Taiwan's Economic Future

Taiwan Living in Taiwan
21

“I think it’s currently living in the afterglow of its economic golden age and eventually it will become clear that Taiwan is caught in the same permanent economic downdraft as Japan.”

I think the comparison between Japan and Taiwan is a bad one. Taiwan’s bad loan problem is no where near as grave as Japan’s and Taiwan has been far more agressive in doing something about it. Basically, Taiwan is borrowing its strategy from the US, setting up an RTC-style fund to soak up the bad loans and shutting down problem banks. Japan only recently this past month – by giving Heizo Takenaka the financial services portfolio – acknowledged that public money would have to be spent, and they have yet to follow their words with actions.

Nox and Rampage note the relationship between Taiwan and China. China is getting all the low-end stuff that Taiwan used to produce, while Taiwan is moving up the value chain to produce higher-margin IT goods.

Let’s add the US to this equation. As high-tech goods no longer become profitable for US producers to make, they’ll outsource them to Taiwan. When it no longers become profitable for Taiwan to make, it will be passed along to China. Outsourcing is the trend: From the US, to Taiwan, to China.

This is also why, I believe, the TSU was incorrect to oppose the shift of 8-inch fabs to China. Taiwanese chip producers have tons of ageing chip equipment and they want to be able to invest in more efficient 12-inch fabs. The life of this 8-inch equipment could be extended by sending it to Shanghai.

And as another poster noted, Taiwan’s economy is tied to the US economy. All of Asia (with the exception of Japan, which is doing poorly for reasons of its own) is in a down turn and it’s because they rely on the US for exports. When the US comes back so will Taiwan.

But while the export model was a good one for all of Asia for a while, we can see what the all-the-eggs-in-one-basket approach of the KMT has resulted in. This is why you hear the government now talking about tourism, biotech, etc.

South Korea, until recently, managed to escape some of the downturn because it stimulated domestic demand. I think this is want Taiwan needs to do. Domestic demand here is nothing, and the government needs to think of ways to get consumers to spend a bit of their savings.

22

Well I think in the not to far future the outsourcing will be … US to China directly.

Of course Hightech, biotech is here to stay but not everyone can work in this industry.

And really, Taiwanese are not patriotic as far as investing in Taiwan concerns. A while ago I suggested to a few business aquaintances investing in a leisure project with a profitability forcast in 3 years, yeah right … forget it … 3 years? Duh…

23

Are you saying that Japan’s economy is sick because of an ailing banking system – or just sicker because of it?

If you mean just sicker, then what do you think is the root cause of Japan’s economic malaise versus Taiwan’s?

I think the root cause of both Japan’s and Taiwan’s economic problems is a growing deficit of products and services that other people want to buy. This deficit is caused by China’s goods displacing them. Hence, the assertion that they’re caught in the same economic downdraft. Japan’s downward spiral is aggravated by its banking system bad debt problems but softened by the fact that Japan still has a trove of jealousy guarded intellectual property. Zoom lenses for cameras, for example. Japan owns most of the digital camera zoom lens patents and everyone in Asia who makes high-end cameras has to buy from them – if they’ll sell, which they often won’t because they’re trying to preserve their domestic Canons and Sonys.

Taiwan just began the economic spiral downward last year that Japan began ten years ago. While Taiwan may or may not have a flawed banking system, what does it have to help buoy its economy once the hull really starts springing serious leaks?

24

The new rule allows for TW to invest in fabs in China. The precondition is that they must have a 12" fab in TW before they can set up an 8" in China. TSMC and UMC are already under construction in China.

The US or Japan tech -> TW -> China is logical. But for some tech you are already seeing the direct to China strategy.

25

What I see happening is:

Taiwan’s economy is declining because demand for its goods and services is being displaced to China and there is no line in the economy where that displacement will stop because Taiwan has no inherent superiority over China. It’s just a matter of enough time before it’s ‘all’ gone.

Taiwan has no natural resources to diversify its economy with other than some natural beauty and indigenous cultures with which to could build a regional tourism industry.

Taiwan lacks first-class managment talent necessary to lead it through the difficult times ahead.

Taiwan lacks a critical mass of creative talent necessary to create an ideas/knowledge-based economy.

Taiwan culture doesn’t understand, distrusts and disdains creativity and so drives out creative talent.

