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Key Economic Data 
  2003 2002 2001 Ranking(2002)
Millions of US $  406,000    
GNI per capita
 US $ 18,000
Ranking is given out of 208 nations - (data from the World Bank)

Books on Taiwan

Update No: 080 - (26/09/10)

Challenging times ahead
It is barely two months until the next round of mayoral and council elections in the special municipalities of Taiwan. Until recently there were only two such special municipalities – those of Taipei and Kaohsiung but in the biggest administrative shake up since Taiwan renounced its claims to the whole of China (and rid itself of a legislature dominated by individuals who claimed to represent such places as Xinjiang almost twenty years ago) there are now to be five such zones.

The elections are scheduled for Nov. 27 in Taipei City, New Taipei City (Xinbei) – which was upgraded from its status as Taipei County – and Taichung, Tainan and Kaohsiung cities. These new municipalities have recently been created by merging the respective cities and counties and will account for almost half of Taiwan’s population once created. This gives the upcoming election special significance.

After winning the presidency two years ago on a platform that promised renewed economic prosperity, President Ma Ying-jeou was immediately overwhelmed by the global financial crisis which saw his promises evaporate and his popularity nose dive along with the economy. President Ma is hoping that the opening up of economic relations with China – and especially the Economic Cooperation Framework Agreement (ECFA) which entered into force on September 12, will restore his political fortune and that of the KMT ahead of the next national election in 2012. Beijing too, wants a continuance of an administration in Taiwan that is amenable to eventual political integration and has been pulling out all the stops to give Taiwan what it wants in the negotiation of the economic agreements.

The problem for Ma is that many Taiwanese do not see it that way, despite an economy that is undoubtedly on the mend.

The most recent economic indicators suggest at first sight that Taiwan’s economy is again booming, although some are worried over the extent to which economy can continue to grow during the second half of the year. Still, present numbers look good. Exports in August reached their second highest level since the onset of the global financial crisis, rising to US$5.05 billion from a year ago – an increase of 26.6 percent. Exports to the US hit their highest level since late 2008 and reached US$2.93 billion. Shipments to China (including Hong Kong) stood at US$9.79 billion, up 18.1 percent year-on-year, and accounting for the largest portion of Taiwan’s foreign trade(40.7 percent). This was followed by the ASEAN region at 14.8 percent and the US at 12.2 percent.

Based on WTO-compiled mercantile trade data for 1H 2010, Taiwan has regained its position as the world’s 16th largest trading economy with a total two-way trade placed at $121.92 billion over the period. Taiwan’s share of global exports in the first six months of the year increased from 1.6 percent to 1.9 percent. Taiwan ranked 16th in the WTO global rankings in 2003, but dropped to 18th in 2004 and ¬remained there until 2008. China became the world’s No. 1 trading nation for the first time last year and has held this position.

There must be something magic about the “double eight”. According to the most recent survey by the Geneva-based World Economic Forum, Taiwan’s economy now ranks 16th also in terms of global competitiveness – down by one notch from its position last year. Within Asia, Singapore scored the highest in third place globally followed by Japan (6th place) and Hong Kong (11th).

Yet there are those who claim that the numbers are not as good as the government makes out and some local analysts believe the economy is in a bubble that might yet burst. While the government is making much of the fact that it has achieved year-on-year growth rates of 13.71 percent in the first quarter and 12.53 percent in the second quarter of 2010; this is almost entirely due to the low base effect. This time last year the quarterly growth figures were at -9.06 percent and -6.85 percent. Allowing for last year’s negative growth, then economic growth rates for this year were only 4.65 percent in the first quarter and 5.68 percent in the second quarter; nice to have but not spectacular.

And while there are still more manufacturers who reportedly remain positive about the economy, than those that are pessimistic, according to recent surveys the gap between the two is narrowing.

Taiwan has so far signed a total of 14 agreements with China since the KMT returned to office, yet so far the general public has seen very little benefit from any of them. Indeed the gap between those that have and those that have not appears to be widening with wage earners at the low end of the employment spectrum faring worst of all – after all those that are better educated can always sell their labour elsewhere; those that are less well educated have little by way of options.

The public can therefore be excused for not becoming over-excited by the ECFA. Most wage and salary earners are still clawing their way back to economic health after seeing an erosion of real incomes during the GFC contraction and with talk of another slowdown looming, anxiety is in greater abundance than enthusiasm. Rather than opening up new opportunities, the agreements with China are seen by the rank and file as a threat to their livelihood.

The greatest fear is a stall in the US recovery – Europe is already in trouble and cannot take up any slack. With unemployment in the US remaining stubbornly above 10 percent, how far will a resurgence in consumer spending go?

But China too has many problems of its own. China boosted its economy during the GFC with a stimulus that saw almost US$600 billion injected into new investment but so far this new investment has failed to stimulate China’s mammoth manufacturing sector on which Taiwan increasingly depends. Instead the stimulus has resulted in a heating up of the property market and wasteful infrastructure construction. Is China building a bubble too?
With its economy increasingly in the Chinese shadow, Taiwan is finding it has little room to manoeuvre. The government still does not see it that way. With the ECFA in place, President Ma is hoping for a respite in further talks with China to allow the benefits from present accords to flow to Taiwan thereby restoring his tarnished image with the electorate – and thereby making it easier to tackle political issues without a domestic backlash.

Whether China will allow this to happen remains to be seen. It cannot be denied that over the past two years, China has shown an admirable flexibility in dealing with Taiwan on economic issues. But China has another agenda entirely and at times has appeared impatient to move on to the more thorny issue of political unification. To Beijing, the ECFA is not an end in itself but merely lays the groundwork for political talks aimed at unifying Taiwan with the mainland.

Ma is once again in a difficult position of his own making. On the one hand, he is facing increasing pressure from Beijing to begin political talks, on the other hand, he has lost much of the trust he enjoyed earlier with the voters of Taiwan who handed him the presidency two years ago and he wants time to rebuild his reputation with the electorate.
The KMT has made much of the supposed economic benefits of the ECFA believing that once in place, it would boost the standing of the KMT with voters and boost its chances in the upcoming special municipality elections. Whether this is the case or not remains to be seen. Most of the benefits from agreements with China are long-term in nature and many have questioned the wisdom of putting all Taiwan’s eggs in the China basket. For one thing, the more the local economy is integrated into that of China, the less manoeuvrability Taiwan has. China knows this. For another, the transfer of much of Taiwan’s manufacturing to China has led to a redistribution of wealth and deepening class differences that do not coincide with the traditional pan-blue and pan-green political alliances. Instead many workers who in former times would support the KMT are now being pushed into the DPP camp. Ma needs to stem the flow before it becomes a tide.

Indeed, and contrary to KMT expectations, the ECFA does not appear to be looming large as an issue in the upcoming elections. Rather voters appear to be more concerned over domestic issues and the manner in which the government is handling these. So far the omens are not particularly good for President Ma and the KMT.

The leaders in Beijing are well aware that Ma is not in a particularly strong position. What is not known is whether they will give him the space he needs or whether they will be impatient to press their advantage. If the KMT does well in the year-end election round, Ma’s political capital will improve and his chances of winning a second term in 2012 will be enhanced. This may encourage Beijing to wait it out. But with Chinese President Hu Jintao stepping down that same year, and if Ma looks like a lame duck president, then China may yet call in the favours ahead of time. After all Hu Jintao has his own electorate to answer to and they have nuclear weapons.   

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