How's our economy? Listening to the Blues, you'd think we were in economic free fall. Asia Media hosts an article from Singapore smugly noting how Taiwanese compare themselves to Singapore:
Economists quoted by the United Daily News said that Taiwan's presidential candidates could take a leaf out of Singapore's book.
The main opposition Kuomintang nominee Ma Ying-jeou is leading Mr Frank Hsieh of the ruling Democratic Progressive Party, according to polls.
National Cheng Kung University professor Hsieh Wen-jen lauded Singapore's 'brilliant' moves, scrapping estate duty and giving out $380 million worth of personal income tax rebates.
By making these changes at the same time, it could deflect criticism that the abolition of estate duty benefited only the rich, Prof Hsieh told the United Daily News.
The bonanza Budget triggered soul-searching among Taiwanese.
'Looking at Singapore, I can't help but think about ourselves... Why is it that they can do it, but we can't?' a Taiwanese reader wrote in the United Daily News.
Taiwan's economic officials said that Singapore's 'company style' of governance and handing out of dividends could work only in small countries.
But some observers blame the Taiwanese government's pre-occupation with politics at the expense of economics. Last year, Taiwan posted a budget deficit of more than NT$100 billion (S$4.5 billion).
Observe first that the Singapore piece cites a the strongly pro-KMT United Daily News (UDN) as the source of the story, without mentioning that paper's well-known biases. Comparisons of KMT one-party rule with Singapore have been made by high-ranking KMT officials -- and "stories" like this further the comparison. Their purpose is entirely justificatory. I'll ask, as I always do -- if the KMT really believes that the economy sucks, where's the economic stimulus package? Owning the legislature, they can pass one any time.
Economic indicators in Taiwan are actually pretty good. GDP growth hit 5.7% in 2007, up from 5.46% forecasted:
Exports to ASEAN countries were up 41 percent last year, while demand from the Middle East and India also saw significant increases, Hsu said. Total exports to ASEAN countries plus Vietnam, India and the Middle East accounted for 17.7 percent of total exports last year, surpassing exports to the US at 13 percent and Europe at 10.8 percent.The last paragraph points to a serious bifurcation in Taiwan's economy that is driving discontent here in Taiwan. In Taiwan's economy technology and exports are doing well -- we're now the number 2 exporter to China, for example. Yet the local domestic economy is facing income stagnation and rising living costs. That has many sources -- the rise of China sucking up work for cheap labor, Taiwanese factories moving to China, the increasing formalization of the economy -- and of course, the KMT's decision to starve local infrastructure spending to reduce local incomes so they can attack the DPP. Hence, the two economies: while the export economy booms and the current account surplus hit record levels, local business closings also hit record levels. In the old days the two economies interpenetrated -- households had individuals with small export businesses and also engaged in public construction. But then the small export economy moved to China..... Yet a commenter on one of my posts wrote an excellent description of the reality of our economy:
In addition, the US$15.3 billion (US$483 million) net inflow last year from the triangle trade -- a common practice among China-based Taiwanese businesses that are operating via Hong Kong -- is expected to continue bolstering exports, Hsu said.
Domestic demand, however, was weak as private investments shrank 2.4 percent and private consumption rose by just 2.15 percent.
Yup. Yup. Yup.
Ironically, Hsinchu Taiwan is probably the only large cluster of technology companies that has been able to challenge Silicon Valley and successfully. The reason you don't really feel it is because Silicon Valley moved on to other things (like web startups) while Hsinchu became home to basically the entire world's semiconductor manufacturing stack outside of CPUs. How long has Singapore and China been talking about taking over the semiconductor industry from Taiwan? 10-20 years? No one outside of Taiwan has been able to be profitable for that.
In terms of how the overall environment compares with Silicon Valley's (not actual competitors), besides semi fabs, there's also a bunch of IC design firm startups, people doing RFID, WiMax related startups, PC accessory startups...
anything that's a box with a circuit board and chips inside, there's someone in Taiwan that wants to design and manufacture it.
Remember, Taiwan is the kingdom of small and medium size businesses, and it is very conducive to startups.
As proof, a statistic that has been totally ignored in Taiwan's mainstream media is the TAIEX's overall market cap from 2000 to today has gone from 8 trillion NT (260 billion USD) to 20 trillion NT (630 billion USD).
For comparison, from 1997 to 2000, when Siew, Ma's running mate was running this country, the market cap went from 9 trillion NT to 8 trillion NT.
I'll let that sink in for a minute. Yes, that's right, it grew 150% or it is 250% of where it was 8 years ago. But the TAIEX index hasn't gone up much you say? Exactly. A whole lotta value has been generated by new startups that have IPO'd in the past 8 years.
It's unbelievable how the media portrays Taiwan's economy and financial environment as deteriorating when there has been good, steady GDP growth and huge amounts of value have been created as reflected in the stock market.
If you're a laborer, just like all over the world, your wages have been stagnant these 8 years because of China and the rest of the developing world.
If you're thinking of doing some kind of electronics startup in Taiwan, you have one of the best environments in the world to do it in.
For reference, you can get the same statistics I cited on the TAIEX website: annual TAIEX date and current weekly data.
[Taiwan]
there is no stimulus package, nor is there likely to be one as the KMT is going to profit from selling out Taiwan to China. it's all part of the show to make the "democracy" (in quotes because it's a setup) fail so that "intervention" is required, and we know what that means. it's amazing how people eat this crap up and actually believe it.
ReplyDeleteThat you and your blog pull together information and perspectives as you've done here is truly valuable for me, and, I would guess, for any seeking to better (and accurately) understand Taiwan's economy both in its own right and as political fodder. A salute and a thanks both to you and the commentator you quote.
ReplyDeleteThanks vin.
ReplyDeleteMJ: the crap in the local media is insane. How do these people live with themselves?
Michael
Yeast - I have come across a couple oddly named items in Japan, however nothing has ever been named something it is not...very interesting.
