| 科經（研）092-004號 |
中華民國九十二年二月十二日 February 12,2003 |
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An Evaluation of Economic Performance of Taiwan after the Year of 2000 |
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Prof. Chih-Yu Cheng Chi-Yuan Liang |
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Chu-Chia Lin |
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I.
Introduction
At the KMT regime, Taiwan was famous for her excellent economic performance with high economic growth rate, low inflation, low unemployment rate, and mild income distribution. However, the economic miracle no longer exists right after the DPP government has been in charged since the year of 2000. Then Taiwan experienced the worst economic performance in the year of 2001. The GDP growth rate was -1.91% in 2001, which was the only year that Taiwan has been suffered with a negative economic growth rate during the past fifty years. At the same time, the unemployment rate was 4.52%, which was a record high, too. The GDP growth rate bounced back to 2.41% last year mainly owing to international and China factor, however the unemployment rate was even higher (5.18%). Why has Taiwan’s economy experienced such a drastic change during the past three years? Is it mainly because of the recession of the world economy as the DPP government claimed? Or, is it because of the inexperienced new government with their inconsistent policies? Or, is it because of the fact that Taiwan is facing a significant economic structure change anyway? Or, like most of the other cases that the real world is always mixed with lots of factors, and so is the current situation of Taiwan? In this article, we will compare the economic performance of Taiwan before and after 2000, the year that the DPP regime began. To investigate the economic situation in detail, we concentrate our study in some major sectors including macroeconomic performance, financial situation, investment sector, and labor market. In the macroeconomic section, the change of GDP growth rate is discussed first and the contribution of each sector of GDP is examined. Then, we concentrate on foreign factors since Taiwan is always an exported-oriented country and we also discuss the impact of mainland China factor on Taiwan’s economy. In the financial section, the growth rate of money supply and the trend of interest rate will be discussed first. And then two important issues will be discussed: One is the serious problem of non-performing loan (NPL) and the other one is the quickly accumulated foreign reserve. In the investment section, the reasons why there is such a low fixed capital formation rate after the year of 2000, either for domestic capital formation or for foreign and overseas Chinese investment to Taiwan, will be examined. Finally, we will examine the labor market situation in detail. In addition to the high unemployment, we also point out some other important issues in the labor market in Taiwan. In the conclusion section, we will evaluate the performance of economic policies of the DPP government after the year of 2000 and we will point out their impact on the current economy of Taiwan. Finally, some policy suggestions will be provided as a conclusion for this study. II.
Macroeconomic Performance
GDP growth rate and its structureAmong the major economic indicators, the most significant one is the drastic drop of GDP growth rate in Taiwan after the year of 2000. As shown in Table 1, the average GDP growth rate before 2000 was around 5% per year.[1] Even at the first quarter of 2000, the quarterly growth rate of GDP was as high as 7.94%. At the third quarter of 2000, the GDP growth rate started to drop quickly.[2] In the year of 2001, Taiwan has experience the only case with a negative GDP growth rate (-1.91%) for the past fifty years. And then it bounced back to 2.41% in 2002. Why
does Taiwan’s economy decline so quickly and what factors cause
it bouncing back? The
changes of contribution of the major components of GDP structure
provide us some clues, see Table 1. Final consumption counts about
60% of total GDP in Taiwan. After the second quarter of 2000, the
growth rate of final consumption did drop from 5.32% in the second
quarter to 2.50% in the last quarter of 2000.
The lowest growth rate of final consumption is in the third
quarter of 2001 at 0.66%, but it is still positive.
Owing to the difficulties of government financial
situation, the growth rate of government expenditure became
negative since 1999, before the DPP regime.
And this trend keeps after 2000, which makes the bad
economic situation even worse.
