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Taiwan's Economic Future

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Postby HongKongPhooey » 11 Oct 2002, 14:26

"I think it's currently living in the afterglow of its economic golden age and eventually it will become clear that Taiwan is caught in the same permanent economic downdraft as Japan."

----------------------------------

I think the comparison between Japan and Taiwan is a bad one. Taiwan's bad loan problem is no where near as grave as Japan's and Taiwan has been far more agressive in doing something about it. Basically, Taiwan is borrowing its strategy from the US, setting up an RTC-style fund to soak up the bad loans and shutting down problem banks. Japan only recently this past month -- by giving Heizo Takenaka the financial services portfolio -- acknowledged that public money would have to be spent, and they have yet to follow their words with actions.

Nox and Rampage note the relationship between Taiwan and China. China is getting all the low-end stuff that Taiwan used to produce, while Taiwan is moving up the value chain to produce higher-margin IT goods.

Let's add the US to this equation. As high-tech goods no longer become profitable for US producers to make, they'll outsource them to Taiwan. When it no longers become profitable for Taiwan to make, it will be passed along to China. Outsourcing is the trend: From the US, to Taiwan, to China.

This is also why, I believe, the TSU was incorrect to oppose the shift of 8-inch fabs to China. Taiwanese chip producers have tons of ageing chip equipment and they want to be able to invest in more efficient 12-inch fabs. The life of this 8-inch equipment could be extended by sending it to Shanghai.

And as another poster noted, Taiwan's economy is tied to the US economy. All of Asia (with the exception of Japan, which is doing poorly for reasons of its own) is in a down turn and it's because they rely on the US for exports. When the US comes back so will Taiwan.

But while the export model was a good one for all of Asia for a while, we can see what the all-the-eggs-in-one-basket approach of the KMT has resulted in. This is why you hear the government now talking about tourism, biotech, etc.

South Korea, until recently, managed to escape some of the downturn because it stimulated domestic demand. I think this is want Taiwan needs to do. Domestic demand here is nothing, and the government needs to think of ways to get consumers to spend a bit of their savings.
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Postby nox » 11 Oct 2002, 14:45

Well I think in the not to far future the outsourcing will be ... US to China directly.

Of course Hightech, biotech is here to stay but not everyone can work in this industry.

And really, Taiwanese are not patriotic as far as investing in Taiwan concerns. A while ago I suggested to a few business aquaintances investing in a leisure project with a profitability forcast in 3 years, yeah right ... forget it ... 3 years? Duh...
nox
 
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Postby Gavin Januarus » 11 Oct 2002, 20:23

HongKongPhooey wrote:I think the comparison between Japan and Taiwan is a bad one. Taiwan's bad loan problem is no where near as grave as Japan's and Taiwan has been far more agressive in doing something about it. Basically, Taiwan is borrowing its strategy from the US, setting up an RTC-style fund to soak up the bad loans and shutting down problem banks. Japan only recently this past month -- by giving Heizo Takenaka the financial services portfolio -- acknowledged that public money would have to be spent, and they have yet to follow their words with actions.


Are you saying that Japan's economy is sick because of an ailing banking system -- or just sicker because of it?

If you mean just sicker, then what do you think is the root cause of Japan's economic malaise versus Taiwan's?

I think the root cause of both Japan's and Taiwan's economic problems is a growing deficit of products and services that other people want to buy. This deficit is caused by China's goods displacing them. Hence, the assertion that they're caught in the same economic downdraft. Japan's downward spiral is aggravated by its banking system bad debt problems but softened by the fact that Japan still has a trove of jealousy guarded intellectual property. Zoom lenses for cameras, for example. Japan owns most of the digital camera zoom lens patents and everyone in Asia who makes high-end cameras has to buy from them -- if they'll sell, which they often won't because they're trying to preserve their domestic Canons and Sonys.

Taiwan just began the economic spiral downward last year that Japan began ten years ago. While Taiwan may or may not have a flawed banking system, what does it have to help buoy its economy once the hull really starts springing serious leaks?
Gavin Januarus
 
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Postby Rampage » 11 Oct 2002, 20:39

The new rule allows for TW to invest in fabs in China. The precondition is that they must have a 12" fab in TW before they can set up an 8" in China. TSMC and UMC are already under construction in China.

The US or Japan tech -> TW -> China is logical. But for some tech you are already seeing the direct to China strategy.
Rampage
 
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Postby Gavin Januarus » 11 Oct 2002, 22:37

What I see happening is:

Taiwan's economy is declining because demand for its goods and services is being displaced to China and there is no line in the economy where that displacement will stop because Taiwan has no inherent superiority over China. It's just a matter of enough time before it's 'all' gone.

Taiwan has no natural resources to diversify its economy with other than some natural beauty and indigenous cultures with which to could build a regional tourism industry.

Taiwan lacks first-class managment talent necessary to lead it through the difficult times ahead.

Taiwan lacks a critical mass of creative talent necessary to create an ideas/knowledge-based economy.

Taiwan culture doesn't understand, distrusts and disdains creativity and so drives out creative talent.

One hope for Taiwan is to select niche industries to specialize in that China considers too small and uninteresting for it to want to dominate. Becoming a center for high-quality, low-cost health care in Asia is one such possibility. Pharmaceuticals is another. High-tech industries which serve these two niche industries is another.