ReplyDeleteAnd as always thanks for the info on the economy - you are the man.
The Directorate-General of Budget, Accounting and Statistics (DGBAS), the source of the report Michael cited in the Taipei Times not only revised GDP growth to 5.70%, it also saw fourth quarter GDP growth of 6.39%! Eye-popping.
ReplyDeleteAnyways, couple of things I think we should be careful of. I shouldn't have said wages are stagnant in the context of prevailing views of Taiwan's economy, because it ends up misleading without context.
Myth 1: Income is stagnant
Wages are stagnant but that's after factoring in inflation. So wages have kept up with prices, they just haven't gone up.
It's nice for wages to go up because you do the same work and you make more money, but at the end of the day, what you really care about is income growth. So it needs to be noted that income has risen. This is due to taking on additional jobs, doing a little business on the side (taking cases 接案子), buying stocks or mutual funds, etc. Income tax revenue has hit new highs in Taiwan, and it isn't because of rich people because rich people's income comes from investments, not wages.
Myth 2: Out of control inflation
In the same DGBAS report, regarding inflation, though fourth quarter CPI grew at a high 4.49%, on the year, it was a very healthy 1.80%. Unlike Singapore, South Korea, and out of control China, Taiwan has kept inflation well under control. This bodes well for long term prospects of growth.
Myth 3: Businesses in Taiwan are collapsing
So I suspect Michael that when you wrote "local business closings also hit record levels" you were probably indirectly referring to this ass monkey report by the China Times. First, the number of business closings includes companies mostly involved with export so there's no dichotomy between local and exporting companies. Anyways, just another example of how powerful the pan-Blue media is and how they have a stranglehold on discourse on the economy at the moment.
For those that can't read Chinese or eyes hurt from the retarded one paragraph layout of the text, the report states that in 2007, 40,000 companies closed shop, hitting a new high. This is pretty meaningless of course without looking at how many new companies there are, the total growth in number of companies, total growth in value of the companies or other factors. If we assume something like 1% of all businesses fail each year, then if I double the number of businesses, I also double the number of failing businesses, but I have twice the number of companies.
Anyways, the numbers speak louder than words, so here are the business closing numbers straight from the Ministry of Economic Affairs:
1) In 2007, 40,807 companies closed vs 29,947 one year earlier.
2) In 2007, we had a total of 604,653 companies, down from 622,072 companies a slight decrease year-on-year.
3) Total value increased by $430 billion NT ($13 billion US).
So yes, there really is a decrease in number of businesses but not of value. But why?
Their interpretation (which I think does make sense) is that there is currently a slight trend towards larger scale companies since value is increasing but there was a slight decrease in total number of businesses. In the breakdown, it also looks like there has been a saturation of the chain-store retail market (many franchises, a favorite way of doing business in Taiwan, counting as separate businesses), contributing to the decrease in number of businesses. Last, they suspect there's some underestimating of newly established companies due to some being web companies that have not officially registered (this I really don't know what to think of except that I know it's at least partly true and I don't know how to estimate really how big of an effect it is).
Anyways, it looks like there's a trend, but it's not evidence the sky is falling or even part of it.
There's also the myth of domestic demand being insufficient due to lack of consumer consumption, but we'll leave that one for another time so we have something to look forward too.
this post just confirms the author and his commenters are little more than shills.
ReplyDeleteplease do continue to tell the Taiwanese how great their economy is. The pomposity and arrogance is eye-opening.
a 5.7% GDP means nothing to people in Taiwan. Why? They aren't getting the benefits. Michael, you sound like one of those Bushie wingnuts telling people in the US how wonderful things are. Oh, the irony.
Maybe you've heard of a little something called the M Society? Unequal income distribution? Even Frank Hsieh says the economy sucks for average Taiwanese. It's even worse in your beloved green South.
Unemployment is at an all-time high for graduates just out of college, and starting salaries have not gone up in over a decade.
But that's ok, right taiwan economics? They can just work two or three jobs to make that up. jeebus.
Blue trolls are so great. First, they're basically stoopid, and second, they don't read. Here's what i said, loser:
ReplyDeleteYet the local domestic economy is facing income stagnation and rising living costs. That has many sources -- the rise of China sucking up work for cheap labor, Taiwanese factories moving to China, the increasing formalization of the economy -- and of course, the KMT's decision to starve local infrastructure spending to reduce local incomes so they can attack the DPP.
See? But we're past debating what economy the locals experience -- we've already discussed the stagnant incomes, rising living costs, high unemployment among the young, etc. What we're talking about is how that economy is shaped.
Is there an M-Shaped economy? It's not that simple either. But don't let that stand in the way of your comments.
No one is a better advertisement for pro-democracy politics than a blue troll.
And here's another thing about Blue trolls: why are they all anonymous? What are they afraid of?
And here's another thing about Blue trolls: why are they all anonymous? What are they afraid of?
ReplyDeleteWell, I least if someone want to find out who we are they have to do some works. I always leaves out hints of where I am and where I am working :). I also only have 1 job not 3 and able to live in one of the most expansive city in the US...well, that doesn't say much though.
However, since Taiwan's economy is doing so well, and DPP still hasn't lost their core supports according to all the greens. I guess Hsieh will be Taiwan's next President because it's economics stupid, right.
Personally, I still don't get why there is such a discourse in Taiwan's general population about its economy.
However, since Taiwan's economy is doing so well, and DPP still hasn't lost their core supports according to all the greens. I guess Hsieh will be Taiwan's next President because it's economics stupid, right.
ReplyDeleteI don't know. I don't think the DPP has lost its core -- but the election will be close.
Personally, I still don't get why there is such a discourse in Taiwan's general population about its economy.
We all know what party that discourse serves.
