Capital outflow, growth, investment: an eternal golden braid

Rift Valley near Ruisui.

Arguing that the government should get moving on the "free economic zones" , a commentary in the Taipei Times gave out some interesting figures on investment and growth:

....During the 1980s, Taiwan enjoyed an average annual growth rate of 7.7 percent. That figure fell to 6.4 percent during the 1990s and 4.4 percent during former president Chen Shui-bian’s (陳水扁) two terms.

A major reason for this slowdown has been declining investment in Taiwan. The average ratio of investment to GDP was 28 percent during the 1990s and 23.1 percent during Chen’s presidency. Since 2008, the investment rate has fallen further to an average of 16.9 percent.

The outflow of capital and talent is a more serious problem. In the past six years, there has been a net capital outflow of US$202.2 billion — an average of US$40.4 billion per year. The worst capital outflow so far was in 2012, at US$52.3 billion.

Taiwan’s net capital outflow for Chen’s terms was US$105.8 billion — an average of US$13.2 billion per year.

Note how under Ma the outflow to China has accelerated -- the strategy behind ECFA is to hollow out the island's productive capacity while positioning the move within the prevailing neoliberal economic framework. The reality is insignificant investment from China, massive outflows of cash to China, and no investment in Taiwan's future. The expenditures on the fourth nuclear plant were a complete waste; we could have been solarizing Taiwan with locally-made products, driving that globally-competitive industry higher, and giving the island's wind industry a huge boost with purchases of wind.

Are we getting a boost from foreign investment? AmCham reports regularly on foreign direct investment....

Approved foreign direct investment in Taiwan was US$5.56 billion last year [2012], higher than the US$3.81 billion in 2010 and US$4.96 billion in 2011, but much lower than that of Thailand, Vietnam, Indonesia, Hong Kong and Singapore, AmCham chairman Alan Eusden said.

In 2013 the score was just $4.9 billion in "foreign" investment, with 29.2% of that coming from the British islands in the Caribbean and another 7.7% from Samoa, for a total of 36% from those offshore tax havens. That "foreign" investment is likely recycled Taiwanese cash. Thus, a little over $3.1 billion represents cash from foreigners who wanted to invest in Taiwan.

What can Taiwan do to reverse these trends?
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Daily Links:

• Gwynn Guilford on the housing bubble in Taipei gets it largely wrong. To understand how housing bubble began, see this Panorama piece
• A defection to China threatens Taiwan's national security.
• Jobless rate falls below 4% to 3.91%, but new graduates enter market next month.

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