Taiwan’s economy faces major challenges as both industries and investment shift overseas

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• published: 24 Aug 2015
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Taiwan''s exports are expected to shrink this year, leading many to forecast economic growth of around 2 percent. While the government says poor economic data is mainly due to international conditions, some believe a more serious industrial transformation is taking place. This factory at the Changhua Coastal Industrial Park produces synthetic leather. Many of its long-term downstream customers have moved away from Taiwan, making business increasingly difficult.Chen Yung-nengXing He Industry GM At the outset, we shouldn’t encourage them to move but to instead upgrade their technology and production. The government hasn’t been very effective in cultivating this industry, so many middle and downstream companies have rushed to Southeast Asia or China to survive. Li Mou-dian Xing He Industry ChairmanWith the domestic market shrinking, downstream manufacturers have left, causing a decline in the demand for synthetic leather. This means we have to dedicate more human resources to developing foreign markets.The latest case indicating Taiwan''s industrial shift is the Formosa Plastics Group, which plans to invest US$15 billion overseas in the next three years. In the past, some 75 percent of this company’s investment was in Taiwan, though this could fall to 20 percent. Kenneth LinNTU Economics Professor In the past, capital that moved overseas was mostly SMEs in the manufacturing industry. Now, it’s big companies with more capital at stake. When the companies move overseas, so do their investments.The central bank chose the anniversary of President Ma Ying-jeou’s seventh term of office to announce that the first quarter of the year saw a record high net outflow of funds.Wang Jiann-chyuan Chung-Hua Institution for Economic Research Insurance companies need to generate a fixed rate of 4 percent each year. Taiwan doesn’t have many good financial products, so they invest tens of billions of US dollars overseas, which leads to this account deficit. This is the main reason behind this problem.Taiwan’s failure to keep money in the country is compounded by the fact that foreign investment is also unlikely to be attracted to Taiwan.Wang Jiann-chyuan Chung-Hua Institution for Economic Research In 2013, we only attracted foreign direct investment of about US$3.7 billion while Singapore attracted US$63.7 billion. This is a major warning sign. Among Asian countries, our foreign direct investment only surpasses North Korea and Pakistan. In the past, we compared with the United Kingdom, United States, Singapore and South Korea, but now we only compare with Pakistan and North Korea. This indicates that Taiwan''s investment environment is actually getting worse. Taking a tour of this factory, Xing He Industry Chairman Li Mou-dian says the only way to overcome these challenges is innovation.Li Mou-dianXing He Industry ChairmanThis is an example of traditional PVC material. This is our newly developed environmentally friendly TPU material. When you produce PVC, there is a strong smell. TPU is odorless and non-toxic.Li said it took years of research and development to create this environmentally friendly synthetic leather. PVC’s resistance to decomposition as well as the noxious gases it produces when incinerated make it environmentally unfriendly.Li Mou-dian Xing He Industry ChairmanThe most important aspect of TPU is the fact that it’s environmentally friendly. We managed to make it decompose in little more than 10 years. PVC can’t dissolve, so it can last for 10,000 years, leading to many environmental problems. TPU, in addition to conforming with environmental trends, can also resist cold temperatures and is easily malleable, making it preferable to PVC. Despite these advantages, Li faces many problems. Li Mou-dianXing He Industry ChairmanWhen we export to other countries, we face the burden of paying extra tariffs that other countries don’t have to pay. Not being included in some free trade agreements is a hindrance to our business. Wang Jiann-chyuan Chung-Hua Institution for Economic ResearchFirst of all, (Taiwan’s) market is too small. Secondly, there have been too few free trade agreements. Taiwan must find a ways to use TPP and RCEP to gradually increase our reach. Although there are many challenges to overcome in the future, Li hopes that he can do enough to be able to remain in Taiwan.Li Mou-dian Xing He Industry ChairmanI think industries establishing deep roots in Taiwan require consensus on the part of everyone. If future issues are not resolved, it could create a lot of pressure for everyone.Kenneth LinNTU Economics DepartmentThose companies that have remained in Taiwan this long and have continued to survive have pursued a unique development path. I just want to say the government should not ignore these companies. Their ability to endure doesn’t mean they need special care. We spend so much time thinking about creating ...