Taiwan Journal on Ma's Infrastructure Plans

Taiwan Journal offers two articles on Ma Ying-jeou's infrastructure policies. The first looks at the finances:

During the campaign, Ma stated a goal called "633," which stands for 6 percent economic growth, per capita income of US$30,000 and an unemployment rate of less than 3 percent by 2016. To achieve these targets, when the new government takes office May 20, it will launch "i-Taiwan 12 Projects," which are aimed at improving the country's infrastructure while stimulating domestic consumption. (For details of the projects, see the table to the right).

"Most of the construction projects focus on Taiwan's transportation and I think this is important because transportation benefits the development of the country's infrastructure," Lin Chu-chia, an economics professor at the Taipei-based National Chengchi University, said May 2.

Another proposal tabled by Ma during his campaign was the establishment of a "tourist service industry" as a major national project that allows tourists from China to visit Taiwan. The plan envisions attracting three million visitors per year, creating US$6 billion in revenue and 120,000 job opportunities.

The 12 construction projects, along with "Industrial Restructuring" and "International Linkage," form the incoming KMT government's blueprint for Taiwan's economy. To implement these initiatives, Ma estimates that over the next eight years, he will need a total investment of NT$3.99 trillion (US$130 billion). Of that amount, the government will invest NT$2.65 trillion, with the remaining NT$1.34 trillion contributed by private investors or via build-operate-and-transfer contracts.

To attract more private investment, the president-elect plans to build Taiwan into a "center of asset management for the Asia-Pacific region" in order to bring some of the NT$4 trillion that Taiwanese have invested in foreign countries home. Taiwan would also welcome foreign funds, including those from China, to help finance the projects, premier-designate Liu Chao-shiuan stressed May 1. "It would be a new beginning, so we won't reject funds from China," he said.

It also published a summary of his projects:

Estimated total budget (over eight years): NT$3.99 trillion (US$130 billion), including NT$2.65 trillion from government and NT$1.34 trillion from the private sector.

Transportation
Islandwide rapid transit networks
Build mass-rapid transit systems in north, central and southern metropolises; move existing city railways underground; introduce electrification and dual tracks to the east-coast railway and integrate the highway and expressway systems.
NT$1.45 trillion

Kaohsiung--a free port and ecopark
Establish an intercontinental container transhipment hub; expand storage facilities and logistics; rebuild existing harbor locales; transform the Chijin area into a world-class marine park; build an ecopark and establish a marine technology and cultural center.
NT$57.7 billion

Taichung--an Asia-Pacific sea-air logistics center
Build transportation networks between Taichung Harbor, Taichung Airport and nearby science and industrial parks; expand the central Taiwan international airport; establish a special storage, logistics and processing zone.
NT$50 billion

Taoyuan--an international air city
Transform the Taoyuan International Airport into an aviation city for the Asia-Pacific region; complete construction of the third terminal by 2018.
NT$67 billion

Industry
Intelligent Taiwan
Further enhance university research levels with NT$80 billion over eight years; make Taiwan the world's first wireless country; introduce smart technologies to enhance the quality of life.
NT$225 billion

Industrial innovation corridors
Establish four software parks and a science park in Taipei and Yilan areas; assist the east coast in developing the deep-sea water industry; develop agriculture and bio-tech industries in the southern Taiwan counties of Yunlin, Chiayi and Tainan; set up a global village for overseas professionals.
NT$115 billion

Urban and industrial district renewal
Renew existing industrial parks around the island; designate the Chunghsing Village in central Taiwan as a cultural and creative park; add new stations to the High-Speed Railway.
NT$57 billion

Rural revitalization
Create a retirement mechanism for elderly farmers; encourage professional farmers to expand their business operations; release farm lands that are no longer fit for cultivation purposes.
NT$150 billion

Environment
Coastal areas revival
Transform traditional fishing ports into modern ones; push to add Kaohsiung, Keelung and Hualien ports to international oil shipping routes.
NT$20 billion

Forestation
Increase forested area by 60,000 hectares over eight years; design three 1,000-hectare plain forest parks in central and southern Taiwan.
NT$30 billion

Flood and water pollution control
Conduct a full-scale examination of flood-prevention plans; push for regulating the Kaoping River; establish a landslide monitoring and early-warning system; budget NT$50 billion in four years for land conservation and rebuilding homelands for the indigenous peoples.
NT$186 billion

Sewage systems construction
Continue building underground sewage systems to boost the percentage of households connected to public sewage by 3 percent every year.
NT$240 billion

Some of these projects would be really great. In Taiwan more households have ADSL than sewage connections, and even if Ma put houses on sewage lines at 3% per annum for all eight years, only half the housing in the nation would be connected when he stepped down.