Michael
So it's the general agreement that the local economy is going down the drain since the DPP govt took over the administration. The refusal of the DPP govt to understand the situation is just like adding salt to the wound. And now some green trolls are putting the blames on everybody except their own. The worst of the green trolls are those promote themselves as defenders of democracy but when you vote for KMT, they will lambaste Taiwanese that the latter is going to sell Taiwan to China. Taiwan might as well don't need democracy. All these green trolls are really foolhardy.
ReplyDeleteMichael wrote, "And here's another thing about Blue trolls: why are they all anonymous? What are they afraid of?"
There is nothing wrong being anonymous. Isn't that a choice for them? However, we aren't sure where your political stand are. The best part of you is that you refer to your blog as "View from Taiwan" when even my four-legged friend will recognise you as diehard DPP or TIs. Don't shame yourself with your ignorance when the reality is that the majority of Taiwanese vote for KMT. When the majority ain't represented in this blog "View from Taiwan", what then are you representing. Or simply an act of cowardice for trying to misled some equally ignorant foreigners. Shame on you, Michael.
And here's another thing about Blue trolls: why are they all anonymous? What are they afraid of?
ReplyDeleteooh, devastating. Here's what: I'll permit 'vin', 'bicycle sidewalk', 'taiwan economics' and 'stop ma' to speak on my behalf. And don't forget that 'anonymous' guy whom I've interacted with here on a few occasions.
You can't deny that you have consistently tried to downplay the popular perception that Taiwan's economy is down in the dumps. Too bad the Taiwanese people disagree.
A recent poll by the Taiwan Think Tank revealed that 50.8% of respondents believe the economy is bad. 27.1% say average. Only 20.5% say it is good.
The fact is that for most people in Taiwan, the standard of living is decreasing. CSB has kept his head in the sand on this issue for several years, beholden as he is to the Deep Greens (the US equivalent of fundamentalist X-tians for the damage they do).
One thing I'll say for Frank Hsieh, he realizes that the fortunes of Taiwan's economy are inexorably tied to the PRC. That is just the nature of the beast. Deal with it.
His econ policies do not vastly differ from those of Ma, and in fact, I think Hsieh is the more fiscally responsible-at least he is not promising everyone the moon as Ma is doing these days.
Re your previous post (my comment did not appear, and I have no reason to suspect you intentionally did so): your complaint of gerrymandering in the recent LY elections is thin beer. The CEC is part of the Executive Yuan. It is directly under CSB's control. This whole idea to revamp the LY was the DPP's baby.
It must pain you to face it, but the people's dissatisfaction with DPP governance is the reason behind the rout. Nothing else. CSB and Deep Greens are stuck in the past with the whole nativist bit. For anyone born after 1970, this is simply not an issue. No one cares.
If the DPP cannot modernize its message, it will fade into irrelevancy. Simple as that.
The comment wasn't entirely accurate.
ReplyDelete"Hsinchu became home to basically the entire world's semiconductor manufacturing stack outside of CPUs.
You're joking, right? What about the biggest solar power manufacturer in the world, Suntech Power? What about the Korean semiconductor businesses? Even several Taiwanese companies, such as Silicon Motion, have moved manufacturing to mainland China. And they don't do CPUs. In fact, I'd go so far as to say most memory manufacturing is done outside of Taiwan these days.
"It's unbelievable how the media portrays Taiwan's economy and financial environment as deteriorating when there has been good, steady GDP growth and huge amounts of value have been created as reflected in the stock market."
Stock market valuation is a terrible way of measuring economic growth or health.
Responding to True Blue since he simply parrots lines in the media:
ReplyDeleteIn the US, nobody talks about M-shaped society and most people have never heard of it. In economics, there is to date, to my knowledge, no research that has ever shown evidence of an M-shaped society. In fact, M-shaped society doesn't even have a real economics definition (True Blue, you can fill us all in if you think you know).
Taiwan's society's income is a pretty equally distributed society compared to South Korea, China, Hong Kong, and Singapore. Taiwan has a much lower Gini coefficient, much lower top 10%/bottom 10% and top 20%/bottom 20% ratio than all of the above countries. In fact, it's the second lowest in Asia, only second to Japan (whose exceptionalism is something that is very much worth careful study).
I want to emphasize again--the macro data says that inflation/prices are well under control, even if oil, flour, corn, steel, and cement are going crazy. Wages have kept up with inflation (it's not hard to at such low rates), and further, income, of which wages are only one factor has been rising, though not as quickly as GDP.
Laborers, old factory workers do need help. For the most part, this has been something that has been occurring since the 80s accelerating in the 90s. But once again, this has nothing to do with M-shaped society as discussed in Taiwanese media, which says the middle class is disappearing (again how this is defined and measured is unclear to my knowledge). This the bottom of the economic pyramid, and they need things like free health insurance, which I have only heard Hsieh talking about.
as the KMT is going to profit from selling out Taiwan to China
ReplyDeleteHow is it going to benefit? The CCP can't be trusted - it arrests and imprisons its own senior personnel. What guarantee would the KMT have the CCP wouldn't turn on it one day? None.
ReplyDeleteYou can't deny that you have consistently tried to downplay the popular perception that Taiwan's economy is down in the dumps. Too bad the Taiwanese people disagree.
I mean seriously -- do you smoke crack? Do you actually read anything I write? Do you know how many times I have written on the things you write about as if they were new or deep?
Yes, I'm well aware that most people complain about the economy. But not being True Blue, but instead, a thinking human being, I then try to answer three questions: (1) what is the actual state of the economy (2) why are people complaining and (3) whose agenda is served by the complaints.
Of course, you can ignore these questions if you like, but then it will be impossible to take you as anything other than a troll.
The CEC is part of the Executive Yuan. It is directly under CSB's control. This whole idea to revamp the LY was the DPP's baby.
Blue Trolls, a whole new exercise in naivete. Note that I have never identified who diddled the districts. Also, if you think Chen controls the largely pro-Blue bureaucracy inside the CEC, you're totally on crack. Finally, as I have repeatedly said, it didn't have a big influence on this election, but it is an issue that the DPP will have to deal with someday.
