How Taiwan Will Still Matter in the Future
Speech by President Ma Ying-jeou
of the Republic of China at
Merrill Lynch Luncheon on March 18, 2009
(post-speech transcript, March 19, 2009)
Mr. Chairman, distinguished guests, ladies and gentlemen:
I am really very delighted to come to Merrill Lynch Luncheon today. You might remember, on March 20th, 2007, I was here with you people, almost exactly two years ago, when I had just started my presidential campaign. At the time I wasn't even a candidate. I wasn't even nominated by my political party. So Merrill Lynch obviously was very wise and forward-looking to invite me, just a presidential hopeful, to talk about my blueprint to vitalize Taiwan's economy. Now two years have passed. The presidential hopeful has become president and we have to applaud Merrill Lynch's vision and wisdom, and we hope I now can share with you my thoughts about Taiwan's economy.
So much for the good old days. Now, let's go back to reality. My talk today is about Taiwan's economic future. First of all, let me just tell you that we have to understand why Taiwan matters.
I. TAIWAN MATTERS
Four years ago (in 2005) Business Week, as you know, one of the leading business magazines in the United States, published a cover story entitled "Why Taiwan Matters". The message was: The global economy couldn't function without Taiwan's network of IT manufacturing services.
-- The article describes Taiwan's importance like this. It says: to ask if the United States industry could develop sources of IT supply that don't involve Taiwan is like asking "What is the second source for Mideast oil?"
-- The situation has not changed; today Taiwanese enterprises continue to rank among the top players of the world in the manufacturing of LCD panels, personal computers, notebooks and mobile phones, chip foundry and numerous other ICT products or components.
-- Experts estimate that around 70% of mainland China's ICT exports are manufactured by Taiwanese investors on the Chinese mainland.
Again in 2005 Business Week released "IT 100", which is a feature article describing the top 100 IT firms of the world. The United States, with 44 firms, topped the list, and Taiwan, with 12, came second. Three years later in 2008, the rankings of Taiwan and the United States remained the same, but the firms of the United States dropped from 44 to 33, down around 25%, while Taiwanese firms went up from 12 to 18, up 50%.
In September 2008, the Economic Intelligence Unit, which as you know is the think tank of the famous business magazine The Economist, they also did a survey of the competitiveness of countries of the world, and Taiwan came 2nd for IT competitiveness, and Taiwan's performance in research and development was cited as the major reason for that ranking. So Taiwan does matter.
II. NOW, TAIWAN SUFFERS… BUT WE WILL STAND UP AGAIN
But, on the other hand, in spite of these past successes, Taiwan has been hit hard by the financial tsunami and the economic downturn that originated in the United States. It is still true that the global IT industry supply chain could not function without Taiwan, but at the same time Taiwan has become extremely sensitive to economic changes in the world, and is particularly vulnerable to downside shocks in the U.S. market.
After all, 64% of Taiwan's GDP growth depends on exports, and the situation is actually getting worse. So we have to understand that when the export markets in the United States and Europe begin to shrink, Taiwan suffers, and suffers gravely.
So, what should we do? If we respond to the challenge in a way that will keep up our competitiveness and improve our efficiency, I think we could still withstand the challenge and stand up again. So let me give you a brief account of Taiwan's responses. How are we going to deal with this economic downturn? Let me just talk about the short-term strategy.
III. TAIWAN'S RESPONSES
1. For the Short Term
The short-term package, it has a size of about 2.9% of our GDP. It is composed of public investment to expand our domestic demand, and a full guarantee for our bank deposits. We were the first in Asia to announce that, which had a tremendous effect to keep our banking system stable. And we have shopping vouchers, of course. Everybody loved them, and everywhere I went in Taiwan the last couple of months, people would grab my hand and say, "Mr. President, please do it again." And some people say, "Do it every four months." I can't guarantee that. And also, employment promotion and tax cuts. As you know, we have cut our inheritance and gift tax from about 50% to only 10%, and these measures, in a package, could raise the GDP growth by about 2.77 percentage points, so we hope we could create a total of 341,000 jobs from now till 2011. These are for the short term.
2. For the Long Term
But for the long term, we have other strategies. There are three things:
First, industrial re-orientation. Second, infrastructure upgrading. And third, deregulation and globalization. Let's talk about industrial re-orientation.
A. Industrial Re-orientation
The purposes are threefold:
(1) We hope to increase... enhance... the competitiveness of our exports and to reduce their vulnerability while maintaining a strong presence in the global supply chain, and secondly,
(2) to diversify the industries and the export markets. Our export markets, as you know, are concentrated in the United States and Europe. Although 40% of our exports nominally go to mainland China and Hong Kong, many of those exports in the end re-export to the United States.