Who benefits? An industry analysis notes:

The construction industry is moving towards trade liberalisation as a result of Taiwan's membership of the World Trade Organisation (WTO) since 2002. With large state-owned contractors playing a dominant role in the Taiwanese construction industry, around 80% of the industry's total output is controlled by 25 construction companies or conglomerates with contracting subsidiaries. According to BMI's newly released Taiwan Infrastructure Report Q307, the nation's construction industry is forecast to grow at an average 3.38% during the 2007-2011 period.

Those "large state-owned contractors" have old links to the KMT. The report also notes that the industry suffers from labor shortages and from materials issues -- costs of structural steel, gravel, and other materials have risen. As I noted before, increasing expenditure on construction here means increasing demand for labor. And there's that attractive pool of Chinese-speaking labor right across the Strait... The positive political effects for the KMT as the effect of new infrastructure spending reaches into households around the island should also be profound -- if they are not lost due to inflation, and to local industry fleeing rising land prices.

Much of the policy discussion has focused on the effects of speculative spending in real estate on housing prices -- the pressure of rising housing prices is already being felt by low and middle income families -- but there hasn't been much discussion in the English-language press of the financial effects of massive government infrastructure spending on Taiwan's debt problems -- already public debt is 43% of GDP, though Taiwan's rating remains strong. It will also have significant inflationary effects.

Finally, there is the BOT model that Ma hopes to use to bring in private investment. That is a popular model in Taiwan and there have been some successes, but a US Dept of Commerce report notes:

The Taiwan Power Company's Tatan 438MW LNG power plant is on schedule and construction of the fourth nuclear power plant at Lungmen is progressing after a two-year delay. The Taipei 101 Financial Center project was completed at the end of 2004. Construction on the 345 KM Taiwan High-Speed Railway (THSR) project was completed in early 2005 and testing of its Japanese-made T700 rail cars is underway. The above-mentioned projects, formerly known as the "Big Four", account for a total investment of nearly US$ 25 billion. Both the Taipei 101 project and THSR projects were undertaken on a Build-Operate-Transfer (BOT) basis. Even though BOT has been touted as an innovative means for executing large-scale projects, neither the Taipei 101 project nor the THSR project are regarded as great successes in the eyes of private investors. There are sharply divided opinions in both academia and public circles about the practicality of using the BOT method to complete public infrastructure projects. The authorities are also considering taking over some failed BOT projects and have already regained control of major transportation projects such as the CKS airport-link MRT project.

The US Dept of Commerce also observes:

During the period 2004-2008, the BOT approach will be re-examined for its feasibility for large-scale infrastructure projects in Taiwan. The authorities, already financially constrained by a public debt ratio set by law (48% of the average GNP for the preceding three years), has allocated a NT$ 500 billion (US$ 15.6 billion) budget to support Taiwan's infrastructure projects through 2008. Viable projects proposed by state-owned companies like TPC and CPC will be supported by Taiwan's banking system. The central authorities are also considering tax increases in order to provide continuous support for Taiwan's infrastructure development.

For the time being, the Public Construction Commission (PCC) continues to have overall responsibility for administering the GPA, supervision of all public procurement activities and handling any GPA-related disputes which may arise over terms and conditions, qualifications of bidders or awards. Although articles of the Government Procurement Act (GPA) are periodically modified, there is feeling within the foreign business community that the Act still falls short of internationally accepted standards. The deficiencies continue to cause concerns for American companies seeking to enter, or expand their activities in, the market through bids on major projects in many sectors. The main conflict pertains to the lack of binding arbitration in disputes heard by the PCC's Dispute Resolution Panel (DRP), which, in turn, can lead to years of wasteful legal expenses in the court system and dissatisfaction even if a firm receives a favorable ruling from the DRP. Additionally, the PCC does not require procurement entities (end user clients or procurement management consultants) to strictly adhere to its guidance on tender preparation and the inclusion of key articles, such as the one pertaining to Limits on Liability. Without such protection, American firms, concerned about the risk of being assessed incalculable financial damages at a later date on a given project, must consider whether or not they should bid on a specific tender.

Given Taiwan's spotty record on BOT projects, it seems likely that many of the projects Ma wants financed by BOT will in the end be taken over and finished by the government.

UPDATE: Feiren notes in a long comment below:

Taiwan's BOT projects are largely a sham. Most of the money that goes into them comes from government controlled sources like state invested banks. And in projects like the THSRC, the government guarantees the private sector's investment. Taipei101 is another example. I heard that when Taiwan's government approached major international banks like Goldman Sachs about investing in the project, the international finance people told the Taiwanese government that if it liberalized Taiwan's financial services industries, they would build a finance center with their own money.

It will be interesting to see if the liberalization necessary for foreign financial firms to make money here actually takes place under the new government.

[Taiwan]