In the first three quarters of 2000, the growth rate of fixed capital formation was quite high, but it quickly dropped from 15.54% in the third quarter to 2.46% in the next quarter. The situation was even worse at the year of 2001 in that the annual growth rate of fixed capital formation was -18.17%. There are two reasons to explain why domestic investment dropped so dramatic: One is that most of Taiwanese businessmen do not have enough confidence for the new government. The other reason is because the Forth Nuclear Power Plant dispute in August 2000. At the same time, the foreign sector was also in bad shape after 2000. In the year of 2000, the annual growth rate of export and import were 17.55% and 14.53%, respectively, which were much higher than the previous year. In 2001, the growth rate of export dropped to -8.17%, and the situation for import was even worse (-13.50%). Traditionally, Taiwan government is proud of her export-oriented policies and claims that the foreign sector is the engine of economic growth. So, it is very unusual to see a negative growth in the foreign sector. Foreign and mainland China factorTaiwan is a typical small open economy and the foreign sector has been played a crucial role in Taiwan’s economic performance. Now, what happens on foreign investment in Taiwan after 2000? Table 2 has provided a clear answer. In fact, the foreign and oversea Chinese investment to Taiwan had reached its peak in 2000 at US$7.61 billions and then quickly dropped to US$5.13 billions in 2001 and to US$3.31 in 2002, which means that it has dropped 32.59% and 35.47% for the two consecutive years. Apparently, as our domestic investors, foreign businessmen and overseas Chinese investors do not have much confidence in our new government, either. Meanwhile, the world’s economy turned down at the end of 2000. For instance, the GDP growth rate in the US dropped from 5.7% in the third quarter of 2000 to 1.3% the next quarter, see Table 2. The annual GDP growth rate decreased from 4.1% in 2000 to 1.2% in 2001. The situation is the same for the world as a whole. The annual GDP growth rate dropped from 3.4% in 2000 to 0.8% in 2001. The quickly recession of the world economy is the key reason why Taiwan’s export became negative in 2001.
While the economy of the world became recession in 2001, the mainland China market gained its role in Taiwan’s economy. In fact, bilateral trade across the Taiwan Strait has been increased at a very fast speed during the past years. For example, the annual growth rates of Taiwan export to mainland China were 33.23%, 203.93%, and 66.25% in 1998, 1999, and 2000, respectively. Even in the year of 2001, the growth rate of Taiwan export to mainland China was still positive (12.52%). For the first three quarter of 2002, the average growth rate of Taiwan export to mainland China is 76.69%, which is the key factor to explain why Taiwan’s total export becomes positive in 2002.[3] Without China market, Taiwan’s economy could not bounce back so quickly. There
are two reasons to explain why Taiwan’s export to mainland China
has been increasing so fast: One simple reason is that mainland
China’s economy has been growing very quick during the past ten
years which makes mainland China has a huge demand for import
goods and services. The other reason is that Taiwan businessmen
have invested a great amount of investment in mainland China
during the past years, see Table 2. [4]
Those Taiwanese firms in mainland China have bought a great
amount of raw materials, parts, and semi-products from Taiwan ad
thus created a huge trade deficit to Taiwan. III.
Financial Sector
Money supply and interest rateAs Taiwan’s economy slowed down after 2000, the growth rate of money supply was also slowing down. The annual growth rate of M1B dropped from 13.15% in 1999 to 3.23% in 2000 and to 5.00% in 2001. The growth rate of M2 has a similar pattern as M1B, see Table 3. When money supply decreases, the interest rate is supposed to increase to reflect the tight money market. However, the fact is that the one-year interest rate in Taiwan was dropping sharply, especially in the beginning of 2001. There are several reasons to explain why the interest rate did not increase when the growth rate of money supply was decreasing: The first reason is that the money demand is dropping because that the domestic investment is decreasing, too. At the same time, in order to stimulate domestic investment and consumption (and to reduce the incentive of saving), the government has to lower the interest rates. Finally, the interest rates for most major countries in the world are decreasing, too.
