Nathan Novak Rides Again: ECFA's economic dangers

The last few months I've been noticing a series of excellent pieces by one Nathan Novak in the Taipei Times. This week's offering reiterated what many of us have been saying about ECFA....

Taiwan’s manufacturing and services industries are showing signs of slowing down the Taiwan Economic News reported on Tuesday. The Taiwan Institute of Economic Research (TIER) said that manufacturing edged up a mere 0.24 percent in July, while services fell 2.61 percentage points during the same period. Indicators in the construction industry were less than favorable and a construction slowdown is predicted.

TIER has predicted that overall growth will slow down in the second-half of the year. Moreover, the percentage of manufacturers surveyed who foresee a better climate over the next six months fell 4.7 percent from the previous month.

Novak then goes on to make several points:

The numbers simply do not add up. Before the ECFA was even signed, Taiwan’s economy was already showing signs of recovery; trade, with year-on-year growth of over 46 percent, was thriving. The ECFA was imposed as a necessary measure to save Taiwan’s “failing” economy, which was being threatened with marginalization (even though the numbers were already indicating a strong recovery).

The ECFA was then signed after economic recovery appeared certain and trade numbers were growing rapidly. Now, after the ECFA has been signed, second-half growth is expected to slow. What gives?

Reality is finally beginning to rear its ugly head. The ECFA, instead of being purely economic, is almost entirely political. Not only has it served CCP-KMT interests by bringing Taiwan and China closer economically (although it would appear with few actual economic benefits) and politically, it has also served as a tool the KMT can use to continue to force its agenda through the legislature and into Taiwanese homes. The continuous advertisements on television and radio promoting the ECFA even after the agreement has been signed only serve to underscore its political, not economic, consequences.

Second half growth slowing was probably inevitable. In the first two quarters of the year Taiwan grew at over 12%. The DGBAS just raised its forecast from 6.1% to 8.2% growth for the whole year. Note that all that massive growth occurred with the current pre-ECFA level of connection to China -- basically all of it in place under the DPP.

Second half growth is slowing in China, now Taiwan's number 1 market, with the ongoing malaise in the industrialized countries (especially the US where the nation's leaders from both parties appear bent on destroying the economy) and China's own steps to rein in speculation and credit growth. Taiwan will perforce follow.

On many occasions commentators have noted that increasing Taiwan's dependence on China simply makes Taiwan even more marginalized. Meanwhile this year India will grow over 8% and Brazil is booming. It's a big world, but we've tied our economic fate to Beijing.

An Economic Daily News editorial was translated for Focus Taiwan this week:

In a status report released this week, the Ministry of Economic Affairs noted that Taiwan's latest economic recovery was mainly driven by the electronics and information industries, which shows that the country's industrial structure is not sufficiently diversified.

This situation, combined with the increasing percentage of Taiwanese businesses moving their production lines overseas, is likely to lead to high unemployment and widen the wealth gap, according to the report.

The report echoes what we have been emphasizing repeatedly -- the focus of Taiwan's economic policy should be shifted from "pursuing growth" to "adjusting structures."

President Ma has been claiming that the wealth gap will fall because of the rising economy. There might be some marginal improvements but fundamentally the wealth gap in Taiwan is the consequence of the tax regime and the offshoring of manufacturing, as well as government budgetary policies aimed at the local areas. It is not an issue that can be resolved by growing the economy -- during the last four years of the Chen Administration we had solid economic growth, but saw stagnant incomes and a worsening wealth gap. Comprehensive changes in economic structures will not occur until the public votes in politicians ready to pass legislation. And as long as A. Q. Public votes for politicians because they send flowers to funerals and show up at auto accidents, that will not happen.....
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Daily Links

• Made in Taiwan: TECRO documentary home page
• President Ma expresses disappointment that PRC ignores history of WWII. Hey Prez, got one word for ya: dams.
  
• Reuters on Political Risk.
  
• Tom Plate with another fawning piece on Ma. Read with barf bag at hand.
  
• CFR on the South China Sea as a test of US-China relations. Yet it is also a test of China-ASEAN relations.....
• Chinese grads can't find jobs either.
  

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