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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: 094 - (26/02/12)

Taiwan: An uncertain road ahead
His victory may not have been as decisive as last time around in terms of the number of votes gained, but Ma Ying-jeou can govern Taiwan with certainty for the next four years, confident that he has the team and the legislature he needs to implement his programme.

He has come out publicly, in his lunar New Year address saying that while his focus during his first four years was on undoing the damage done by eight years of ‘misrule’ by the DPP under the presidency of Chen Shui-bian – now incarcerated for a 17 years sentence; this time around, his focus will be on closing the widening wealth gap that has opened up in Taiwan and in judicial reform. These two issues, important as they may be, do not make up a comprehensive platform of governance but we will have to wait to see what else is on the agenda. ‘Key social, political and economic issues’ have been spoken of but so far there has not been much by way of specifics.

There have also been hints that Taiwan will continue to reach out internationally in an effort to gain more space and that the ‘cross-straits relationship would continue to develop only when Taiwan is not isolated internationally’. But that may be a show of bravado for domestic consumption since China seems to have Taiwan exactly where it wants it.

There will be 16 new faces in Ma’s Cabinet of 47, surely one of the largest in any democratic country. There are 36 male and 11 female Cabinet members. Most are veteran politicians.

The single-chamber legislature has only 113 seats of which the KMT controls 64, providing it with a comfortable majority despite the loss of 17 seats compared with the number held in the previous legislature.

Ma has appointed former Vice Premier Sean Chen as premier. Chen has a background in economics and finance and for a period headed the Financial Supervisory Commission. It was Chen who took the lead in signing the memorandum of understanding on financial supervisory cooperation with China and the appointment of an economic guru to lead the Cabinet, speaks of the importance of dealing with economic issues in the months and years ahead. Former premier, Wu Den-yih has now become the vice-president.

For its part the DPP has appointed Greater Kaohsiung Mayor Chen Chu, as its interim chair to serve out the remaining term of Tsai Ing-wen who resigned to take responsibility for the DPPs electoral defeat. One of her first tasks will be to revisit the DPPs China strategy; it was the uncertainty in many voter’s minds as to whether the DPP could work with China that is believed to have cost the DPP its victory. That is as may be, China has shown a marked preference towards the KMT and setting up a dialogue will not be an easy task.

President Ma will be on the mark if he now focuses on domestic economic issues. Taiwan’s economic health relies heavily still on manufactured exports. While the contribution of manufacturing to GDP has declined steadily over the years, it still accounts for more than 26 per cent of GDP and most of Taiwan’s manufactures are exported. With global demand slumping, the export outlook is not looking good.

The United States, still the world’s largest economy, is in a holding pattern – and likely to remain so in this presidential election year. Second in global ranking is China, which has become Taiwan’s biggest export market and there are indications that China’s economy too is slowing. Indeed, there are growing fears of a ‘hard landing’ for China unless drastic reform of the state-owned enterprises can be undertaken and the air can be taken gently from the financial bubble created in the wake of the 1998 stimulus measures. Again, with a leadership change imminent in China, the chances of any quick action are unlikely. Significantly, Premier Wen Jiabao has come out publicly, admitting ‘deep seated problems’ that need to be addressed.

Europe remains in crisis, with fears that things could get worse before getting better and the Japanese economy shrank 2.3 per cent in the fourth quarter of 2011 bringing growth for the year as a whole to negative 0.9 per cent. Last month, Japan reported its first trade deficit since 1980.

As a result of malaise within its major trading partners, Taiwan’s economy is under stress. Exports contracted 16.8 per cent year-on-year in January, the first annual contraction in more than two years. The lunar New Year holiday and the fact that there were only 15 working days in January had a lot to do with the number, but it is a sign of the times. Export orders – the indicator that tracks shipments due – has fallen by 8.63 per cent. These are indicators that will need to be watched closely. Other leading indicators also point to the same conclusion – that the economy is rapidly losing strength.

The one encouraging item is the level of unemployment, which is holding steady at 4.18 per cent and was unchanged from the previous month. This was the best outcome since unemployment started to rise in August 2008 with the onset of the GFC. While jobs were lost in manufacturing, demand in the services sector increased and more than compensated – at the macroeconomic level – for job losses elsewhere. Of course, this is cold comfort to those in Taiwan’s manufacturing heartland who were put out of work which is a major reason why Ma has singled out the ‘wealth gap’ – itself in large part a consequence of long-term industrial restructuring.

This transformation has seen the industry sector decline from 46 per cent of GDP to 31 per cent over the past 25 years; ‘Services’ has grown from 49 per cent to 67 per cent over the same period. ‘Agriculture’, the third source of domestic growth has declined from 5.4 per cent to 1.6 per cent. Low-skilled jobs have been replaced by high-skilled jobs.

While winning last month’s elections, Ma received 767,000 less votes than he did in 2008. He knows that should voter sentiment further erode, the KMT could well be out of office next time around. Ma himself, is limited to serving two terms. No wonder then that he intends to focus in the growing wealth gap.

The great uncertainty is China. There will be a changing of the guard in Beijing this year. Will the new administration continue the policies of Hu Jintao or will we see a move to the left or right. Hu is widely seen as a middle-of the-roader, balancing those who want to quicken the pace of reform against those, especially in the PLA, that favour a more hard-line return to orthodoxy. While a victory for the reformers might see China move slowly towards a loosening of the Party’s grip on power, further openness and perhaps political plurality (and one that might give the DPP a window of opportunity), a victory for the hard-liners could see China ‘solve’ its internal problems by provoking an external crisis; action against Taiwan or in the South China Sea are both contingencies that have policy-makers elsewhere thinking.

By October this year, we will have the answer.

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