So the strategies are three-fold, first:
(1) Increase Technology Independence
This is very important. We should make Taiwanese products more value-added and more self-sufficient and less dependent on external core technologies. You probably pay a lot of attention to the current effort on the part of the government to help the DRAM industry. Just exactly the same principle applies. We will help the industry, but not necessarily individual firms. We will acquire technology to prevent us from falling into the mistakes some of the industry people have made. And we want to make sure that the government would not simply inject capital in any industry, but hope we could use our leverage to help build up the industry again.
So in this area, we set up a Taiwan Memory Company (TMC) for the purpose of helping the industry as a whole, and they are moving steadily toward the goals I just mentioned. So the first thing to do is to try to cooperate with multinational corporations that have the technology, and to engage them in technological cooperation.
(2) Join Economic Integration and Tap the Emerging Export Markets
As you know, the most noticeable development in Asia is the rise of mainland China and the regional integration efforts by major export countries in this part of the world, including ASEAN, ten countries from ASEAN — the Association of Southeast Asian Nations. I believe we should actively participate in the development of regional economic integration. ASEAN, as you know, entered into a framework agreement with mainland China in 2002 which will come into force in 2010. That's next year. And ASEAN just concluded FTAs with Australia and New Zealand; and it's expected to sign another one with India this year.
So you can see that there is an ASEAN-centered economic integration taking shape in this part of the world, with the participation of major players, including, in the future, Japan and South Korea. This is very serious for Taiwan because in the process so far, Taiwan has been left out. If Taiwan is unable to join the economic integration, we will have formidable challenges ahead.
Just take the ASEAN-mainland China Framework Agreement, for example. All the taxes on exports to mainland China in the area of petrochemicals, machine tools, or textiles will be reduced to zero, whereas Taiwanese exports to mainland China will still have taxes at about 5 to 15 percent, so if that happened, that would force our industry either to move to ASEAN countries, or to move to mainland China. That would generate another wave of unemployment in Taiwan. The China Institute for Economic Research (中華經濟研究院) estimates that we would have unemployment of more than 100,000 people.
This is very serious for Taiwan, and in the past we've tried to conclude free trade agreements with ASEAN, or members of ASEAN, but it has gone nowhere because mainland China tried everything possible to block our efforts in this regard, which is very regrettable, because after all, Taiwan joined the World Trade Organization in 2002, and under that world organization's charter we can do FTAs with other members under Article 24 of the GATT.
But in any case, we think the best strategy for Taiwan is to actually go after the root of the problem. If the root of the problem is mainland China, then we talk to mainland China. If you oppose our effort to establish FTA relations with other countries, then how about having something like an FTA with you? This is [what] the idea of ECFA — Economic Cooperation Framework Agreement — is all about. We used to call it Comprehensive Economic Cooperation Agreement, which is CECA for short, but CECA doesn't sound very good. It sounds like "third rate" — A咖, C咖. There are some people who think that according to the local dialect it sounds like "washing the feet." So we decided to use ECFA, and in Taiwanese, it sounds like 會再發 [ed. note: "we'll get rich again"].
Well, in any case, the idea is intended to normalize our economic relations with the Chinese mainland. As you know, last year we had trade with the mainland in the volume of 130 billion US dollars. They're our number one trading partner, but at the moment we have nothing like either FTA or ECFA or anything which will regulate and keep order in the conduct of our trade, and this is very important to us. So, first of all, we want to normalize economic relations with the mainland.
Second, we want to avoid marginalization by the process of regional economic integration. So, if we are able to do that, we may be able to make arrangements with other trading nations of the world.
The third one is to accelerate our globalization. This is very important to us, but obviously some of our friends, particularly the opposition party, do have different ideas about it. We want to make sure that no politics is involved, no discussion about sovereignty or unification or independence. This is a purely economic endeavor, and we will keep that throughout the process.
So we will... the Ministry for Economic Affairs in the next couple of months will hold a series of hearings and symposiums, meeting with people who are worried about whether their products, if others have no tariffs, will be badly hit by mainland exports. We want to make sure, again, that we will not allow mainland workers to come to Taiwan to work at all. This agreement doesn't involve workers... movement of workers.
Secondly, we will not add new items of agricultural imports from the mainland. So... the agricultural products at the moment... already more than 1,000 items are allowed to enter into Taiwan markets. We will not add new items.
