20120311 EDITORIAL: Beware short-term fixation on China

EDITORIAL: Beware short-term fixation on China

The Directorate-General of Budget, Accounting and Statistics is likely to revise its economic growth forecast for Taiwan downward again late next month when it updates its full-year outlook for GDP growth.

However, this upcoming revision — the fifth straight downward adjustment since October, if it materializes — looks likely not just because of the lingering impact of the eurozone’s debt crisis and the recent surge in global crude oil prices.

Rather, it would be more because of the impact of a slowdown in Chinese economic growth.

China’s remark last week that it had lowered its GDP growth target to 7.5 percent this year from the symbolic 8 percent, which it has in recent years said was necessary to create jobs and maintain social stability, appears to have touched a nerve in Taiwan. Several government agencies have warned that the nation needs to work harder and find better ways to deal with the possible impact on Taiwan’s exports. In a report to be delivered to the legislature tomorrow, the central bank also says the slowdown in Taiwan’s exports so far this year is more serious than that of China, South Korea and Singapore.

In recent years, the government has worked to maintain low interest rates and adjusted corporate taxes to improve the nation’s competitiveness. It has also focused on key industries, such as semiconductors, color-image displays, digital content and biotechnology, to promote industrial restructuring and private investment. The latest effort was the inking of the cross-strait Economic Cooperation Framework Agreement in 2010, which has encouraged deeper ties between Taiwan and China in several industries.

Despite such efforts and the heightened attention to cross-strait economic relations, Taiwan’s free-trade talks with other nations have not moved forward significantly to diversify the nation’s trade beyond China.

Therefore, as Taiwan’s export-oriented economy has become increasingly dependent on China, a slowdown in China’s economy and the knock-on effect of a recession in the eurozone — China’s largest trading partner — has begun to take its toll.

The latest foreign trade data released by the Ministry of Finance on Wednesday showed exports dropped 4.5 percent year-on-year in the first two months of the year, the first contraction in three years, with exports to China declining 11.4 percent, also the first shrinkage since the global financial crisis in 2008-2009.

While many in Taiwan, including the government, are still closely monitoring developments in the eurozone debt crisis and oil prices, our focus on short-term benefits from the closer cross-strait trade ties, including a higher trade surplus with China, has prevented many from looking into the long-term, structural issues facing Taiwan or taking a serious look at China’s economic transformation as it tries to focus more on the quality of economic development than simply rapid growth.

Some of these challenges have made Taiwan less attractive to investors. These include bureaucratic inefficiencies, insufficient human resources and a less favorable tax structure, all of which the American Chamber of Commerce in Taipei identified in its 2012 Business Climate Survey published on Thursday.

Another challenge, of course, is how Taiwan will respond to China’s lower GDP growth target and its economic restructuring.

Since China has suggested it would like to expand its domestic consumption to achieve more balanced growth in its economy while moving away from its current model of labor-intensive exports, what industrial and foreign trade policy can help achieve Taiwan’s long-term growth? More specifically, what will our government do to improve the situation if Taiwan’s major export markets, such as Europe, Japan and the US, all slow down because of China?