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China myth is leading
Taiwan into decline
By Huang Tien-lin 黃天麟
The failure of Taiwan’s economy is becoming clearer by the day. The prosperity
index has flashed a “blue light” for seven consecutive months and last month
exports fell by 3.2 percent for the fourth consecutive monthly drop, making
Taiwan the only country with negative export growth among neighboring Asian
countries. Not only will it be difficult for Taiwan to sustain economic growth
of more than 3 percent, it might even drop to 1.5 percent. Naturally, things do
not get so bad overnight: The seeds for this economic downturn were planted when
Semiconductor Manufacturing International Corp (SMIC) ignored government
restrictions and invested in China in 2000.
SMIC was established in April 2000, a month after Taiwan’s first transition of
government power, and it invested US$1.48 billion in China. The SMIC did not
“sneak” into China, because local media published detailed reports of the
company’s establishment and groundbreaking ceremony, which clearly violated
government policy, but authorities did nothing. When SMIC founder Richard Chang
(張汝京) returned home in December 2001, he even received a hero’s welcome when he
gave a speech at National Chiao Tung University.
At the time, public opinion, influenced by a pro-unification media, was strongly
in favor of opening up to China, and those in favor of opening up also
controlled key posts in the administration of then-president Chen Shui-bian
(陳水扁).
“If we don’t go, someone else will;” “integrate resources to add value;”
“division of labor between Taiwan’s and China’s industry;” “build a global
supply chain;” “turn Taiwan into the world’s gateway to China;” “take orders in
Taiwan and manufacture in China;” “make Taiwan a global logistics center;” “take
advantage of China’s rise” — were the slogans of those favoring deregulation and
pro-unification activists.
The government held an Economic Development Advisory Conference (EDAC) in August
2001, which the decided to allow 7,078 industrial items to be manufactured in
China, including computers. This was the beginning of the decline for Taiwan’s
domestic investment and of falling wages. Since wafer manufacturers were not
among the 7,078 items a long and intense debate ensued. Six months later, in
March 2002, the government decided to allow chipmakers to produce 8-inch wafers
in China on three conditions, one of which was that a manufacturer’s 12-inch
fabs in Taiwan must have reached mass production for six months. This delayed
relocation to China and helped Taiwan maintain its leading role in the sector.
On July 4, a decade later, Taiwan Semiconductor Manufacturing Co chairman and
chief executive Morris Chang (張忠謀) gave a speech entitled “Those who study well
should be innovators” at the Industrial Technology Research Institute, saying it
was “a myth” that factories were established in China because of low wages. In
particular, he used the SMIC case to explain that taking advantage of China’s
low wages was not a good strategy for long-term competition, because
competitiveness comes from innovation, accurately pinpointing the cause of
Taiwan’s economic downturn over the past dozen years.
President Ma Ying-jeou’s (馬英九) administration has further accelerated Taiwan’s
economic marginalization and pushed wages back to the levels they were at 14
years ago.
Practice is the sole criterion for testing truth. Fact shows that Taiwan’s
economic integration with China is leading Taiwan to its own destruction, as
Taiwanese companies lose the drive to innovate and upgrade. Having lost the
drive, all those nice slogans ends up being so much empty talk.
Huang Tien-lin is a former presidential adviser.
Translated by Eddy Chang
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