Taiwan's only hope for a strong economy though is to create an ideas-based economy but it hasn't even begun to understand what that means -- much less begun to do it.

Taiwan's secret hope is that the good old days will return and if they don't then it's off to China and will the last one out turn out the lights.
Gavin Januarus
 
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Postby Mr He » 12 Oct 2002, 09:50

In the good ol' days, most US companies had sourcing offices in Taiwan. Some still have, but the most of them are closing down and moving the foreign staff to Shanghai.

There are still islands of excellence in Taiwans economy, hoewver they are eroding.

Taiwan is currently hit by a double whammy, as US demand for the products is soft, while a shift of low and mid end tech production from Hsinchu to Kunshan is taking place.

You can ignore one and focus on the other, but they are both contributors to the current malaise. The latter one will change this island more than the first.

The taiwanese banking system is not that sound. (OK better than the Japanese or the Chinese one, but that doesn't mean all that much :roll: ) ODL ratios are 15% on average, however they are a function of economic growth. It is likely that they will increase further if the current downturn lasts as long as expected. Positives are that the Taiwanese are trying to reform it. Negatives are that they are taking their time.

the risk of Taiwan ending up as the Philipines is a real one. I hope that they will muddle through.
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Postby Mr He » 14 Oct 2002, 12:51

Just bumping this thread up. More viewpoints?
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Postby JGeer » 14 Oct 2002, 13:23

You had to ask? I did a deep-probing sociological study of Taiwan industry in college and the result is two tiers of the Taiwan economy. The primary is state-owned enterprises composing the bulk of primary industries (China Steel, Shipyards, Aerospace, etc.) . The secondary is the 50%middle class of light-industrial exporters. Computers are the exception to the norm in Taiwan. The primary industries are the economic multipliers for the secondary downstream enterprises of Chinese family-ownership. Between these technocrats controlling their state-owned fiefdoms and the
Chinese family management style of control over profits, they've gotten themselves into a real economic bind.

Stimulus is needed in several areas...tourism is one. But this sector has got to be Las Vegas linked gambling for Penghu. Keep it remote but accessible. Instead the ROC obstructionist technocrats just sold out to Confucian moral purity, not the US gaming industries linked to the Nevada Gaming License Commission. Triads run amok in Macau, and that is going to be a high hurdle for these Las Vegas executives for political insurance coverages. What is more socially corosive...Chinese or gambling? Outside of the very draconian Singaporean model, Chinese corruption and Triad gambling are equally morose for society. This is not for the whole economy but it would infuse substantial amounts of opulent buildings into the island society. This opulence and human behavior would spur new demand for a construction boom. Newer housing units built within municipal controlled standards of neighborhood zoning and any such related infrastructure development means the
stimulus for getting Taiwan moving again. "Housing starts" are an essential economic indicator.


Education reform is essential and has not been meeting the needs of Taiwanese. Just do look at the "private sector" competition, but the accreditation and professional teaching standards need to be "enforced" and government needs to stop obstructing. Health care is on solid foundations, but it must be dramatically improved...TMC just will not cut the mustard by any WHO standards or those in the West. No more going to Japan or America for medical treatments, the obstructionist Taiwan Medical College needs to be fully overhauled. It is a big multiplier for the entire island economy but new hospitals are nothing without a higher quality of care!

Make the quality of life improvements and concretely resolve the political status, and Taiwan will flourish like it should or it could. Of course, this is taking some pages from the oasis in the Nevada desert, but being cheesy is not one of them anymore.
JGeer
 
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Postby tonygo » 14 Oct 2002, 14:36

The Taiwan east coast is beautiful but under developed. It's unlikely anyone is going to invest to develop it. Did you ever see a TV advertisment promoting Taiwan as a place to visit? Unlike say, Malaysia, Thailand, HK, Singapore, Indonesia etc?

It can only be driven by the government.

And yes - the economy is still going down with no sign of relief on the horizon. It's little to do with moving to China - because profits made in China still end up partly in Taiwanese coffers - it's because of the lack of consumer spending, particularly in the US and Japan. The majority of ex-pats working here now (apart from teachers) are on the new railway project. You rarely see the others now - all moved on.
Some relief could come from more infrastructure spending - but I doubt that the government has the will to drive it. More bank regulation - stop the bank managers lending big time to his "doomed to fail" cronies and perhaps more privatisation.

If you teach - you will be OK - the falling economy is making people think that speaking english is something that is essential for them to diversify. One example - I teach in a company 4 evenings a week. The staff are not forced into the lessons, but I get 10 to 12 regular attendees. They layed off 20 people last week out of around 100, but not one of the students.
tonygo
 
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Postby tonygo » 14 Oct 2002, 14:47

Yes - housing starts is usually one of the prime economic indicators. But there is a lag here - unlike in any other country I can think of - because of the large percentage of empty properties built by family style construction companies that just thought it was going to be like before. Build cheap and sell expensive. Make lots of money and start again. Unfortunately people stopped buying a couple of years ago with the result that the companies are broke and the bank has lots of negative equity on its hands that nobody wants to buy.
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