Monday, March 23, 2009

China Cargo Cult Blues

When the capitulationist raccoons annexation lardbombs pandas arrived at the Taipei Zoo back in December, I wrote:
Based on these previous crazes, there will undoubtedly be another craze for the pandas, simple creatures, the public will queue up in long lines for a short glimpse of the rotund bamboo chewing machines, leading commentators to write about how successful the Capitulationist Raccoons are.

But the fact is that such crazes, normal in Taiwanese life, have short half-lives, and this one will fade as it dawns even on the easily-led primate herds of Taipei that observing pandas is as unique and fun and interesting as watching granite erode. Fads are common in Taiwan, as the Taiwan Journal noted of the koala craze.....
Perhaps it is only a temporary bump in the road, but it seems China's "goodwill pandas" aren't a big hit, reports Reuters:
Zoo official Eric Tsao said Taipei zoo's panda traffic averages 1,000 people on weekdays and 5,000 to 8,000 on weekends, down from daily maximums of 14,400 to 19,200.

Initial predictions had put traffic at 30,000 to 90,000 visitors a day.

"Visitors are used to seeing flagship species from different countries," said Tsao, an associate research fellow at the zoo. "Some people don't even want to see the panda conservation center, which breaks our hearts."
May your heart always be thus broken, Mr. Tsao. The pandas are emblematic of the way the Ma Administration's China policy consists of using Taiwan's resources to help China.

Of course, the pandas also reflect the way the the cargo cult promises of the Go China crowd have faded. The LA Times, which has had some good stuff on Taiwan lately, has another good piece on the fading dream of China in Taiwan.
China's economy has slowed sharply, affecting hundreds of thousands of Taiwanese working and living on the mainland. With their factories tottering, investments shrinking and competition from locals rising, many Taiwanese are wondering whether hitching their fortunes to China is the right way to go.

Taiwan's economy shrank a record 8.4% in the fourth quarter. By some measures, the current quarter looks worse. Exports to China, Taiwan's largest trading partner, plunged by about half in January and February compared with a year earlier, far more than the overall drop of 37%. Taiwan sends many of its staple products, including computer parts and electronic devices, to the mainland for reprocessing before they're shipped to the United States and elsewhere.

As opportunities in China have dried up, a growing number of Taiwanese have come home, some of them abandoning factories and mobs of unhappy Chinese laborers and suppliers. Taiwan's unemployment rate has jumped to 5.3%, prompting the government to extend jobless benefits and issue consumer vouchers to stimulate spending.

"It's never been like this before," says Don Shapiro, a 39-year resident of Taiwan and director of publications for the American Chamber of Commerce in Taipei.

For some Taiwanese, the economic troubles have been a rallying cry in support of Taiwanese President Ma Ying-jeou's bid for a free-trade agreement with Beijing. Proponents say it would boost Taiwanese competitiveness, lower tariffs and help Taiwan forge similar agreements with Singapore and other nations.

But Ma's plan is strongly opposed by those who see the increased links as a threat to Taiwan's sovereignty. Taiwan and China split in 1949 after a long civil war. Although politically separate, Beijing considers the island part of its territory. Politics aside, Taiwanese worry that normalizing economic relations with China would bring in more goods from the mainland, threatening jobs and hurting domestic sectors such as agriculture.

Besides direct flights, Ma already has signed deals liberalizing shipping and postal links and tourism. But those moves haven't produced a windfall.

There's been no boomlet of mainland visitors, disappointing Taiwanese who had invested in hotels and other tourist businesses. Meanwhile, the number of Taiwanese traveling to China has fallen sharply since last spring. Taiwanese investment on the mainland totaled 446 projects last year through November, less than half the amount during the same period in 2007, although the dollar volume was up slightly.
The article ends with a discussion of how Taiwan businessmen are coping with the problems in China:
For some Taiwanese manufacturers, China isn't an option anymore, not since the mainland began tightening the screws on labor, environmental and safety regulations in recent years. Some producers have moved to Vietnam. Others have quietly returned home.

"In Southern China, we had control over nothing," says one manufacturer of lighting fixtures, explaining that angry Chinese vendors occupied his factory in Guangdong province and beat up his lawyer after he posted a notice that the plant was closing down. The 43-year-old businessman, who declined to be identified for fear of retribution, says he is trying to rebuild his business on the outskirts of Taipei.