One thing we have to point out here is that, though the interest rate is so low, it seems that the low interest rate policy does neither stimulate the domestic investment at all, nor stimulate consumption much. As Keynes said: ”The businessmen’s investment behavior is an animal spirit.” Whether a businessman would like to invest is mainly determine by his expectation for the future. The interest rate is a cost of investment, but it is usually not very crucial. On the other hand, the effect of low interest rate on stimulating consumption will be nil if the economy is very poor. In fact, Taiwan people have being facing a serious shrinkage of assets, both of stocks and real estates. The negative wealth effect on consumption is so strong that it will be difficult to recover by reducing the interest rate.[5] As
Taiwan’s economy slowed down, the inflation was mild, too,
especially when the growth rate of money supply was very low. In
2001, the inflation rate was even negative (-1.69%). And the
situation is similar in 2002 where there are three quarters with
negative inflation rate while the annual inflation rate is only
0.08%. NPL and foreign reserveThe major problem in the financial sector of Taiwan comes from a very high ratio of non-performing loan (NPL). As shown in Table 4, the ratio of NPL to total deposit of the banking system had been increasing before 2000, but at a slow rate. However, the ratio of NPL increased quickly after the third quarter of 2000. The average ratio of NPL in 2001 was 7.13% and it was even higher in 2002. There are two fundamental factors causing the serious problem of high NPL ratio in Taiwan. The first reason should be traced back to the year of 1991 when there were thirteen new private banks established at the same year. Before 1991, there was no private bank in Taiwan. Since there have been so many new banks entered the market, they had to compete for new loans, either good or bad. Gradually, there are more and more bad loans in the banks. The second reason for the high NPL relates to the poor real estate market situation. After the housing price had reached its peak in the beginning of 1990s, the housing market in Taiwan declined gradually, though the bubble of the real estate market did not burst. During the past ten years, the housing market is keeping in a recession with a tremendous amount of vacant dwelling units in Taiwan.[6] As there are so many bad loans in the real estate mortgage, the ratio of NPL in the banks becomes higher and higher.
As Taiwan’s economy turned down quickly, NT dollar also depreciated. In the second quarter of 2000, the exchange rate of NT dollar to the US dollar was 30.813 and then it quickly dropped to 33.046. One of the crucial reasons was the political instability after the Fourth Nuclear Power Plant dispute in the third quarter of 2000. There was a great amount of domestic and foreign capital moved out of Taiwan, which caused the amount of foreign reserve decreasing from US$113.0 billions to US$108.2 billions at the end of 2000.[7] Moreover, Taiwan dollar keeps depreciating after 2000. Comparing to the exchange rate at the second quarter of 2000 (30.813), the Taiwan dollar has been depreciated about 12.82% at the end of 2002 (34.761). After 2001, Taiwan’s foreign reserve started increasing again, but why does the NT dollar still keep depreciating? The reason is mainly because that our government tries to keeps NT dollar at a lower level and so it could help Taiwan commodities to compete in the international market. One thing worth to point out is that foreign reserve has been increasing at a very high speed in the past two years. Table 4 shows that the amount of foreign exchange has been increased from US$113.1 billions at the third quarter of 2001 to US$159.1 at the end of 2002. Though part of the reason for quickly accumulating of foreign reserve is caused by a large amount of trade surplus, the other important reason is because that our government has intervened in the foreign exchange market too much. A quickly accumulated foreign reserve could cause the money supply increasing sharply and could also generate a loose credit market, which may cause money game in the future. The
Growth in Infrastructure Investment According
to the concept of the national income account, the infrastructure
investment can be indicated as governmental gross fixed capital
formation (GGFCF). The
GGFCF registered a three years consecutive negative growth during
2000-2002 in Taiwan, which she never experienced during the past
five decades. The
GGFCF (at 1996 constant prices) decreased from N.T.$509.3 billions
in 1999 to N.T.$485.5 billions in 2000 and N.T.$462.4 billions in
2001. The growth rate
of GGFCF was –4.66% in 2000, -4.77% in 2001 and –10.07% in
2002, see Table 1, indicating a downward trend.
It looks even alarming, if one looks into the quarterly
growth rate of GGFCF in the past year (2002).
The quarterly growth rate of GGFCF in 2002 was –8.29% in
the first quarter, -8.89% in the second quarter, -9.38% in the
third quarter and –12.95% in the fourth quarter, showing no sign
of turnaround.
Taiwan
has been in economic recession in recent years. While the growth
of private consumption and private investment are weak, and the
private investment even recorded a dramatic drop of –29.2% in
2001, Taiwan desperately need government investment to push up the
economy, see Table 5. The negative growth in GGFCF dampened the
economy instead of stimulating it. It
is worthy of noting that the government has been proposing a
series of projects since 2001, such as “8100: Taiwan
Commencement”, under the regime of the former Premier Chang and
the “Challenging 2008: National Major Development Plan”, under
the present Premier Yiu to stimulate the economy.
