Taiwan Miracle - Future Growth

Future Growth

Economic growth has become much more modest since the late 1990s. A key factor to understand this new environment is the rise of China, offering the same conditions that made possible, 40 years ago, the Taiwan Miracle (a quiet political and social environment, cheap and educated workers, absence of independent trade unions). To keep growing, the Taiwanese economy must abandon its workforce intensive industries, which cannot compete with China, Vietnam or other sub-developed countries, and keep innovating and investing in information technology. Since the 1990s, Taiwanese companies have been permitted to invest in China, and a growing number of Taiwanese businessmen are demanding easier communications between the two sides of the Taiwan Strait.

One major difference with Taiwan is the focus on English education. Mirroring Hong Kong and Singapore, the ultimate goal is to become a country fluent in three languages (Taiwanese; Mandarin, the national language of both the People's Republic of China (PRC) and the ROC; and English, becoming a bridge between East and West.

According to western financial markets, consolidation of the financial sector remains a concern as it continues at a slow pace, with the market split so small that no bank controls more than 10% of the market, and the Taiwanese government is obligated, by the WTO accession treaty, to open this sector between 2005 and 2008.

However, many financial analysts estimate such concerns are based upon mirror-imaging of the Western model and do not take into account the already proven Asian Tiger model. Yet, recently, credit card debt has become a major problem, as the ROC does not have an individual bankruptcy law. Taiwan also remains undeveloped in some sectors, such as the lack of a bond market, a role that has been filled by small entrepreneur-oriented investment or direct investment by foreign persons.

Generally, transportation infrastructure is very good and continues to be improved, mainly in the west side of the island. Many infrastructure improvements are currently being pursued, such as the first rapid transit lines opening in Kaohsiung in 2008 and a doubling in size of Taipei's rapid transit system by 2013 now underway; the country's highways are very highly developed and in good maintenance and continue to be expanded, especially on the less developed and less populated east coast, and a controversial electronic toll system has recently been implemented.

The completion of the Taiwan High Speed Rail service connecting all major cities on the western coast, from Taipei to Kaohsiung is considered to be a major addition to Taiwan's transportation infrastructure.The ROC government has chosen to raise private financing in the building of these projects, going the build-operate-transfer route, but significant public financing has still been required and several scandals have been uncovered. Nevertheless, it is hoped that the completion of these projects will be a big economic stimulus, just as the subway in Taipei has revived the real estate market there.

Taiwan continues to rely heavily on its technology sector, a specialist in manufacturing outsourcing. Recent developments include moving up the food chain in brand building and design. LCD manufacturing and LED lights are two newer sectors in which Taiwanese companies are moving. Taiwan also wants to move into the biotechnology sector, the creation of fluorescent pet fish and a research-useful fluorescent pig being two examples. Taiwan is also a leading grower of orchids.

Debate on opening "Three links" with the People's Republic of China was also ongoing, with the security risk of economic dependence on mainland China being the biggest barrier. By decreasing transportation costs, it is hoped more money will be repatriated to Taiwan and that businesses will be able to keep operations centers in Taiwan while moving manufacturing and other facilities to mainland China.

A law forbidding any firm investing in the People's Republic of China more than 40% of its total assets on the mainland was dropped in June 2008, when the new KMT government relaxed the rules to invest in Mainland China. Dialogue through semi-official organisations (the SEF and the ARATS) reopened on June 12, 2008 on the basis of the 1992 Consensus, with the first meeting held in Beijing. Taiwan hopes to become a major operations center in East Asia. In addition, many businesses and areas in Taiwan hope to make money from mainland Chinese tourists if and when the three links are negotiated.