"We can do it without China," he insists. "Before China, there was Taiwan."

Taiwan still has a solid base of metal-processing shops. Unlike Japan and South Korea, Taiwan isn't as dependent on lumbering conglomerates. At the heart of its economy are small businesses, which are inherently more nimble and flexible.

Some Taiwanese see a future in designing and making niche products in smaller quantities, be they high-end bicycles or cultural goods such as fine tea sets.

Charlie Hsu's company, Taoyuan-based Chenfull International Co., started out in the mid-1970s selling shoe-making equipment. He has since diversified into precision machining, engineering services and water-treatment systems. The 59-year-old expects sales to grow 10% this year from $70 million in 2008.

"They need this know-how and technology, and we need their market," he says of China.

Other Taiwanese manufacturers in China, disillusioned by what's happened, find themselves looking for Plan B.

"The golden period is over now," says J.C. Chiu, who went to the mainland in 1990 because he had trouble finding enough workers to expand his lamp business in Taipei.

At its peak a few years ago, Chiu employed more than 2,000 people at two factories in Dongguan, producing building materials and lamps for Wal-Mart Stores Inc., Home Depot Inc. and Lowe's Cos. His annual sales ballooned to $30 million.

But he lost $2 million last year, Chiu says. This year he shut down one of the two plants. His orders for 2009 are down more than 50% from a year earlier.

"If the situation keeps deteriorating," he says, "I will definitely close up [in Dongguan] and go back to Taipei."
According to government spokesmen, the number of tourists arriving from China has jumped from a few hundred to over 2,000 a day, and Taiwan's ailing airlines may be getting the welcome boost of additional routes in China.

As we saw over the Presidential campaign in 2007-8, the KMT insisted that the economy sucked (it grew 5.7% in 2007 and 6.06% through the first six months of 2008). The KMT then proposed that the only way to "save" Taiwan's "bad" economy was to move closer to China. The recent downturn has blown that claim up. The KMT has attempted to salvage its strategy of moving closer to China by arguing first for CECA (the FTA with China) and then for ECFA (the loose framework that doesn't enhance Taiwan's sovereignty), and using the downturn as a "shock" to get the public to accept --once again -- that moving toward China is the only way to save the economy. Unfortunately for the KMT heavyweights making strategy outside of public oversight, the downturn is undermining this claim: moving closer to China clearly isn't helping. Even worse, discerning individuals might notice that Ma has recently said that talks on ECFA won't get going until much later this year, meaning that any positive effect from ECFA won't get rolling for another 12 months.....

UPDATE: WSJ reports:
Taiwan's jobless rate rose to a record 5.75% in February from 5.31% in January on the economic slowdown and a drop in temporary jobs after the Lunar New Year holiday, the government said Monday.

Taiwan, which is already in recession, recorded its 10th consecutive increase in the monthly jobless rate after more businesses retrenched staff or shut down operations, and the government warned an improvement ...

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Anonymous said...

Considering the amount of free and paid for publicity the pandas have gotten (the completely covered subway cars in Taipei!), they are an economic disaster in an economy of disasters. What the hell? Soon, we'll all be saying "Chinese pandas" instead of "white elephants".

Well, at least the foreign tourists will be into them.

Tommy said...

The panda situation should not surprise anyone who has noticed the blockbuster movie phenomenon. Titanic is released, it's hit, it sticks around a while, and fizzles out in the end. Taiwan is not a big place, and while the Taipei Zoo is kind of fun for a day, even most mildly interested people won't go all that way just to see pandas once they have seen them once. At the conservative initial prediction of 30,000 visitors to the panda pen, the entire population of Taiwan could see the creatures once every 2.1 years. How likely is that?

And you are right that the LA Times story is good, but I have somewhat of an issue with this take on the anti-ECFA/FECA crowd"

"Taiwanese worry that normalizing economic relations with China would bring in more goods from the mainland, threatening jobs and hurting domestic sectors such as agriculture."