One hope for Taiwan is to select niche industries to specialize in that China considers too small and uninteresting for it to want to dominate. Becoming a center for high-quality, low-cost health care in Asia is one such possibility. Pharmaceuticals is another. High-tech industries which serve these two niche industries is another.

Taiwan’s only hope for a strong economy though is to create an ideas-based economy but it hasn’t even begun to understand what that means – much less begun to do it.

Taiwan’s secret hope is that the good old days will return and if they don’t then it’s off to China and will the last one out turn out the lights.

26

In the good ol’ days, most US companies had sourcing offices in Taiwan. Some still have, but the most of them are closing down and moving the foreign staff to Shanghai.

There are still islands of excellence in Taiwans economy, hoewver they are eroding.

Taiwan is currently hit by a double whammy, as US demand for the products is soft, while a shift of low and mid end tech production from Hsinchu to Kunshan is taking place.

You can ignore one and focus on the other, but they are both contributors to the current malaise. The latter one will change this island more than the first.

The taiwanese banking system is not that sound. (OK better than the Japanese or the Chinese one, but that doesn’t mean all that much :unamused: ) ODL ratios are 15% on average, however they are a function of economic growth. It is likely that they will increase further if the current downturn lasts as long as expected. Positives are that the Taiwanese are trying to reform it. Negatives are that they are taking their time.

the risk of Taiwan ending up as the Philipines is a real one. I hope that they will muddle through.

27

Just bumping this thread up. More viewpoints?

28

You had to ask? I did a deep-probing sociological study of Taiwan industry in college and the result is two tiers of the Taiwan economy. The primary is state-owned enterprises composing the bulk of primary industries (China Steel, Shipyards, Aerospace, etc.) . The secondary is the 50%middle class of light-industrial exporters. Computers are the exception to the norm in Taiwan. The primary industries are the economic multipliers for the secondary downstream enterprises of Chinese family-ownership. Between these technocrats controlling their state-owned fiefdoms and the
Chinese family management style of control over profits, they’ve gotten themselves into a real economic bind.

Stimulus is needed in several areas…tourism is one. But this sector has got to be Las Vegas linked gambling for Penghu. Keep it remote but accessible. Instead the ROC obstructionist technocrats just sold out to Confucian moral purity, not the US gaming industries linked to the Nevada Gaming License Commission. Triads run amok in Macau, and that is going to be a high hurdle for these Las Vegas executives for political insurance coverages. What is more socially corosive…Chinese or gambling? Outside of the very draconian Singaporean model, Chinese corruption and Triad gambling are equally morose for society. This is not for the whole economy but it would infuse substantial amounts of opulent buildings into the island society. This opulence and human behavior would spur new demand for a construction boom. Newer housing units built within municipal controlled standards of neighborhood zoning and any such related infrastructure development means the
stimulus for getting Taiwan moving again. “Housing starts” are an essential economic indicator.

Education reform is essential and has not been meeting the needs of Taiwanese. Just do look at the “private sector” competition, but the accreditation and professional teaching standards need to be “enforced” and government needs to stop obstructing. Health care is on solid foundations, but it must be dramatically improved…TMC just will not cut the mustard by any WHO standards or those in the West. No more going to Japan or America for medical treatments, the obstructionist Taiwan Medical College needs to be fully overhauled. It is a big multiplier for the entire island economy but new hospitals are nothing without a higher quality of care!

Make the quality of life improvements and concretely resolve the political status, and Taiwan will flourish like it should or it could. Of course, this is taking some pages from the oasis in the Nevada desert, but being cheesy is not one of them anymore.

29

The Taiwan east coast is beautiful but under developed. It’s unlikely anyone is going to invest to develop it. Did you ever see a TV advertisment promoting Taiwan as a place to visit? Unlike say, Malaysia, Thailand, HK, Singapore, Indonesia etc?

It can only be driven by the government.

And yes - the economy is still going down with no sign of relief on the horizon. It’s little to do with moving to China - because profits made in China still end up partly in Taiwanese coffers - it’s because of the lack of consumer spending, particularly in the US and Japan. The majority of ex-pats working here now (apart from teachers) are on the new railway project. You rarely see the others now - all moved on.
Some relief could come from more infrastructure spending - but I doubt that the government has the will to drive it. More bank regulation - stop the bank managers lending big time to his “doomed to fail” cronies and perhaps more privatisation.

