President Chen Shui-bian met with Professor Robert F. Engle, laureate of the Nobel Prize for Economics and his wife on the morning of Monday, November 28. The president not only welcomed Engle on behalf of the Republic of China, but also exchanged opinions with him on cross-strait trade issues.
The president told Engle that his autoregressive conditional heteroskedasticity (ARCH) model is of deep significance, but he is also aware that on Mrs. Engle's Web site people have given another meaning to the acronym ARCH, taking it to mean Anything Really Can Happen and that he understands why that is as well.
The president said that it is his honor to receive Professor Engles and that he would like to take the opportunity to discuss four economic issues at hand: one, the impacts of the appreciation of the renminbi with respect to other currencies; two, over the introduction of foreign capital into state-owned banks and the continuing of management control, how these phenomena would affect Chinese state-owned banks; three, the movement of "hot money" in and out of the Taiwan economy, especially what effects an influx of US$16.5 billion in capital is having on the Taiwan stock market; and four, Taiwan's second-phase financial reform. Chen asked Engle to offer his opinions on these issues.
Engle said that if the renminbi continues to rise, it would decrease volatility in international currency markets, but if not, it would lead to domestic inflation within China's borders, causing a bottlenecked economy since Chinese goods would become less competitive globally as a result of the rising cost of goods.
Addressing the issue of foreign capital in Chinese state-owned banks, Engle said that he does not have a clear understanding of the situation of Chinese state-owned banks, but that he was aware that Euro-American capital has led to liberalization and increased transparency in Chinese state-owned banks.
Engle stated that the influx of foreign investment into Taiwan's economy would increase the capital of Taiwan firms and would give them more room to operate and improve product quality, thereby helping boost exports, as far as far-reaching advantages and risks are concerned. Engle suggested that capital first must be properly calculated before it may be allocated globally and that Taiwan is capable of producing positive results for the allotment of foreign capital to be invested in Taiwan. He also noted that there are concerns involved with foreign investments in Taiwan causing potential risks. Once the economy turns dour, foreign investment might retract, leading to the danger of further economic strain. He hoped that investors would have faith in the Taiwan economy even when the economy showed signs of weakness.
Engle said that the second-phase financial reform would increase transparency, making it easier for foreign investment to come into Taiwan. He said he believes that the financial reform would have a positive effect on Taiwan's economy. He said there is severe competition in the banking industry in Taiwan both for loans and domestic and foreign investment, but that this competition is rather advantageous. He said he thinks that Asian nations wishing to compete with China should implement effective measures to boost domestic economy and encourage rapid development. He said that it is his opinion that China's economic development has increased opportunities for Asian nations, so that they may make use of China's economic strength to help improve their own economies.
The President said that cross-strait trade relationships can not be measured strictly from the perspective of economics. Non-economic issues must be taken into consideration, such as the political risks. He expressed his faith in the Taiwanese people as they face the massive challenge from China, because the spirit of the "sons and daughters of Taiwan" is "from nothing to something, from bottom to top. When faced with limitations and in even the worst environments, we must create the greatest possibilities free of limitation." It is of this spirit that Taiwan has been able to have its current development, just like the latest ARCH acronym: "anything really can happen!"