Most people who oppose the trade deals for economic reasons don't worry that normalising relationships with China will hurt the economy. They worry that overdepending on China will hurt the economy. I think most Taiwanese support normalising relationships with China as long as Taiwan doesn't suffer for it in the long run.

Anonymous said...

According to government spokesmen, the number of tourists arriving from China has jumped from a few hundred to over 2,000...

But does it count that these "tourists" are just members of the Amway cult? I was also amused that these tourists are met by protesting members of the Falungang cult.

Anonymous said...

A list of Taiwanese fads that popped into my head as I read this post:

*Koala craze
*Penguin craze
*Panda craze
*Hello Kitty craze
*Women's pointy shoe craze
*Poodle puppy craze
*Egg tart craze
*Donut craze
*Red ant nutcase craze
*Abien beanie hat craze
*Rollerblade craze
*Marijuana symbol craze
*Vibrating condom craze
*Surfer dude/dudette look craze
*Taike craze
*Cape7 craze (abo rice wine?)
*NY Yankee craze
*Bicycle craze

Anonymous said...

LA Times with another good article on Taiwan! "Benefits of Taiwan's door to China fade"

Anonymous said...

If watching these Amway twads convinces more Taiwanese people to join Amway, then overall this is a huge negative for Taiwan. Amway is a slow-burning Ponzi scheme that derives huge revenue from the members itself--joining, buying products and samples themselves, various associated DVDs books, bringing in more members. As long as they slowly burn out older sales members and bring in new ones, they stay alive.

Notice none of that has anything to do with selling good products at good prices.

No one ever stops to ask why if the products are so good and at reasonable prices, why people don't just sell them through stores?

Jerks (with cult-like features), and should be met with the full force of consumer protection, anti-racketing, anti-Ponzi scheme laws.

Muckdart said...

The economic downturn provides little to no evidence of the effectiveness of Ma’s policies. The downturn is driven by the global situation that originated in the US. What matters is what the baseline economic performance would have been if Ma had not been elected and pursued policies of accommodation towards China. The effectiveness of Ma’s policies is evidenced not by the absolute value of the economic decline, but rather by the deviation to the baseline (had he not been elected). In other words, would the 8.4% reduction in GDP have been larger or smaller without Ma’s policies? My guess is that it is much too early for him to have very much of a direct impact, but to know for sure would require a pretty sophisticated econometric model.

Robert R. said...

@Muckdart: Well, to know anything for sure in economics, all you need is omnipotence. The fact that you still have fundamental disagreements over what solved the great depression speaks to that.

However, the advantages that the KMT "negotiated" for Chinese companies (i.e. gravel transport & airlines), are likely not helpful.

Anonymous said...

Muckdart, "much to early" is your problem.

Ma promised "馬上 就好" which is a pun on "Ma, elected, good!" and "Immediately it will be all better!".
- Given the Taiwan stock market bubble prior to his election, people believed him so you can't dismiss this as just harmless politician talk.

He also promised economic targets in absolute terms, which was stupid, not least of because he didn't even promise it in NT (US dollars) or real (versus nominal) GDP.
- This was never achievable in a good economy and encourages bad economic policy (inflation to puff of nominal GDP, strong currency to puff up GDP in USD)

His campaign also repeatedly argued that Taiwan was falling way behind Korea.
- But Korea has been found to have overvalued its currency (again!) deflating all of Ma's old criticism of Taiwan in comparison to Korea. And yet, Korea's performance has still been much better than Taiwan's since Ma has come into power.

Ma has failed by all the metrics he himself put out. If the global economy turns better and Taiwan starts doing okay again, you can bet Ma will try to take credit, but how are we going to know Frank Hsieh wouldn't have done better?

Sure, I don't know how to construct an econometric model that tries to simulate Frank Hsieh in power instead of Ma, but subjectively, all the experts give Ma and his cabinet an F on the economy.

Read the Economic Daily News. They are a pro-Blue paper that strongly supported Ma's campaign. But for the last 9 months or so, every week they come out with an editorial telling Ma how stupid his policies are and to get rid of Lyo Zhaoshuan.

These guys are just plain incompetent. Every prediction has been wrong and disastrous to anyone that pays any attention to what they say. The stock market going to 20,000? And then claiming that statement was just a joke? Do you know how happy people would be if it went to 6,000?