If you teach - you will be OK - the falling economy is making people think that speaking english is something that is essential for them to diversify. One example - I teach in a company 4 evenings a week. The staff are not forced into the lessons, but I get 10 to 12 regular attendees. They layed off 20 people last week out of around 100, but not one of the students.

30

Yes - housing starts is usually one of the prime economic indicators. But there is a lag here - unlike in any other country I can think of - because of the large percentage of empty properties built by family style construction companies that just thought it was going to be like before. Build cheap and sell expensive. Make lots of money and start again. Unfortunately people stopped buying a couple of years ago with the result that the companies are broke and the bank has lots of negative equity on its hands that nobody wants to buy.

31

The problem I see with the development of tourism as economic factor is the difference in the concept of nice tourism places between Chinese and most of the Western tourists. I haven’t seen much of Taiwan’s tourist places, but I’ve been to Yehliu, and I think Yehliu is a very typical example of a tourist place that Chinese like but Westerners wouldn’t care too much about.

The rocks in Yehliu are nice, but in my opinion not worth an extra trip, especially not when you can only go there on a weekend and then share the limited space between the rocks with hundreds of other people, always standing in the way of somebody taking a picture and watching the kids using butterfly nets to catch everything that’s moving in the air or in the water.
What’s the point of setting up a park where you pay for the entrance (as long as the fee is sensible and the money is used for maintenance of the area, I think that’s a good idea), but closing that park on a weekend at five in the afternoon with a small back-entrance, where everybody can just slip in after five? Why not have the people pay an entry fee until eight or even ten in summer? Besides, most foreigners I know don’t care too much about strolling through a big tent where every stall just sells the same dried fish and hillarious plastic souvenirs. And finding a nice, quiet restaurant is not really fun with all people trying to lure you into their restaurant because there are so many of them that you wonder how they actually make money.

Looks like it’s a really favourite place with the Taiwanese, and it’s very typical for many “tourist” places I’ve seen in China. But as Mainland Chinese probably won’t constitute the typical tourist here and probably, the population of Taiwan itself is not numerous enough to make tourism a strong business factor, the concept of tourism would have to focus differently. Those nature parks seem to be somewhat better (I’ll check out my first one next weekend), but I’m not too sure about the nuclear power plants in at least one of them.

Another thing that drives me off “touristy” places (also common sight in Mainland tourist places): those ugly concrete constructions works that never get finished because the investors ran out of money. I went to Peitou a while ago, and there are those big concrete shells looming over part of the city. Looks like hotels that never got finished. Now, they just stand there, being used as car park, and they are enormous. And nobody seems to do anything about them. After being empty for a number of years, you probably can’t do anything but tear them down. Don’t people just hate the sight? How long have they been standing there, anyway? Are there any plans to get rid of them or make use of them? Is this a common sight in other places in Taiwan apart from Peitou?

I also agree with Holger on the visa thing. Going to Taiwan and leaving the island again (it seems pretty hard to get sensibly priced flights from and to Europe) is still such a hassle, not very attractive for potential western tourists.

Iris

32

Build cheap is the problem to begin with. My Korean friend worked for a smaller construction company and the went to Taiwan. Total shock at the complete crap these ROC family-owned companies were building and selling. Tiny tiles on the exterior?!! These are terrible even for the mainland because they fall off quickly. It is a shame that the Chinese cannot add-value to housing or commercial buildings. For those prices, one could buy a nice Korean apartment flat for USD 80K-120K (3 bedrooms, 2 1/2 bath, large kitchen and living rooms and two large balconies opening onto both sides of the buidling). This is a substantial quality of life factor for those blue-collared urbanites or company salarymen. Taichung has better examples of some newer style commercial buildings built in the last 10 years which shows some possibilities do exist.

That is why starting from the ground up is the key to Penghu Casinos. For example, the Venetian is an absolutely stunning building and the interior is amazing. People say that Las Vegas has no culture…well it could be said that in practice Taiwan just has absolutely no visible culture for the most part.

venetian.com/
guggenheimlasvegas.org/
bellagiolasvegas.com/
turnberry-place.com/ (expensive high rise apts)

If this inspires, just think of the possibilities for exploiting the Chinese culture in Taiwan. Chiang Kai-shek Memorial is only a mere starter (but the only point of interest so far).

