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September 22, 2017

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Nation's economic future lies in enhancing core competencies

While the government of Taiwan continues to stress the importance of liberating the domestic business environment and establishing extensive trade relations with other countries, we must not forget that the key to Taiwan's economic competitiveness lies in beefing up local industries' core competencies.

Taiwan had a disappointing economic performance last year. The economic growth forecast in 2013 was recently adjusted to 1.74 percent, substantially lower than the original forecast of 4.58 percent. Export growth in the fourth quarter was forecast at -2.03 percent, down from an initial 2.78 percent outlook. The unemployment rate was pegged at 4.15 percent in November, which is higher than the rates in Singapore, Hong Kong and South Korea.

To pull Taiwan out of its economic quagmire, the government of Taiwan promoted the ideas that further economic integration in the global community and liberating the domestic business environment are keys to rescuing Taiwan's economy. More specifically, it has said that Taiwan needs to sign free trade agreements (FTA) with more countries to further economic integration, and the launch of the free economic pilot zone project will serve to liberate the business environment.

The rationale behind all this is simple: Exports account for over 65 percent of Taiwan's GDP. As an export-oriented country, Taiwan relies much on strong trade performance to boost its economy. While it is important that Taiwan signs FTAs with its trade partners to establish terms to makebusiness with Taiwan more beneficial, it is also important to enhance the core competency of local industries.

This theory is not only true for Taiwan, but for other countries as well, as reflected in fiscal policies rolled out by the U.S. and Japan.

After the 2008 financial crisis, the U.S. Fed has been applying quantitative easing (QE) measures to stimulate its domestic economy. The government kept printing money and threw in US$85 billion every month to purchase financial assets from commercial banks and other private institutions. This expansionary monetary policy has so far helped boost the U.S. economy.

Japan has been taking a similar route. Abenomics, launched by Prime Minister Shinzo Abe, is characterized by "the three arrows," with the first arrow representing unprecedented aggressive monetary easing to target 2-percent real GDP growth. The Bank of Japan printed a lot of money to support the local economy.

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