Taiwan has no way to ‘insulate’ economy from mainland

Kao Koong-lian, who served as the Mainland Affairs Council’s vice chairman from 1991 to 1997, said Taiwan’s economy will completely hinge on the mainland.

Kao was speaking during a forum yesterday in Taipei.

He also blamed President Chen Shui-bian for not putting his word into action when it comes to investment policies.

“Every so often we find that President Chen does not transform his ideas into real actions,” said Kao. “Although many of his strategies are right. We do not know if we can take him at his words or not.”

Kao said lifting the ban on direct transportation links across between Taiwan and the mainland will encourage more foreign and Taiwan firms to base their operations headquarters on the island.

While Taiwan can keep mainland China out of its political matters, its economy has not choice but to increasingly depend on the mainland, said Kao.

Taiwan’s trade surplus toward the mainland amounts to US$22.3 billion a year, Kao pointed out. Mainland China also buys around one fourth of the island’s outbound goods, he said.

“Without the trade surplus to the mainland, our economy could have fallen five to six percent,” said Kao.

Taiwan’s economy rose 4.77 percent from a year ago in the third quarter, the strongest showing in two years and outpaced a 3.98 percent growth registered in the second quarter, the Directorate General of Budget, Accounting and Statistics said in November.

But the directorate lowered its fourth-quarter economic growth forecast to 3.17 percent from the previous estimate of 3.34 percent rise. For the full year of 2002, the directorate expects the island’s economy to grow 3.27 percent on year, an upward revision from its earlier projection of a 3.14 percent increase.

During the first half of the year, Taiwan’s exports to the mainland grew 30 percent, while imports from there increased 26 percent. So far, Taiwan has allowed the imports of over 7,700 mainland-made items, according to Kao.

The former government official added that the key reason for Taiwan’s economy slump is frail domestic demand, and has not much to do with external factors, said Kao. Officials of the Chen administration always cites international factors as the core reasons for Taiwan’s weak economy.

To be more specific, Kao said, private enterprises have held back their investment plans and consumers have cut spending because they lack confidence in the country’s economic outlook and the government’s capability.

Taiwan should better exploit its advantages over the mainland today — its abundant capitals, and marketing and management skills — before the mainland catches up in these areas, Kao warned.

Kao said while many large multinational enterprises can set up their own operations in the mainland by themselves successfully, many medium-sized foreign firms may need help from Taiwan for investments in the mainland.

The central bank’s 14 rate cuts since December 2000, which pumped huge amount of cash into the banking system, has failed to effectively reinvigorate the island’s sluggish private investment or consumption.

But not all agree with Kao’s notion that mainland China is the sole cure for Taiwan’s economic illness.

Chen Ching-chun, a lawmaker present at the forum yesterday, argued that Taiwan’s unemployment rate will surge if the government remove the ban on direct transportation links with the mainland.

“It is as if we are putting our safety and economy in the hands of the mainland. Our jobless rate will increase, old-economy industries will vanish,” the lawmaker said.

Taiwan’s jobless rate still stays above five percent despite improvement in the economic growth headline figures.

The government has demanded that Taiwan companies with investments in the mainland that have not been approved report to the government before the end of this month, or they will face severe punishment.

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