And for those companies which are in the industry which they fear might be affected by such an agreement, we are ready to talk with them. You see, what we mean by "framework agreement" is that we don't finish the negotiation in one shot. That is not possible because our case is quite complicated. If you look at the agreement between ASEAN and mainland China, theirs is also called "framework agreement." It was concluded in 2002 and will not take effect until 2010. So it was eight years.
So, rest assured, you don't have to worry about that. If we don't have consensus on certain items' tariffs, then we will talk other issues. We don't have to be forced into making unnecessary and unpleasant concessions.
Well, this is what we think, that we should really join the regional economic integration, and the first move we need to make is to conclude an ECFA with the Chinese mainland. We hope we could discuss that issue in an informal way in the upcoming "Chiang Chen talks", to be scheduled sometime in May or June. Hopefully we will at least get a feel of what they think. But so far their responses have been quite positive. They also want such an agreement.
On the other hand, we also have to develop our industry, and this time the idea is targeted against a situation after the financial tsunami, or economic downturn, so we're not only talking about short-term measures. We're talking about long-term needs of Taiwan, so we will focus our resources on six industries.
(3) Develop Six Key industries
a. First is Green Energy: The twin pillars will be solar energy and LED industries. This will be the start of tomorrow. The current value of production is about $4.7 billion US dollars. We expect that amount to go up to $14 billion by 2012 and over $29 billion by 2015, so green energy is the number one industry we want to promote.
b. Second is tourism: In 2008, despite the economic downturn, tourists or visitors coming to Taiwan actually went up about 3.47% to 3.5 million people. This is rather small compared to our population of 23 million. Each year the number of outbound tourists from Taiwan is more than 8 million, so in terms of population... outbound passengers... outbound tourists... account for more than one-third of the population, but inbound is quite small, so in terms of tourism, we are a big tourism country in terms of outbound tourists, but not inbound. This is something we have to change. We hope... This year the target is 4 million.
The last couple days you have seen mainland tourists coming in large numbers. Certainly that will be a very important source for the future growth of our tourism.
On the other hand, as far as tourists are concerned, the number one country is still the Japanese. They came here... last year... more than 1.2 million, and this is a record high. Certainly we want to keep that. And so, tourism is a very important aspect of the future industry we want to promote, not only by making changes in the "hardware" — in the installations or other things surrounding the tourism industry, but also the "software" as well.
c. And number three is cultural and creative industry: The government has made up its mind that this will be also a future star industry, a star of tomorrow. By deregulation, by enlarging the domestic market, we hope we could inject more resources into this industry in order to give them more opportunity to develop.
d. And number four is medical and health care industry: As you know, by 2026, the Taiwanese population... one-fifth, in other words, 20%, will be over 65 years old, so we have to prepare ourselves for that. So medical and health care industry is very important.
On the other hand, tourism and the health care industry could be combined, and work together. As you know, the cost of major medical operations in Taiwan is about one-third to one-fifth of those in the United States and Canada, and sometimes people in the US and Canada have to wait a year or more in order to get opportunity to have a major operation, so they come to Taiwan. We have the state-of-the-art quality of medicine, and at one-third or one-fifth of the cost.
e. And number five is sophisticated agriculture: In the past, some people had the incorrect thinking that agriculture is an industry of the past. No, not at all. It will be the industry of the future. Now, Taiwan is very strong in, for instance, orchids, and fish farming. All these could really not only create fortunes, but could really solve problems of unemployment.
So we will strengthen the international competitiveness of our agriculture... about […], tropical fruits, aquarium fish, and high-quality rice.
Look at Japan. Japan is a very industrialized country, but we still buy Japanese apples, and even other fruits, high-quality fruits. We can do that. I think we can do exactly that. I understand that in counties like Tainan, they export quite a few of their tropical fruits to mainland China, and hopefully will expand to other parts of Asia.
f. And number six is biotechnology: In this area, we have been working for quite a while. But now, we will inject more resources to make that a star of the future.
The second part of our long-term strategy is infrastructure upgrading.
B. Infrastructure Upgrading
So, we will inject this year almost 600 billion NT dollars in order to upgrade our infrastructure. We have good infrastructure, but it's getting old. It needs repair and replacement.
And, the last one...
C. Deregulation and Globalization
As I said to you, we have done a lot of deregulation in the last ten months, ever since we came to office. We will keep doing that, because this is very important to attract foreign business to Taiwan.