It must pain you to face it, but the people's dissatisfaction with DPP governance is the reason behind the rout.
I know it is quixotic to ask, but do you have any evidence to support this? I mean, something with a number attached to it?
Naw. Waste of time to even ask for anything complex as a number.
Michael
Michael
It must pain you to face it, but the people's dissatisfaction with DPP governance is the reason behind the rout.
ReplyDeleteYou know, the fascinating thing about this is that my analysis suggests the problem is far more serious than merely transient switching between parties due to voter dissatisfaction with governance, but somehow you think it would pain me to focus on DPP governance. Believe me, I'd be delighted to find that voters were switching for transient political reasons, and not that the DPP loss was due to deep and abiding structural failures on the DPP's part, that indicate it probably won't recover -- as I have publicly stated in at least two letters in the Taipei Times, and in many posts on this blog.
Michael
How is it going to benefit? The CCP can't be trusted - it arrests and imprisons its own senior personnel. What guarantee would the KMT have the CCP wouldn't turn on it one day? None.
ReplyDeleteThe two sides have been in talks since the mid-1990s, raj. The KMT actually has an office in Beijing now, I just heard today, something I didn't know. The KMT believes it can beat the CCP in China, on its own ground, I fear. Besides, who cares whether they get killed or not? The ideologues running this shit are Return to Zio theocrats. They believe in China....
Send me an email.
Michael
The Revolutionary Chinese Nationalist Party remains an active, legitimate consultant party in mainland China...their secret decades-old one-up over the DPP!
ReplyDeleteMy long posts have been mainly interested in combating incorrect perceptions of Taiwan's economy--thus you have to consider the context of what I'm responding to. Taiwan has its problems; unfortunately, they are for the most part, not the ones that the KMT keeps bellowing about.
ReplyDeleteThis may sound a little philosophical, but I believe in a reality that exists apart from our sensory perceptions. Thus, in some sense, I don't care what people think about the economy, I care about the actual economy. No, let me put it this way. I don't believe that if the economy really is doing poorly, that it will completely fail to show up in any meaningful macroeconomic statistic.
Let me also point out that pro-Blue supporters/the KMT/Ma Ying-jeou have continually attacked macroeconomic performance usually vis-a-vis South Korea or some other retarded comparison, but when you look at real growth instead of nominal growth numbers, Taiwan even comes out slightly ahead.
Again, manual laborers and other unskilled workers (plus regional imbalances, the more rural south and east) are who are in trouble in Taiwan, not the middle class, which is another line of attack that the KMT keeps taking.
@Mark:
You are right to assume that solar panel manufacturing is closely related to and is somewhat of a natural fit for the semiconductor manufacturing industry, but usually people mean the manufacture of chips when they say semiconductor manufacturing. Actually, Taiwanese companies are doing very well in solar panels too, even if they are putting factories in China and elsewhere.
I stand by my comment--no where in the world does their exist as in Hsinchu such a complete stack (wafers, enviro cleanup, actual manufacture, testing and packaging, people that wash those spacesuits like in those Intel commercials) for the semiconductor manufacturing process and no place is competitive with it when it comes to manufacturing.
Korean manufacturers manufacture when they do their own design and even when they do, they source the manufacturing to TSMC and UMC a lot of times because it's a hell of a lot more efficient.
No one is currently making money in the DRAM manufacturing industry, so I don't think that's really good evidence of anything. DRAM manufacturing used to be dominated by Japan whose business has been slowly being taken over by Taiwan and Korea.
I mentioned that CPUs is something that is not usually done in Taiwan, but in a very newsworthy development, TSMC is moving into CPU manufacture in a big way with Sun sourcing to TSMC [also in WaPo. Also, it's worth mentioning something about IC design, the complementary half to the semi manufacture business). Taiwan's IC design houses (ie MediaTek and friends) currently have about a 25% share of the world market, second to the US and growing.
"Stock market valuation is a terrible way of measuring economic growth or health."
Mark, I suspect that you are thinking of a situation like the current China, who everyone thinks is currently experiencing a bubble with ridiculous P/E ratios. Taiwan has very low P/E ratios and generally has the opposite problem. In other words, I think all that value produced by new companies must be solid value, because the overall market is still what value investors would consider a bargain. So while you're right, stock markets aren't a good indicator without taking into context, in this case, it is quite a solid indicator of growth.
The Revolutionary Chinese Nationalist Party remains an active, legitimate consultant party in mainland China...their secret decades-old one-up over the DPP!
ReplyDeleteYes, I guess Michael didn't know there are two KMTs, in theory. There was a split during the Chinese civil war. Although, I don't know if it's the Taiwan KMT or the Chinese KMT resides at that office as Michael stated.
Also, if Hsieh lose the election, does this mean Taiwan's economy is indeed in deep trouble, and DPP has lost its core supporters (or at least the light green side).
Thus, in some sense, I don't care what people think about the economy, I care about the actual economy. No, let me put it this way. I don't believe that if the economy really is doing poorly, that it will completely fail to show up in any meaningful macroeconomic statistic.
First, that's if you trust Taiwan's statistics. I know you will try to say other international agencies also have the data. However, if you look carefully, you will realize the number matches to Taiwan's. This means that they just used Taiwan's data without questioning them. For example, if the GDP growth is directly related to the power consumption (the MIT study some of you guys use to bash China's GDP). Then, where is Taiwan's growth since its nuclear 4 project is still hanging on the air. So let me put it another way. Maybe Taiwan's economy is really doing poorly except it is covered up by the fake or manipulated data. In case you haven't realize that Taiwan index market capitalization may have increased (I love how you look at capitalization while its value could increase by inflation alone) but its weighted index haven't move at all if you cut-off at 1998 until today. It is down 4000 points from its high in 1990 (yes, the high of Taiwan stock index is 12,000). Could you imagine what kind of recession will the US be in if 10 years from now the Dow still hover at 12,500, and 8,500 after close to 20 years.
