It has been a year since the Economic Cooperation Framework Agreement (ECFA) was signed.
Fresh economic data from the first half of this year show that neither in terms of export competitiveness, the ability to attract foreign investment and generate domestic investment, or overcoming difficulties in taking part in the East Asian Economic Integration Regime, has the ECFA had the effect that President Ma Ying-jeou (馬英九) said it would have at a press conference on July 1 last year.
It also shows that Taiwan’s economic vitality continues to decline and this is very worrying. The government should take a good look at the strategy for Taiwan’s integration into the global economy and speed up the promotion of structural changes to Taiwan’s domestic economy so as to strengthen Taiwan’s international competitiveness.
In terms of export competitiveness, Taiwanese exports to China grew by only 10 percent in the first half of this year, 51.9 percentage points less than the same time last year. Only 18.8 percent of exporters of the products on the ECFA early harvest list made use of the preferential tariffs available for those products, while the growth rate of exports to China for all products on the early harvest list was only 13.3 percent.
Also, because Taiwan’s exports to China declined by much more than exports to other nations, exports to China fell from 43 percent of Taiwan’s overall exports last year to 40.5 percent this year. This is 0.3 percentage points lower than during the first half of 2008, before the global financial crisis.
In terms of Taiwan’s share of the Chinese import market, Taiwan had a 12.9 percent share in 2003. This gradually dropped and by last year, Taiwan’s share had shrunk to only 8.3 percent. During the first half of this year, this figure dropped again, to 7.4 percent. Looking at the situation in terms of half-year time frames, it shows that Taiwan’s share in the Chinese market has continued to fall from 11.1 percent in the first half of 2006 to 8.2 percent in 2009.
However, after ASEAN Plus One (China) came into effect, Taiwan’s share in the Chinese market increased to 8.6 percent in the first half of last year, but this dropped again to 7.4 percent in the first half of this year after the ECFA early harvest list went into effect, the lowest figure since 1993. The ECFA obviously has done nothing to reverse the trend of Taiwan’s weakening competitiveness in the Chinese market.
In terms of attracting foreign direct investment (FDI), after Ma came into office, FDI in Taiwan dropped by 46.4 percent in 2008 to US$8.2 billion, and by another 41.8 percent in 2009 to US$4.8 billion. Last year, even though the global financial crisis had subsided, this number dropped another 20.6 percent to a mere US$3.8 billion, only just over half the average of US$7.14 billion during the eight-year administration of the Democratic Progressive Party (DPP). Taiwan’s share of global FDI dropped for three consecutive years, from 0.37 percent in 2007 to 0.20 percent last year. In the first half of this year, FDI in Taiwan grew by only 2.3 percent to US$2.27 billion, still a relatively modest amount. Because of a highly competitive international environment, there has been no substantial increase in foreign investment in Taiwan even a year after signing the ECFA.
If we look at the flow of international funds, including direct investment, which refers to FDI and direct investment in Taiwan, as well as portfolio investment, which includes assets and liabilities, we will see that Taiwan’s competitive advantage is still rapidly decreasing. In the 1990s, Taiwan’s net capital outflow, which refers to net direct investment plus net portfolio investment, was on average US$1.98 billion per year. From 2000 to 2007, during the DPP’s time in office, the net capital outflow was US$13.23 billion, and during Ma’s time in office, from 2008 to last year, it has reached US$ 20.8 billion. In the first quarter of this year, Taiwan’s net capital outflow was US$16.8 billion and in the second quarter it was US$ 9.9 billion, which means that Taiwan could lose even more capital this year than in 2007, or US$43.4 billion, which was the most capital Taiwan ever lost in a year.
In terms of domestic investment, during the DPP’s eight years in power, Taiwan’s average real investment rate was 23.7 percent, while the average for the three years Ma has been in office is 17.9 percent. In 2009, when the global financial crisis hit, Taiwan’s investment rate dropped to 16.7 percent, the lowest since 1981. However, the Directorate-General of Budget, Accounting and Statistics has predicted that the investment rate this year would reach only 17.4 percent, the second-lowest behind 2009. It also predicted that this figure would drop further to 16.7 percent in the fourth quarter of this year, which really makes one worry about Taiwan’s economic prospects.
On July 1, the Free Trade Agreement (FTA) between South Korea — Taiwan’s main international competitor — and the EU came into effect, and the FTA between South Korea and the US should also come into effect very soon. Approximately 70 percent of Taiwan’s and South Korea’s exports overlap and Taiwanese businesses will all be facing intense competition from South Korean businesses in the international market.
However, so far, Taiwan still has not signed an FTA with any nation in the Asia-Pacific region, including China. At present, Taiwan is negotiating an FTA with Singapore, but progress is slow. This shows that Taiwan lacks a sound and complete strategy for global economic integration, as well as the determination necessary to promote economic liberalization.
Tung Chen-yuan is a professor at National Chengchi University’s Graduate Institute of Development Studies.
TRANSLATED BY DREW CAMERON
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