33

Probably a foolish question to ask but is the government of Taiwan doing anything useful to reverse Taiwan’s economic decline?

I’m aware of all the initiatives announced last year when the crisis first became acute but they all seemed to have disappeared.

All I see now are a series of public appearances by Taiwan’s officials with strained smiles pasted on their faces and no more substantive discussions of the problems. I think they’re just trying to convince themselves and everyone else that the problem has just gone away like some run of bad luck and now the plan is just to keep it at bay with a smile-feng-shui offensive.

34

I am just beginning to think the failure pattern of the ROC Automoble Industry is going to even start playing out on the wider scale. SOEs maintained a technocrat monopoly on automakers in Taiwan that it stifled any investments or joint-ventures with Toyota or others in the distant past. The opportunity to gain a 300,000 unit capacity factory was squandered long ago. It is now a jumble of 11 carmakers in joint-venture assembly of knocked-down kits (KDK). Most run at 50% of capacity and maximum is maybe 100K units each facility. Of course, these parts are imported, but the domestic auto part sector is diverse and Taiwan industrial-base exceeds both Hong Kong and Singapore. Perhaps Ford LioHu is the exception, Yue Long is a typical Chinese crony operation of inefficiency and inproficiency. While the South Koreans over extended themselves with automakers during the IMF crisis, they have cut back significantly and bankrupted two or three major operations. Taiwan is not going to make it out of the woods with their automobile industry and the ROC technocrats are inept for the Taiwan economic planning. It maybe time to break up the SOEs and the MOFA bureaucracy. AIDC is a joke, but it exists for the domestic defense industry requirements.
In reality, AIDC is nothing but a US technology transfer and is Yankee know-how. It would be smarter to just scrap the SOEs or privatize. Better yet, open up these to acquisition by their American counterparts. There is just no ROC national security without America, or American consumers.
This would “deregulate” the stiflation of economic planners and dismantle the last vestige of the KMT economy. It made sense for economic development, but not for any consumer economy. I guess I am stating that the MOFA is defunct for ROC industrial policy and a substitution of a “Defense Dept” industrial policy is going to yield more results in the long run.
In the American experience, the Defense Department was a technology multiplier which then spurred on the commercial sectors. B-52s created the 747s and the DOD “internet” is the forefather of this Internet. Industrial policy cannot be centrally planned for a consumer economy as much as the course of evolution can be influenced by a big government defense policy. Less systematic control but more innovation
and an indirect underwriting of new economic paradigms.

35

Wow, this is a pretty high-quality thread.

There was an interesting opinion piece in yesterday’s China Post - Don’t blame PRC for economic woes…Any comments?

36

Two basic steps that will make a huge difference if taken in time:
(1) open direct links, and treat the mainland more as opportunity than threat; and (2) do everything possible to ensure that Taiwan’s living environment is substantially better than mainland China’s
– i.e., that living in Taipei, for example, is safer, healthier, freer, more pleasant, more convenient, more stimulating, more exciting, more welcoming, better value for money, and better in as many ways as possible than living in Beijing or Shanghai, no matter whether you’re a Chinese or a foreigner – and that people around the world know all about its advantages. Mayor Ma understands this well and is working hard toward these ends. The latter is an enormous and difficult undertaking, but by no means unattainable. Taiwan has a lot going for it, especially in terms of geographic location, human resources, and its achievements in becoming one of the region’s freest, most open and most democratic societies. There’s no reason why it shouldn’t be able to look forward to a rosy future as the Switzerland of East Asia.

37

Taiwan has the potential, but does it have what it takes to carry it out?

Botched reform of grasroot financial institutions, feet-dragging on the direct links issue, I don’t see as many encouraging signs as I would like to.

38

Many of the brightest technocrats, especially those of the “younger” (late 30s to early 50s) generation, are clearly aware of what needs to be done, and have been pushing hard for effective action in reforming grassroots financial institutions as well as the whole financial system, and implementing direct links and positive relations with the mainland as quickly as possible. But their best efforts are being blocked at the top, where indecision, prevarication, confusion, populism, and entrenched ideology prevail.

39

15 years ago someone told me the streets of Taiwan were paved with gold, but the Taiwanese were too lazy to bend over for anything less than a fresh, crisp, NT$1000 bill.

I don’t know that it’s changed that much, except that there are less fresh, crisp, NT$1000 bills laying around these days…