Also, I guess consumer sentiment measurement in the US is really bad measurement if that's the case. Out of curiosity, do you actually have an economics degree, Taiwan Economics? The idea of perception may not be emphasized that much in economic courses. However, in Finance, it was taught over and over again on how consumer (customer) perceptions are the only thing that mattered.
True Blue and Arty:
ReplyDeleteWhat I don’t know about economics could fill a library, but even from the modicum I know, it’s evident you guys have gone through the looking glass. Fifty percent of the public thinks the economy is doing poorly, so it is, TB – no matter what the statistics say? If eighty percent or more of Taiwanese mothers tell their kids that if you point at the moon, their ears will get cut, then they will? Belief is one thing, facts are another; because we’re not talking anthropology or sociology here, we’re talking straight, common economics. And Arty, seems like you’re turning yourself into an avatar of arguably Chinese culture’s most glaring shame: knee-jerk suspicion and a hunger for conspiracy-mongering. What does it compensate for? (That question IS related to anthropology and sociology.) Growth despite the lack of a fourth nuke on line is easy to explain: (a) there was negative growth one year back at the turn of the millennium; (b) so many high-energy-use companies have moved out to China; and (c) the top ones (GDP drivers) that remain are working on huge scales that (in relative effect) save energy.
Taiwanese are whining about “the economy” so much because:
1. the media has failed to inform them that flat or declining wages are a feature right now of most developed economies. (Instead, for political reasons, it has whipped them into a froth; encourage them to play the victim card.)
2. This world-wide “globalization” consequence has happened here on the heels of one of the best growth spurts in world history – so of course it is jarring for them.
3. They’re just not paying attention to how much they’re spending now on things they weren’t spending much on back in the early-to-mid 90s heyday: a huge variety of personal technology devices, competitive spending on children’s private education, and lots more on insurance.
4. The real estate market is flat and a lot of people are stuck with bad investments that they lose on monthly but are afraid to bail on because they don’t want to formalize a huge loss.
5. They ended up with those bad investments because real estate and the stock market were their only investment choices back in the heyday. All that money that in large part traces back to the KMT land give-away decades ago (I’m guessing here; someone correct me please if I’m wrong) is now gone: not only is the money sunk in tanked real estate but it’s also lost in the dot.com bust.
No one in these comments is arguing, TB, that flat wages are not a problem; the argument, rather, is that the blue-media portrayal of the problem is pure distortion and that most Taiwanese are acquitting themselves very poorly in their degree of understanding on this point.
Of course wages are going to be flat if $100 billion (conservative estimate) has been sucked out of the economy by companies relocating to China. I don’t mean I don’t blame the DPP for poor governance. I do blame them; you have me completely wrong, if you think I’m a DPP supporter. But blue lies and distortions (and complete obstruction of governance) appall me; they are far more damaging than anything the DPP has or hasn’t done. Most damaging of all is that the blues have managed to persuade much of the public that economic salvation lies in China. It doesn’t. I support opening more to investment in China so that the public can find out there’s no major answer there. The answer is education-system reform so that Taiwanese workers can be competitive in a developed economy -- one capable of drawing both foreign and local investment. Lots of good engineers here, but not enough good other types of workers to support them; a piss-poor service economy still stuck in the tea shop/beef-noodle stage: these are the problems for wage growth/more good jobs, and these problems are directly attributable to education and the Taiwanese/Chinese value system – something neither the greens nor the blues are ready to talk about, let alone ready to roll up their sleeves and do something about. Read Morris Chang (TSCM) on how the economy's real problem is the whole culture’s value system, not this or that party or policy.
I’m not going to reply to anything either of you guys might write in response here, not because I feel sure all I have written here is correct (probably I’m wrong on some points), but because I cannot see at all from what either of you wrote about economics (politics I might agree with you on, TB, on one or two points) that you’re actually looking for truth; so why waste time arguing with you? I’m writing this here, rather, in hopes that you’ll think twice next time (any situation anywhere in life) about dismissing facts just because they’re inconvenient for what you want to spout; and in hopes that you, TB, will not presume to pigeonhole someone, as you did with me, just because I thank a blogger for providing a service that is of great use to me: your doing that was plain rude, if you ask me.
Thank you again, Michael and Taiwan Economics.
From a talk today with a Taiwanese product development (shoes) manager at Nike, who spends about a third of his time in China:
ReplyDeleteChina has badly miscalculated with its wage-hike policy regarding foreign manufactories. This policy had little to do with concern for workers per se; it was mostly designed to get Taiwanese, Japanese, Korean and Hong Kong traditional industries to move inland. Lots are not going to go; they’ve had it with increased rent, corruption, and now this. Even if China realizes its mistake and reverses the policy, they’ll get out. “They’ve seen China’s true face now – it will use them anytime and that is all it cares about, so they don’t want to stay anymore.” My friend estimates 10-15% of Taiwanese traditional manufacturers will leave China this year, and 40 % or more will have left by the end of next year. India will get some of the relocated investment, but Vietnam is going to be the big winner. Chin Lu (Mizuno’s chief supplier) is going to move everything to Vietnam; Pao Jian, Nike’s chief shoes supplier, will do its future investment in Vietnam and will move some of its current China investment there, too. Maybe 15-20% of the Taiwanese companies that leave China will come back to Taiwan to make use of the incentives the government is offering now; meaning 6-8 % of all Taiwanese traditional manufacturing companies in China now will return here in the next two years, he guesses.
I asked if the media was reporting this news, and he said “Formosa and San-lih are; the blue media is not. They don’t want to make China angry.” So does the public know about this? “The public wants to play, not think,” he said.
Great news in so many ways, if you ask me. And there again, in the last sentence above, is Taiwan’s chief economic problem: nothing mutually exclusive about both playing AND thinking, but here, the two too rarely mix.
And Arty, seems like you’re turning yourself into an avatar of arguably Chinese culture’s most glaring shame: knee-jerk suspicion and a hunger for conspiracy-mongering.