The negative growth in GGFCF indicates the major setback of
the government in the implementation of these projects. Some
major investment projects have been very much lagged behind the
schedule, such as ‘The First-stage Keelung River Flood Control
Project’, ‘Sewerage Construction Project’, ‘Water-Pipe
Replacement and Construction Project’, ‘Eastern Coastal
Highway Project’, ‘Hung-Mao Fishing Village Removement
Project’ and ‘The Third-Stage Provincial Garbage Disposal
Project’ and so on. A
BOT project, ‘ Rapid Transit System between Chiang-Kai-Sheik
Airport and Songshan Airport Construction Project’, after five
years delay has to change the contractor recently. The
Causes of Negative Growth in Infrastructure Investment The
delay of major investment projects could be attributed to the
following causes: First, misallocation of the budget: The share of
expenditures for economic development in the central government
budget declined from 15.6 % in 1999 to 14.8 % in 2000, while that
of expenditures for social security in creased from 16.4% to
18.9%. Second, crowding–out effect: Owing to budget constraint,
although the government increases its investment according to its
plan announced, other investment projects, which are not included
in the plans are crowded out.
Consequently, for the total sum of the government capital
expenditure was not increased. Third, time lag in decision making:
The economic recession, which started from the Fourth Nuclear
Plant dispute in October 2000, was not recognized by the
government in time. The
additional governmental fixed capital formation expenditure, such
as in the “8100 Taiwan’s commencement” was too late to
propose by the government. Since
this additional budget was proposed in the middle of the 2000
fiscal year, it led to a lower implementation rate of the whole
project for short of time. It
is worthy to note that even the government has proposed a new
plan, i.e., “Challenging 2008: National Major Development
Plan”, under Premier Yiu since May 2001, in which two trillions
New-Taiwan-Dollars are targeted to spend, no obvious changes are
in sight in the coming seven years.
According to the forecast made by Directorate General of
Budget Accounting and Statistics, Executive Yuan, the growth rate
in governmental gross fixed capital formation is still negative,
i.e., -3.95% in this year (2003). Government’s determination to materialize the
“Challenging 2008” plan is not yet to see. Forth, shortage of
matching fund from the local government: Most projects need 30%
matching fund from the local governments. However many local
governments are lack of budget because of declining tax revenue.
Fifth, low implementation rate: The implementation rate for the
GGFCF was 81% in 2000, which was not exceptional low but still a
lot of rooms left to improve.
In addition to the time-lag in the government decision
making and shortage of local government matching fund, factors
affecting the implementation rate including: difficulty in land
acquisition, delay in planning, delay due to administrative
practices such as licensing application, pipeline removement and
delay in start-up and final verification, delay in open tenders,
problems in construction, protest of the residents, and others. The
above factors, which often mentioned to explain the delays in
infrastructure investment projects in the past, became even worse
in recent years, because of the new implemented ‘Purchase Law of
the Government’. There are consensus that the ‘rigidity’ of
the ‘Purchase Law of the Government’ has been confusing the
purchase and relevant personnel of the government from actively
conducting responsive administrative decisions and works. Policy
Suggestions for Investment To
promote the government infrastructure investment, we suggest that: (1)
To increase the share of capital expenditure in the
government budget for all levels. (2)
To waive or reduce the matching fund from the local
government. (3)
To improve the promotion scheme for BOT
(Built-Operate-Transfer) and BOO (Built-Operate-Owned) for
encouraging the private sector to participate in the
infrastructure investment. In
addition, the constraint on insurance companies to invest in BOT
or BOO projects should be waived. (4)
To clarify the definition of “ illegally benefit the
others” from “ a responsive administration decision” in the
Purchase Law of the Government.