How about the whole gas price idiocy? Raising prices prior to the announced date. This is so dangerous because it destroys government credibility. Ever since then, everyone asks, why did the government say this, and what are they really trying to get me to do rather than taking any government policy announcement for face value.

How many hotels, bus companies, tourism-related businesses have been devastated by Ma telling them to hurry up and invest, but then the Chinese tourists only coming over in a small trickle?

How about the recent debacle over Taiwan Memory? First saying they were going to rescue and merge Taiwan's DRAM makers, then saying they weren't? You can't pretend to leak stuff to the press, then change your mind, then say you never said that shit. Everyone knows you said it. Again completely loss of credibility.

Who's going to believe you when you say the economy seems like it's getting better?

I've said this on this blog before and I'll say it again: there are a lot of low-hanging fruit for anyone interested in promoting economic growth and efficiency in Taiwan.

Privatization of big industries is a huge one. Why is the government in the business of steel, oil refining, sugar/biotech/cosmetics? Why does the government still own shares in Chunghwa Telecom? Why does Taiwan Post still take deposits?! That can't be the right way to effectively put capital to work...

Why are gas prices regulated and uniform throughout the island? The classical problem of a price ceiling makes all those mountain areas devoid of gas stations, and you randomly see news stories of people traveling X km and storing extra gas. Well of course this is going to happen. The same price that makes some busy intersection in Taipei worth it to open a gas station isn't going to make it worth it to open one in remote mountain areas. But if Ma and his team are such economic experts, why can't that solve easy problems like this and deregulate gas prices?

Why aren't universities made independent? They are highly regulated and suffer from all the inefficiencies of being so.

The government's web sites are all a huge mess and greatly harm any attempts at a clean, transparent, efficient government. It's totally embarrassing that a country so at the forefront of the information technology industry has shitty websites that make it hard to find anything.

Maybe these are political difficult things to get passes. Ma only has 3/4s of the legislature, 3/4s of all city and county mayors, and obviously heads the executive branch.

Ma and his team are completely devoid of economic common sense. If anything they do works, it's better attributed to accident than expertise. Sigh... frustrating...

Anonymous said...

*Koala craze
*Penguin craze
*Panda craze
*Hello Kitty craze
*Women's pointy shoe craze

Hahaha! Good list. I'd only add the Karen Mok, Coco Lee, and more recent black leotard craze.......

Muckdart said...

I am not attempting to lionize Ma (this is clearly the wrong forum for that!). I am just stating that the current economic situation was inherited. And by inherited I also am not saying that it was explicitly Chen’s fault either. As you rightly point out, the decisions that Ma is making now are the issue. From my vantage point it seems like some rapproachement with China is a good thing, but I don’t live in Taiwan (I’m on the other side of the strait) nor do I have missiles pointed at me, so I won’t attempt to steal the conch from those that are directly affected and can speak from first hand experience. I will just have to wait and watch (and read this blog).

I do wholeheartedly concur that his campaign promises were, to phrase it politely, irresponsible. I don’t know whether he was deluded, lying, misinformed, or stupid, but most of his economic promises seemed clearly unreachable. He may yet succeed, but more than likely he is just setting himself up for a very public failure. Aside from tourism, I just can’t figure out where the growth is going to come from.

Oh, and by the way "Robert R.", we do know what solved the Great Depression: a massive government stimulus program called WWII that was funded by enormous increases in govt debt (i.e. the stimulus program is an order of magnitude too small. Should be about 2X).

Anonymous said...

Plus, the KMT's whole campaign platform was that the DPP had the economy in a shambles and people were suffering, committing suicide, and couldn't take it any longer. Yet those were the days of plenty compared to now. The KMT expected the DPP to outperform the global economy yet now the global economy is a convenient excuse as to why the can't do crap......

Michael Turton said...

Well, Ma got stuck with a bad economy, but I don't think the smart money ever expected him to do well; the stock market started tanking the day after he took office. I think a lot of people knew what a mess the KMT would make of things....

Ma has some other issues -- he's ignored by party elites, the legislature refuses to do anything for the nation, etc.... some of them are the same problems that Chen faced.

Thanks for the thoughtful comments...