ReplyDeleteUnfortunately, I think I am an American. When I meet people from my parents' generation or people from China for graduate studies, they always though I am an ABC until they realize I speak perfectly good Mandarin. I am not conspiracy-mongering on anything, I am just using their arguments against them. Why Taiwan stock exchange index is exactly the same 10 years ago, huh? That's a valid question.
If you are hunger for conspiracy on economics, here is a good site though (I don't believe all he stated to be honest):
www.shadowstats.com
The answer is education-system reform so that Taiwanese workers can be competitive in a developed economy -- one capable of drawing both foreign and local investment.
DPP has 8 years to reform the education system. What they have done? Increased bunch useless Universities that generate a bunch useless students. Before I complain I can tell you exactly how Taiwan can do it.
First, Taiwan should make a lot "Universities" into high-schools and fulfill the 12 year public education system. That will be abolishing the JUNIOR high school entrance exam.
Second, for college entrance exam, you only exam Chinese, Mathematic, and English. Also, Taiwan should format the exam in a way that favor comprehension than gavaging hard knowledge.
Third, no major will be chosen until two years into the college based on the test scores in college and hopefully interests.
There are more to do but I think these three should be done first. Or you could easily produce a chemistry Ph.D. who doesn't even know how to pack a flash column properly (well, she is actually from China). No wonder the compounds are not separating.
Great commentary. Thanks Taiwan Economics + Vin + MT.
ReplyDeleteRe: blue supporters, strange how facing the truth always seems to be difficult for them to handle.
Thanks for the link, American Arty. I’ll give what’s there some consideration.
ReplyDeleteOn why the stock index has stayed flat, I’m not at all qualified to answer, but my ignorant guess is that the dot.com bust drained the market back around 2001 and that capital flight to China has kept it drained ever since. As Michael noted yesterday, the index is finally, finally really climbing again. Could that be partly because the flow of money into China is ebbing and even reversing? Again, I don’t know; these are just my uninformed guesses.
On what you wrote about the education system, I agree with you on point 2 and agree in spirit on point 3 (mandating this would result in much-increased costs and is also pretty much a violation of consumer rights). But if by point 2 you are in effect arguing for a downgrading of the teaching of Taiwanese history throughout education, I don’t agree at all; I think it should be heavily stressed in primary and secondary school. (And Chinese history should be taught in enough degree, too.) But yes, don’t test on it for university entrance exams. On your first point, I’d say whatever is done regarding the abundance of universities needs to be coordinated with other elements in a comprehensive approach to reform. I might agree about compulsory 12-year education and I certainly agree about abolishing junior high exams; the whole idea of the latter is a relic of pre-industrialization thinking.
On blaming the DPP for the education system’s mess, I’m not trying to be uncivil, but I do think that’s ridiculous. Parents and culture are the problem, and both green and blue are part of the culture. As things stand now (and have long stood), there is no sizeable minority of parents willing to go with putting an end to teacher-centered teaching and discrete-item testing – willing to go with developing students’ capacities for creativity and analysis. There ARE enlightened people here regarding education, and the DPP did, with Lee Yuan-tseh’s reform effort (initiated under the KMT, yes), give them some support. But that support was very thin. When education minister Ovid Tzeng – a man very aware of the real changes needed – showed he didn’t want to focus on “de-Sinicization” the greens turned on him. Few of the blues, however, ever cared even a little in the first place for real reform; indeed, even now, the idiots at the China Post still call for more emphasis on Confucian morality and for upholding the idea that teachers should be primary agents for instilling morality in kids. There is no good side on this issue; both sides are terrible; as both Ma and Hsieh showed in the debate yesterday, neither side is showing any understanding yet about education. As I wrote in a previous post, Morris Chang understands. But as much as he is admired here, few pay attention to him on education. If you would like to read something I wrote about how the real obstacle/proper focus of blame is the value system here, send me an E-mail at vin.velour@gmail.com
And thanks for your comments.
"China has badly miscalculated with its wage-hike policy regarding foreign manufactories."
ReplyDeleteYou are right here. Even if most of the factories that are leaving Guangdong move inland where costs are lower, they will have to take on higher transportation costs for each container they ship. I think the strategy will be successful in generating some economic stimulus for some inner provinces. I think it will be quite hard on Guangdong in the short term.
However, the large brands are in China to stay. They have spent a lot of money to get where they are, so I imagine they will want to stay behind to at least be in place to tap the domestic Chinese market. Furthermore, while China is not the cheapest anymore, it is still a relatively cheap place to manufacture. I think the general effect will be to slow the growth of the export-based manufacturing industry in the short term. The money that those companies would be reinvesting in new Chinese facilities will go to new developments in other countries.
As for your comment that "There is no sizeable minority of parents willing to go with developing students’ capacities for creativity and analysis," one just has to look at the popularity of buxibans to see your point. Parents pay through the nose to send their kids to cram schools where they learn English by rote (and ultimately learn less than they should).
mandating this would result in much-increased costs and is also pretty much a violation of consumer rights
ReplyDeleteHuh? This is the US system. You are going to test your students anyway in the college. So if there is any increase in the cost, that will be for applying a particular major (I don't remember it cost me anything in the US; some people didn't even apply for some because they can't pass required courses).
In Japan, you don't choose a major either until later on; however, Japan do split into sciences and liberal arts track after entry (I learned this from a Kyoto graduate student I hosted here). Also, what consumer rights are you talking about? If it is a violation of consumer right, then I bet Ralph Nater will be jumping all over it. I personally expect this part is the easiest one to accomplish then the first two.
And thank you for the offer, I got enough papers to read already...