And to provide training courses on Purchase Law of the
Government for the purchase personnel of all government levels and
private companies. (5)
For increasing the short-term domestic demand, priority
should be targeted on those projects, which has finished detailed
planning, land acquisition and has budget approved. (6)
To increase the budget for infrastructure maintenance and
operation costs. (7)
To propose and amend the relevant laws and regulations,
such as Construction Law, Law of Construction Engineers and so on. (8)
To synthesize the Land Development Plan and Township
Development Plan into the National Development Plan. (9)
To implement punishment and incentive schemes for relevant
government employees. Recently,
government proposes an economy stimulation project, which will
spend N.T.$20 billion to hire unemployed workers to work in
government sector and spend another N.T.$50 billion in county
–level infrastructure investment projects. This project is quite controversial, because basically it only provides a temporary relief on unemployment and economic downturn. It leads to ‘waste’ and resource misallocation from a long-term economic growth point of view. An alternative to invest the N.T.$ 70 billion economy stimulation project should be reconsidered. As aforementioned, lack of local government matching fund is one of the major causes for low implementation rate of the infrastructure investment. Consequently, we suggest that the government invest all of the N.T.$70 billions on reducing or waiving the matching fund of the local government for selected major infrastructure investment projects. This will create a multiple effect on the economy. We assume that the matching fund of the local government accounts for 25 percent of the average infrastructure investment (Note: this figure is provided by the DGBAS). Then a N.T.$70 billion investment on reducing local government matching fund in the infrastructure project can generate a N.T.$280 billion value of effective infrastructure investment.[8] If it is completely carried out in one year, through the linkage effect of the inter-industry input-output relation, a N.T.$280 billion infrastructure investment will produce N.T.$573 billion total output and N.T.$170 billion value added (GDP) respectively, for the whole economy, see Table 6. It means that the GDP growth rate will be increased by 1.76 %. As to its employment effect, the total employment will increase by 285 thousand people, see Table 6, indicating a decrease of unemployment rate from 5.17% at present to 2.33%. That is a 55% reduction. Furthermore, by promoting the infrastructure investment, this scheme will benefit the long-term economic growth.
Finally,
it is interesting to compare the effect of the N.T.$ 20 billion
government program to hire unemployed workers to work in
government sector, which according to the estimate of the
government will create 75 thousand new jobs for one year.
Conversely, if the N.T.$20 billion is invested in the
waiving or reduction of matching fund from the local government, it
will generate 81.5 thousand jobs plus a N.T.$48.6 billion increase
in GDP. V.
Labor Market Situation
Industrial structure transformation and EmploymentBased
on the government’s statistical data, unemployment in Taiwan in
recent years has shown the following characteristics: First, the
main factor leading to the unemployment could have been attributed
to the closure of establishments and business shrinkage, in
particular because of the closure of establishments in industry. Second,
if observed by educational attainment, it can be found that
unemployment rate for persons below senior/ vocational school has
been increasing. Third, unemployment rates for persons aged from
15 to 24 and from 45 to 64 have been increasing, in particular for
persons aged from 15 to 24 the increase has been dramatically.
Forth, unemployment rate for male labor has recently been higher
than that for female labor. Finally, no matter for new job seekers
or experienced job seekers, number of weeks in unemployment has
been increasing. According
to the above description, there is no doubt that Taiwan is now
facing a problem of structural unemployment, male labor whose age
is in-between either 15-24 or 45-64 and educational attainment is
below senior/ vocational school should deserve more attention when
formulating relevant policies.
Nevertheless, due to industrial structure transformation
employment opportunities for male labor seem to be not promising. In
1988, service industries became the major industries in absorbing
labor force, and since then Taiwan has marched into an era of
service economy. See Table 7. Since
service industries are mostly labor-intensive and most of the
transactions should be completed in a way of person-to-person
interaction, female labor due to their personal traits has been
massively participated in the labor market. As shown by Table 8,
female labor engaged in service industries is undoubtedly more
than male labor. Therefore, based upon the above findings, there
is no doubt that with the expansion of trade and service
industries female labor would have more job opportunities in the
labor market. However,
based upon the figures revealed in Table 9, the percentage of
female workers being legislator, government administrator,
business executives and mangers are still comparatively lower than
that of male workers. Therefore, there is no doubt that so-called
hierarchical segregation between male and female labor still
exists. In other
words, even though job opportunities for female labor look
promising, lots of female workers are still engaged in occupations
with lower pay and lower skill level.
