The four big players behind the nation’s investments, the government, private business, foreign capital and state-owed enterprises, have pulled back from putting money into Taiwan, causing local investment to sputter out. Annual investment by state-owned enterprises has dipped below NT$200 billion (US$6.4 billion) for the first time in 10 years, government-run public construction funds for next year have still not reached 10 percent of the national budget, foreign capital has drifted elsewhere and Taiwanese companies are moving overseas.
Anyone with a basic understanding of the economy knows the economic implications behind investment. The multiplier effect of investment is the primary component of GDP, and it represents the economic climate and has an impact on employment, real income levels and the future of the nation’s development. Government construction projects play a pivotal role in national infrastructure and during times of economic downturn, they can be used as an important fiscal tool at the government’s disposal to boost demand.
Public infrastructure has become more integrated and demand for construction projects has weakened. In addition, government financial indicators have reached a critical point, as borrowing is approaching its legal limit. The government’s budget is fraught with structural problems, with legal expenditures at an estimated 70 percent, pushing public works down on the list of priorities.
Areas of the government’s public works budget need review and reform. For example, maintaining an annual growth rate of a minimum 5 percent while comprising at least 10 percent of the total budget, review procedures are not comprehensive, implementation must be improved, and performance evaluations are a mere formality. There are many unused venues, criticized transportation projects and abandoned industrial parks. The government’s financial resources are overstretched, causing a decline in public construction spending. Measures such as awarding private-sector collaboration and cooperation between the central government and local governments to bring added value to several sectors require further investigation to improve effectiveness.
Build-operate-transfer projects, such as the Taipei Dome, and the high-speed rail system financial reform case have been misunderstood by the public due to ineffective communication by government departments. Contractors are hesitant, and collusion between government and industry has resulted in public distrust of the governments intentions.
Not only do people have limited knowledge of central and local governments’ cross-sector value-added policies, but at the end of last year, when the leadership of local governments changed, some policies by the National Development Council were overturned by local governments. Yunlin County and Kaohsiung want to pass their own regulations, while central and local governments are cooperating to increase value across different sectors. However, the public misunderstands the situation completely.
Investment by state-owned enterprises has shown a downturn. Such enterprises have revolving funds and apart from central government subsidies, they can raise funds or issue debt on their own. A tightened national budget usually has no effect on investments by state-owned enterprises. Many state-owned enterprises are utility companies in industries such as hydro-electricity, oil, natural gas and public transportation. The four-year public works investment plan, worth NT$500 billion, targeted at boosting the economy, and the “12 i-Taiwan projects,” initiated after the 2008 financial crisis, all had an impact on investment in state-owned enterprises.
Over the past few months, water shortages, leakage prevention and recycled water have attracted considerable attention. Water prices have not been adjusted in more than a decade, and the debt-laden Taiwan Water Corp has cut back on investment in leakage prevention and pipe replacement, as central government subsides have been reduced.
The government does not need to be so hands-on. It is impossible to rely on the government and state-owned enterprises to bear all the responsibility for infrastructure projects. However, the government is still playing the role of master planner such as in developing renewable energy sources, recycling water, and running sewage networks and sewage treatment facilities, which urgently need attention. Cooperation between the central and local governments, state-owned enterprises and private enterprises, and speeding up investment, remain issues.
Government efficiency is still the most important factor to investment. The party that has a chance of winning next year’s presidential election has a responsibility to submit rational policies. Confrontations between the Chinese Nationalist Party (KMT) and the Democratic Progressive Party have caused serious damage to administrative efficiency and willingness to invest. Political factors that have a negative impact on investment must be reduced, while Taiwanese must demand that the nation’s politicians propose concrete, viable options for investment.
Lin Chia-cheng is a university professor and former minister of examinations.
Translated by Zane Kheir
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