“Much-increased costs” because the university would have to offer many more courses. Right now, all universities here offer few electives, which guarantees them every class will have lots of bodies with one teacher, often a wage-worker making less than US$25 per hour, to serve all those tuition-paying bodies. I’m all for moving away from this and toward the US style (which also has seen body-inflation in classes), but this is the land of trying to be competitive through cost-cutting rather than by adding value; many changes would have to in place first before any private university here would even give this approach a moment’s thought. And if national universities’ budgets were increased in order to make this possible in the top tier, competition to get into those universities would become all the fiercer, which would just further entrench and perpetuate the systemic problems here.
ReplyDeleteAs far as I know, at most U.S. universities (not all?) you can declare your major from the first day if you want to. My school, the University of Wisconsin, recommended not declaring right away, and I took full advantage of that, switching majors four times in total before finally settling, at the end of my sophomore year, on my degree major. Are you saying that at most universities now you MUST wait like I did? If that’s true, OK; it’s true. But I find that hard to believe, so maybe you could give some evidence; I would think that universities, especially state universities would encounter strong opposition on consumer rights’ grounds if they didn’t allow you to declare. But yes, at UW, declaring was no guarantee that you would finally be accepted into that department at the start of your junior year; acceptance did depend on your GPA at that point. But by declaring earlier, you got preference for enrolling in courses for the declared major. So maybe we have just misunderstood each other here. Anyway, again, I’m all for this system, but it would cost significantly more than the one now in place here. I would love to see the anxiety it would be sure to cause, though; not only would students face existential pressure to make real (informed)choices; their parents would, too. And universities could weed out bad students after taking their money for two years. (But would they do this – would they stop taking the money? Hah!)
You’re welcome on the paper; hope the compounds are separating now.
As far as I know, at most U.S. universities (not all?) you can declare your major from the first day if you want to.
ReplyDeleteI don't know how old you are. However, today a lot of majors require minimum credits and required courses. Some popular majors are extremely hard to get into like specific engineering school majors and the business school majors. You can declare pre-major for those but that's not a major, or at some school you can declare a major that doesn't require anything i.e. English, Anthropology, communication, psychology, or whatever the major that almost 20% of the student bodies are in when they fail to get into anything decent by the 3rd years :P. My university requires minimum of 115 credits and no more than 165 credits to declare a major. I gained two individual diplomas (B.S. Biochemistry and B.A. Economics) at the same time (do note that it is not a double majors or a double degrees). All I did was doing some researches on the rules for getting two diplomas from the university that I graduated from and then constructed my classes to fulfill the requirements.
Also, if you worry about cost to the educational system, then we can forget about Taiwan is going to have a world class universities. The lab I worked for burns through a minimum of a million a year just to do research, and we are a small lab. And the rankings of the universities usually has to do with its faculties' researches than anything else, at least in the US tier 1 universities.
Arty, I'm all for spending more money on universities, too. "Too" is the key word, though, because as Michael has pointed out elsewhere on this blog, it is, foremost, crappy students that are creating crappy universities here. And it's a crappy approach to secondary education - and you and I both seem to mostly agree that the approach is crappy -- that is creating crappy university students. So is money best spent FIRST on universities or is it better spent first on secondary-school teacher re-training, additional hires, more classrooms (smaller class-size) -- and a PR campaign to enlighten the public about what constitutes viable education in today's economy -- first? Top-down spending approaches make no sense to me in an education situation such as the one here. Does it really make sense to you? If you were in charge of education reform here and did not have unlimited funds to work with, would you really throw a lot of money at the universities first? If the answer is yes, then why not start supporting the DPP a little more, because that's exactly what they've done? (Though not in the way you suggested, true...)
ReplyDeleteThanks for the clarification on majors and getting into deaprtments. Yes, I'm older; and I majored in one of the four non-"decent" majors you listed -- after earlier having declared in two of the other non-decent majors you listed.
And thanks again for the econ web site.
On the other side of the fear-mongering about factories leaving China, more companies and factories move in to replace them--and usually at a higher rung on the value-add ladder.
ReplyDeleteCompanies like Intel continue to pour billions into China assets, such as an enormous new fab in the north.
There are those who move out, and there are those who move in. And there are those who move inland.
Channing, that bit about Intel building a fab in China is completely misleading and in actuality meaningless. Intel makes chips only for the chips it designs. It is a completely different industry from the contract manufacturing industry, the one in which TSMC and UMC together make up over 60% of the world market. Because of the utter dominance of Taiwanese in this industry and the fine-grained division of labor, there is a clustering effect with the only real cluster existing in Taiwan (mainly Hsinchu).
ReplyDeleteYou can't just move one factory over. It would have to be the entire industry. For people like Intel that have always done everything DIY, you can place your factories wherever you want because you're self-sufficient. No one else can do that.
In this particular industry, Taiwan has probably at least a 10 year lead that doesn't look like it's closing anytime soon.
That many factories are closing is very real. All these guys were really relying on very manual processes that relied on cheap ass labor. If they wanted to use technology, they didn't need to move to China.
Moving inland is not a solution. It's too goddamn far from the ocean. Not only is the inland inconvenient in terms of infrastructure and governance, it is hugely costly in terms of transportation time. Today's supply chain relies on just-in-time inventories. Adding 2-3 days of travel time to the supply chain, just doesn't cut it.
Look, in the short run, Vietnam + India + Thailand + Indonesia won't be able to absorb all of China's cheap manufacturing (India's infrastructure sucks but is getting better). But anyone that is already invested in Vietnam is going to build up as fast as they can, and though the Blues fear it (until Ma takes power), yes, some people are going to end up closing up shop and coming back to Taiwan to invest.
Real GDP is not always the best measure of the health of an economy: it doesn't account for the terms of trade effect, largely ignored in this debate. I argue below that Taiwan's economy DOES suck, but it's mostly NOT the DPP's fault.
ReplyDeleteFirst we need to understand why real GDP is sometimes misleading. Suppose there are 2 goods in the world, computers and oil. If a country produces 100 computers in year 1 and 110 computers in year 2, its real GDP growth is 10%. However, suppose that consumers always need computers and oil in equal amount, and that oil must be imported. If 1 barrel of oil costs 1 computer in year 1, then the country's consumption is 50 computers and 50 barrels. If in year 2, 1 barrel of oil costs 1.2 computers, the country's consumption stays the same. So even though the economy grew by 10%, people are not better off. That's basically what's been happening to Taiwan.