Occupational stratification seems to be a major obstacle
for female workers’ development in the labor market.
Undoubtedly,
in the service economy, lack of job opportunities has been a
serious problem to male labor, and lack of job opportunities with
higher pay and higher skill level has definitely been of great
disadvantage to female labor.
However, in consideration of the deficiency of job
opportunities in the current labor market, male labor would have
undoubtedly been more disadvantaged than female labor. In
addition, since male labor would be more difficult in acquiring
job opportunities in trade and service industries, government
policies aimed at expanding job opportunities in the service
industry might not be a proper medicine to cure the unemployment
problem mainly for male labor.
Except that female workers are facing the problem of job opportunities with higher pay and higher skill level, many women are employed as workers of atypical employment relationship. For instance, part-time workers account for less than 7% of the employed persons, and among which the percentage of female part-time workers is higher than that of male counterparts. According to research findings, no matter in job promotion opportunities, salary and fringe benefits, and education and training opportunities, workers of atypical employment relationship usually receive little and less. Therefore, in the service economy, female labor should deserve more attention and assistance. It
is predictable that with the expansion of service industry, male
labor would face more difficulty in obtaining job opportunities,
and female labor would take more responsibility in supporting
family livelihood. However, hierarchical segregation and engagement as workers
of atypical employment relationship would become main obstacles to
female labor in the labor market.
How to assist female labor in solving the above-mentions
problems has been of great concern.
Perhaps, equal employment plan and legislation may be
helpful to female labor in acquiring job promotion and training
opportunities. Furthermore,
government assistance in child and elder care would also be of
great help to female labor.
Unemployment
structure In
addition to female workers’ protection, young-aged (15-24 years
of old) labor’s unemployment problem should be given more
attention. As revealed by the government statistical data,
young-aged labor’s unemployment rate has exceeded 5% since 1995
and 10% since 2001, see Table 10. There is no doubt that
young-aged labor’s unemployment problem has been more serious
than the average. The
young-aged is the future of a nation; and it is unbearable to
allowing young-aged workers to be confronted with unemployment
problem. Therefore,
how to assist young-aged labor in their career development would
be of great importance. If
we could provide the young-aged with opportunities in career
development, they would surely take every opportunity of
development. Otherwise, once being unemployed in their
starting-point, young-aged workers might be faced with problems of
long-term unemployment or underemployment. Based upon research
findings, lack of training would be the main obstacle to
young-aged labor’s employment, providing young-aged labor with
training opportunities is definitely important.
As
mentioned above, transformation of industrial structure has caused
structural unemployment in Taiwan; and young-aged labor and female
labor have been seriously affected by the industrial structure
transformation. Under this circumstance, how to provide
substantial assistance to the forementioned labor should become a
major concern to the government. Finally, the unemployment rate for elder workers (45-64) is also increasing in the past few years. Table 10 shows that the unemployment rate for elder workers has increased from 1.44% in 1998 to 3.37%in 2002. One major reason for the elder unemployment is because of the industry restructuring as we mentioned before. Since Elder workers, in general, hare less skill with lower education, there will have more and more elder unemployment workers when the industry shifts from low- skilled to high- tech. IV.
