Asian Tigers. That is undeniable. The amount of Its decline was also greater than for the other Asian Tigers'. These cold, hard facts tell us something. Taiwan's economic decline last year was attributable partly to macro conditions. But it was also the result of internal problems. These include a decline in industrial competitiveness.

This year the global economy is expected to bounce back. The U.S. unemployment rate has fallen to 7.7%, the lowest over the past four years. Economic growth was also better than expected. Mainland China's Purchasing Managers Index has rebounded. Export figures increased. The major think tanks' economic forecasts for this year are higher than they were for last year. This shows that a rebound has begun. But we cannot ignore potential risks. Crises are still ongoing. The first hurdle is the U.S. fiscal cliff. The Democratic and Republican parties have reached an agreement. They will tax the rich. But the deficit reduction mechanism will not kick in for two months. The wrangling between the two parties is expected to continue. Economic and financial markets will remain shakey.

The second hurdle is the European debt crisis. It remains insoluble. Greece is no longer the problem. But the Spanish economy has yet to improve. Italy is finally out of intensive care. But Prime Minister Mario Monti, responsible for rescuing the economy, has resigned. The leadership will be replaced. Much risk remains. The third hurdle is international political risk. The Middle East has long been a powderkeg. Changes in the Mid East situation could impact the price of oil. This could impact the economy. A Japanese rightist regime has come to power. How will it interact with Japan's neighbors, especially the Chinese Mainland? Will another unpredictable conflict such as last year's Diaoyutai incident erupt? Will the conflict impact the two nations' economy, trade, and investments? These are external economic risks we must face this year.

But these risks beyond our control. We on Taiwan should attempt to reverse the decline in our competitiveness. Last year data showed that Taiwan's economic and industrial structure has three problems. The first is exports highly dependent upon the technology industry. The economy is in bad shape. People have been forced to tighten their belts. The first thing they cut back on is luxury technology products. When last year's global recession ended, South Korea's exports were doing better than Taiwan's. One important reason was its automobile exports, petrochemical, shipbuilding, and diversified technological structure.

The second problem is that even in technology products, Taiwan's competitiveness has declined. HTC's market share has fallen. Exports have decreased. This immediately affected Taiwan's export figures. Domestic DRAM is dead. LCD, LED, solar energy, and other industries all face fierce competition. If the economy improves this year, manufacturers can breathe a sigh of relief. But they must address their technology, branding, and competitiveness issues. Otherwise when the boom ends, they will find themselves eliminated. The third problem is that Taiwan has yet to enter the "post-PC era." Taiwan's technology industry and its industry as a whole, have yet to reposition themselves. This problem has plagued domestic industry for the past several years. It will continue to haunt Taiwan during the coming year.

This year's forecast is for over 3% growth. This is much higher than last year's 1.13%. But the number is based on last year's lower baseline. Therefore, this year's economic recovery remains moderate. Although better than last year, it is nowhere near a "perceptible improvement." The most serious challenge for our industries and government is not the growth rate. It is the need to revamp our industrial structure and to upgrade our economic competitiveness. This is the real problem industry and government must tackle this year.
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