Real GDP growth in Taiwan in the past 4 years has averaged about 5.25% per year, which is very respectable even by East Asian standards. But correcting for the above "terms of trade" effect cuts about 2% per year off the growth people felt. This means that the material well-being of the Taiwanese has been increasing half as fast recently as during the 90s. Add increasing inequality to that, and you can see why people are unhappy, and rightly so.
So my point is this: to the pan-green supporters, realize that people aren't unhappy about the economy just because of blue propaganda. The economic pain is very real, especially for a population used to rapid growth. To the pan-blue supporters, realize that no Taiwanese politician can control world good prices. To wit, even if Ma achieves his goal of making economic growth 6%, that's just 0.75% more than during Chen's second term. This is relatively minor compared to the 2% Taiwan has been losing each year due to world price changes. Basically, if import prices just stop rising faster than export prices, that'll do 2-3 times as much good for the Taiwan economy as Ma even claims he can do.
Anon was right to point out rising prices and the trade effect, especially with regards to oil; however, these are relatively recent developments. Also, Taiwan artificially keeps key goods like electricity, oil, and gas below market prices so I don't know that it's so relevant to Taiwan in the short-run. I want to also point out it's also sneaky to say 90s without saying what part of the 90s (as if things changed when the DPP took office): "This means that the material well-being of the Taiwanese has been increasing half as fast recently as during the 90s." You mean first half of the 90s right?
ReplyDeletePictures sometimes speak louder than words--take a look at page 7 of this Taiwan GDP graph. From 1996-2002, GDP was declining or growing rather slowly. It's hard to argue that Taiwanese aren't used to 4-5% growth when for a half decade prior to the recent period of growth, they were experiencing negative or low growth.
What Michael and others have alluded to is right. Taiwan has a booming export industry and this dependency is something to be concerned about, especially since it's not benefiting everyone equally. Also Michael's repeated reminder that investment in China already is extremely high is worthy of note too.
There was a really nice commentary by David Hong, current chairman/president of TIER back in November.
Highlights:
What has the real growth story been and what has been happening to investment (the I of GDP = C + I + G + NX)
'Following a 2.17 percent contraction in the Taiwanese economy in 2001, economic performance has been quite solid. "Rather than blame this on the transfer of political power to the Democratic Progressive Party," said Hong, "it was the crash of the dot-com bubble that affected the Taiwanese economy in that year. IT companies, in particular, were hurt."
Nor were political reasons to blame for various declining economic variables. "Taiwan's economy," point out Hong, "has matured. Previously enjoyed high growth rates are not sustainable." In addition, globalization has also played a role. "Companies are relocating, mostly to China. More than 1 million high-consumption individuals, mostly owners or managers of small or medium-sized enterprises have migrated. That has had a big impact on private investment." '
As others have said:
"Exports now account for more than 60 percent of GDP. Certainly, that is a very high dependency that deserves our attention."
Just how big of an impact will cross-strait liberalization have?:
"room for a further opening of trade and investment to China, given already high levels, is limited. The 40% cap (of total company equity [capital raised in Taiwan, capital raised elsewhere doesn't count]) on investment is more about perception." Very few Taiwanese companies, he added, would actually move to increase this. While direct air links would be much more convenient, it would save only about $1 billion, not a large number in the overall scheme of things."
Last, just want to point out some news on the Korean economy. So Ma's 633 is directly copycatted from current Korea president's 747 slogan. Where is his 7% GDP growth now, just [looks at watch]... 4 days after taking office?
Yup, predicting less than 5% growth on the year. In this deteriorating global environment, just how fast will Ma have to eat his empty campaign promises if he takes office? For the sake of principle, honesty, and Taiwan, hopefully he can own up to not being able to keep that promise anytime in the near future.
BTW--Korea's numbers for 2007? 4.9%. Taiwan's? 5.7%.
Anon2, I agree with most of what you said, but I'd like to point out that the flatness of the GDP curve in the late 90s in the graph you referenced is due to the depreciation of the NTD during that time. It doesn't reflect real GDP growth at all.
ReplyDeleteAccording to stat.gov.tw, growth rates from 1996 to 2000 were 6.3%, 6.6%, 4.6%, 5.8%, 5.8%, for an average of 5.8%. For the past 5 years, they were 3.5%, 6.2%, 4.2%, 4.9%, 5.7%, for an average of 4.9%. Terms of trade effect from 1996 to 2000 were basically nil (export prices decreased by 1% and import prices increased by 1%, total over 5 years), while they were about -17%, or -3.4% per year in the last five years (export prices increased by 4% while import prices increased by 21%). This translates to a loss of about 2% per year of total GDP.
All this to say that even compared to the LATE 90s, people are right to feel pained, as the "effective" economic growth was about 3% against 5.5-6%. As you hinted, it's even worse compared to the early 90s (when growth was about 7%).
Add to that the 2001 recession (excluded from all of the above numbers), and people are right to say that they've been (much) worse off under Chen than in the late 90s. As I stated earlier, people are mostly wrong to blame it on Chen. But the DPP needs to stop pretending that the economy is just as good as in the late 90s by pointing to superficial GDP figures, because that is wrong. I don't know if it'd be politically more effective to say, "Yes, things have been shitty compared to the late 90s, but it's been mostly due to terms of trade, which we can't control", but it least it'd be right and concord with people's experiences.
My bad on not being careful with the graph. I agree Real GDP is what we should be looking at instead.
ReplyDeleteHow much of a lack of substitutibility are you assuming in the declining terms of trade? I find it hard to believe that for Taiwan, declining terms of trade doesn't shift any production to the domestic side.
Oil you can't do anything about--true. But Taiwan imports a lot more than oil...