Conclusion
Policy evaluationSince the DPP regime started at the third quarter of 2000, Taiwan’s economy has facing a serious down turn till now. After a careful examination on Taiwan’s economic performance in different sectors, we found that international factor, poor economic policy, and policy inconsistent all have significant impact. The GDP growth rate of Taiwan in 2001 was -1.91%, which was the only negative case during the past fifty years. Among other reasons, both of sharply decreasing of export and drastic decreasing of domestic investment were the main reasons causing the record-low economic growth in Taiwan. At the same time, mainland China gradually plays a central role in the export market for Taiwan. However, it seems that our government intends to ignore the existence of mainland China’s market for political reasons. In the financial sector, the high ratio of NPL is still the crucial problem that our government has to face. On the other hand, it seems that the policy of low interest rate does not work well in term of stimulating domestic investment. When private investment slowed down sharply, the public investment also slowed down, both because of the new and inexperience government and of fiscal problem. Finally, the labor market is in a bad situation, too. The unemployment rate has reached its record high and is still increasing even the GDP growth rate has bounced back a little. Apparently, the process of economic restructuring has not finished yet. As the economy keeps shifting to technology-intensive industry and service industry, the demand for unskilled labor will decrease even further. At the meantime, the problem of unemployment for elder workers will become worse, too. Current policies on creating temporary jobs may help to decrease unemployment rate in the short run, but will not help in the long run at all since the trend of economic restructuring will not stop in the near future. Policy implicationsThe DPP party is a new regime, so we are not supposed to blame them with lacking of experience running a government. However, there are much more things they can do and Taiwan’s economy could be much better if the new government has done things right, or even if they just keeps a consistent policy. Here are some policy suggestions that may help Taiwan’s economy in the future: First, keeping a consistent policy is very crucial in reducing investment risk. Presumable, regime change in Taiwan will be a normal thing in the future, therefore, the ruling party has to learn how to respect the major economic decisions made by the previous ruling party. The Fourth Nuclear Power Plant dispute is a vivid case for us to know what damage an inconsistent policy could make to the economy. Second, foreign and mainland China factor is always important to Taiwan. As mainland China’s factor becomes more and more crucial, Taiwan government should be more active in dealing with China. Taiwan should liberalize her economic relation with mainland China and let Taiwanese businessmen to realize comparative advantages in both sides of the Taiwan Strait. Liberalization and internationalization are inevitable for Taiwan’s development in the past, the same philosophy holds for the economic relation across the Taiwan Strait, too. Third, the serious problem of NPL is still crucial for Taiwan. Taiwan government should pay more attention to decrease NPL as soon and much as possible. Moreover, the low interest rate policy has been proved as a failed policy. As the interest rate is so low that it is already near liquidity trap, what the government should do is to use fiscal policy, instead of monetary policy. Fourth, stimulating the investment, both for domestic and FDI, should be a major policy goal in current situation of Taiwan. To increase government investment, how to increase government efficiency is crucial. To attract both domestic and FDI, what the government should do is to rebuild their confidence to the government. In order to do so, the first thing our government should do is to make the policies consistent and clear and then to build a free economic environment, both to the international market and to the mainland China market. Finally, the unemployment problem is mainly a problem owing to the restructuring process of Taiwan’s economy, so it will be difficult to reduce it. Most of the current labor policies will be temporary if they do not take the structure change into account. In order to solve the unemployment problem in the long run, the government should pay more attention on changing labor skill in every aspect. [1] The growth rate (4.47%) in 1998 was mainly caused by the Asian financial crisis. In fact, 4.47% was not bad at all comparing to other Asian countries in 1998, except mainland China. [2] The DPP government regime has started since May 20, 2000. [3] In Fact, the share of Taiwan’s export to mainland China and Hong Kong to Taiwan’s total export is 30.70% in 2002, which makes mainland China exceeding the US and becoming the largest export place of Taiwan. [4] According to Investment Commission, Ministry of Economic Affairs, there are 24,146 approved cases of Taiwan investment in mainland China at the end of 2001 and the total amount of investment is US$19.89 billions. However, according to mainland China’s official data, there are 50838 cases of Taiwanese investment, while the contract amount of investment is US$54.73 billions and the realized amount is US$29.14 billions. [5] In fact, the current economic situation in Taiwan is quite similar to the situation in Japan who has facing a serious economic downturn after their bubble burst in 1991. [6] According to the Population Census held at the end of 2000, there are 1.23 million of vacant houses in Taiwan and the vacancy rate of Taiwan as a whole is 17.6%. [7] The dispute of the Fourth Nuclear Power Plant happened at the third quarter of 2000 and has a significant impact on Taiwan’s economy in almost all sectors. For instance, domestic and foreign investment dropped dramatically after the dispute. A huge amount of capital moved out of Taiwan, which caused foreign reserve sharply decreased and so was the exchange rate of Taiwan dollar. Finally, the Tai index dropped from 7942.79 to 5525.00 at the end of 2000. [8] N.T.$280 billion = N.T.$70 billion / 0.25. |
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