Saturday 9 June 2012

Taiwan losing race to stay ahead

Laggard economy lacks clear focus and talent, say CEOs and academics
By Lee Seok Hwai, The Straits Times, 8 Jun 2012

TAIPEI - Taiwan is in serious danger of being left behind in the global economic race, as it lacks a clear focus as well as talent, several prominent Taiwanese entrepreneurs, CEOs and academics have warned.

For Dr Morris Chang, founder of Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest semiconductor maker, Mr Douglas Hsu, chairman of conglomerate Far Eastern Group, Taiwan Life Insurance chairman Chu Ping-yu and academic Wu Enboa, the worry is palpable.

Growth of the export-dependent economy slid to 4.03 per cent last year and could dip as low as 3.4 per cent this year, according to some estimates.

While Taiwan is not alone in slowing down - with Singapore, South Korea and Hong Kong looking at similar decelerations - its long-term economic performance and prosperity have lagged behind those of its regional rivals of late.

Seen as the leader of the so-called Four Asian Tigers in the 1990s, Taiwan is now bottom of the class.

Per capita income in Taiwan crossed the US$20,000 (S$25,500) threshold only last year, and is less than half of that of the other three economies.

The outspoken Mr Hsu was the latest to voice his concern. In an interview with the Commercial Times published on Monday, he said that if Taiwan does not come up with a new model for economic transformation, it will end up like 'a dog chasing its own tail'.

South Korea, Singapore and China have each found their own model, the 69-year-old billionaire said. Singapore, for example, built casinos to boost its competitiveness.

'In Taiwan, even something as simple as the proposed capital gains tax has ended up with five or six versions. It's ridiculous,' said Mr Hsu.

A Bill which would tax profits on stock market transactions was proposed in late March by then

Finance Minister Christina Liu and publicly supported by President Ma Ying-jeou. But it remains mired in wrangling between the Cabinet, dissenting lawmakers of the ruling Kuomintang, and opposition legislators. Ms Liu resigned last week over the fiasco.

Separately, Taiwan Life Insurance chairman Mr Chu also said the island needs to look for a new path apart from the traditional bedrock of trade.

'Taiwan's competitive edge is good for just another five years,' he was quoted as saying on Sunday by the United Daily News during a study trip in Tokyo.

'Our export industries have left in droves and job opportunities for lower-level workers are dwindling.

'Taiwan should establish itself as a regional financial centre, lower tax rates and attract foreign investment. If not, our future generations might have to look for jobs overseas.'

Some watchers have expressed concern about the island's talent pool.

Last month, TSMC's Dr Chang said Taiwan's universities had not improved as quickly as those in South Korea, Hong Kong, Singapore, or even China. Neither is Taiwan as cosmopolitan.

Dr Wu Enboa, the Taiwan-born vice-president of the Hong Kong Applied Science and Technology Research Institute, said Taiwan is becoming increasingly closed and lacking in talent.

Noting that South Korea's high-tech sector is pulling ahead of Taiwan, Dr Wu told the Economic Times the island needs to develop its own trend-setting industries or products, and that this requires an open society where talent and ideas can flourish.

'But signs point to Taiwan becoming more closed up, rather than open,' said Dr Wu.

The criticisms come amid the start of President Ma's second term in office.

He has promised to boost Taiwan's economy by joining free trade pacts, such as the Trans-Pacific Partnership among Asia-Pacific economies, restructuring key industries, nurturing more cosmopolitan Taiwanese, and attracting foreign talent.

Taiwan is negotiating free-trade deals with Singapore and New Zealand and hopes to restart one with the United States. The authorities are also set to loosen restrictions on foreign talent, such as by removing a requirement on permanent residents to reside in Taiwan for at least 183 days every year.

Dr Sun Ming-te, a senior economist at the Taiwan Institute of Economic Research, said the government is going in the right direction, including by leveraging the island's strong contingent of small and medium-sized enterprises, particularly in machinery equipment and electronic communications.

'These are, however, not as attention-grabbing as Singapore's casinos or South Korea's Samsung,' he said. 'Focusing on trade also smells like old wine in a new bottle, since trade has been Taiwan's lifeblood for the past 400 years.'

He added that the degree and pace of change is going to be the real problem.

For example, if more foreign talent and investors are to come, they would need to be assured of not just fewer restrictions, but also incentives, a conducive environment where English is widely understood, minimised red tape and free rein for new businesses.

'It's going to be tough,' said Dr Sun.

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