Last week the government reported that Taiwan’s economy shrank at a record 10.24 percent in the first three months of the year, while exports dropped 36.6 percent and private investment plunged 41 percent for the quarter.
With government officials and economists generally agreeing that the worst is probably over for Taiwan’s economic recession, the public’s attention has now turned to whether the economy is beginning to rebound — either in the form of a V-shaped recovery, a gradual U-shaped revival or a subdued L-shaped curve — and how sustained this rebound will be.
As long as global financial woes continue to drag on the US economy, cripple growth in Japan and Europe and weaken demand for electronics and other exports from emerging markets, no one can say for sure what the prospects of our economy will be.
Even though we have seen waves of rush orders from China and other markets recently, heard cancellations of unpaid leave at some local companies and watched stock market rallies buoyed by foreign capital inflows and capital repatriations by local residents, one thing the public must understand is that the anticipated recovery will be fragile and vulnerable if Taiwan only focuses on developing closer economic integration with China while failing to notice other crucial economic factors.
In the face of weak domestic consumption and falling exports, a key to the pace of Taiwan’s economic recovery is the strength of private investment, which includes local investment and foreign direct investment.
Regardless of where the much-needed private investment is from — local companies, Chinese businesses or other foreign investors — Taiwan can secure this potential investment only when the nation’s investment environment is sound and business infrastructure is competitive.
Unfortunately, the latest GDP data showed that the contraction in private investment has continued for four consecutive quarters since the second quarter of last year, when it dipped 9.92 percent year-on-year.
Considering the massive drop in exports, the government has become more conservative about the private investment outlook, lowering its forecast to a contraction of 29.02 percent for this year from a February forecast of minus 28.07 percent, there could be more bad news to come if the government only becomes complacent because of recent capital inflows while overlooking the weakness in the nation’s investment environment.
The latest global competitiveness report issued by the Switzerland-based International Institute for Management Development (IMD) showed exactly what we should be concerned about. The report showed Taiwan’s global competitiveness ranking among the world’s 57 major economies plunged 10 places from 13th last year to 23rd this year.
The IMD report also showed that Taiwan suffered a big decline in its business efficiency ranking this year, falling 12 places to 22nd place from 10th last year, which indicates a problem in the nation’s industrial structure.
To increase private investment, the government should continue eliminating bureaucratic red tape, facilitating more access to bank loans for small and medium-sized businesses and offering assistance to companies for land acquisition and manpower recruiting. The government should also provide more incentives for the development of green energy-related industries and encourage companies to develop their own brands instead of relying on contract manufacturing. Otherwise, we will certainly face the same problems.
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