I remember talking to a famous food processor on my way from the southern tip of Taiwan to the northern tip on bicycle. That was two years ago. The company executive... CEO... that I talked to... it was 味全 [ed. note: Wei Chuan Corp.]... as you know, their subsidiary makes instant noodles for mainland China. At the time, he told me they sold 8.1 billion packs of noodles every year. Now it's over 10 billion, so for every mainland Chinese, they consume at least six packs. So this is really astonishing. So, very much impressed by this performance, I then asked him, I said, "Mr. CEO, I'm running for president. If I get elected, what do you think you would want me to do for you?" His answer is, "Please, just leave us alone."
Well, I got the message. Ever since we came to power, we've tried to do as much deregulation as possible. Actually, we do really deregulate the unnecessary regulations and relax controls, for those who have left Taiwan would come back. This is exactly what is happening.
Before we did that, more than 60 companies got... those companies who went to the mainland and made money over there... got their stocks listed on the Hong Kong Stock Exchange, but they didn't want to come back. Now, at least 20 of them have already signed a letter of intent to come back, and some of them have already got their stocks... in the form of other products... derivatives... in our market.
So I think this is very important... to learn the lesson. And this is something that we think we'll continue to do.
As you know, we were able to inaugurate cross-strait flights... daily flights... last December. We thought that we, in the last eight years, have not fully utilized the very strategic position... location... of Taiwan, being in the center of East Asia. Now we are gradually moving toward our goals.
I don't know whether you remember, exactly... almost exactly... three years ago, I was here telling you that we were going to have "twin golden flight circles" connecting Taipei, Tokyo, Seoul, and Shanghai in the north, and other Southeast Asian cities in the south. And I said we would connect Songshan Airport with Haneda Airport, and Kimpo Airport in Seoul, and Hongqiao Airport in Shanghai. I don't know your reaction at the time. You might have thought, "It's just a campaign slogan. It's wild, but it's not really realistic." But now, I want to announce that this very wild campaign promise will come true. Next year we're going to have direct flights between Songshan Airport and Haneda Airport. Four flights each side per day. And we are working on that with Hongqiao Airport, because these two airports — Haneda and Hongqiao — are building an extra runway for the airport. So once that... once they are completed, then we could inaugurate the service. So this will be a very important development between Taiwan and Japan, and Taiwan and China.
And all this more convenient transportation will help businesses to reduce their costs... You know what? For ships that go from Keelung to Shanghai, they have to stop over at 石垣島 [ed. note: Ishigaki Island] — it's in Okinawa — where they have to pay either a fee of 5,000 or 10,000 US dollars to get a chop to show that they have stopped over in a third place, to show that this is not direct navigation. Isn't that stupid? You know, if I'm the mayor of 石垣島 I'll be very happy to get that windfall. You know how much? At least 30 million US dollars per year. But it's simply a waste, not only for time, and for cost. So that is gone forever.
On the other hand, once you have more convenient transportation, you will give the business people new thinking about new business models, using the new framework to develop new business. So we think that it is very important, and we understand that. And we hope that all these companies will do that.
Also, one added advantage of that is, once we start this move, we've already greatly reduced the political risk of doing business in Taiwan. We used to be rated number 15 in terms of political risk. Now we have gone up to number 11. In other words, people understand that as tensions across the Taiwan Strait continue to ease, obviously the business people will get more sense of security.
So, as you can see, we have also worked on other things. We joined the Government Procurement Agreement in December last year. That was a very important move. There are only 20 or so countries that have become parties to that agreement, which, as you know, is a very important part of the World Trade Organization. Now that we're there, companies from Japan, the United States, and Europe have more reason to come here to get construction contracts. And we should also operate our public construction. So, in any case, these are very important ways to deregulate and become global.
Let me tell you, ladies and gentlemen, Taiwan still matters, and will continue to matter in the future, because we're very confident in our economy. I noticed that President Obama always says the same thing. He says, "We're very confident about the basics of the American economy." I remember I said that about half a year ago. I still hope that. I do.
We have a good sort of economic development. We have a large foreign exchange reserve and very little foreign debt. We have a high rate of savings, and we have a current account surplus. And we are working very hard to keep our banking system very stable, with high liquidity. And for the companies that have difficulty, the government is trying to help them through the banks and through other means. And we also promote opportunities to help those who are jobless.
We don't know how long this tsunami, or downturn, will last, but at least we have taken the right approaches to all these problems.
So, ladies and gentlemen, it's about time for you to think about Taiwan, if you haven't. But obviously, this is a place that holds a great future. We're located right in the center of East Asia, with the United States, the second largest economic entity of the world on our east... the FIRST, on our east... the second, that's Japan, on our north, the third, that is mainland China, on the west, and number five, the Southeast Asian countries of ASEAN. So we're located in the very right place.
And this is a good place. Not just the local market, but also a regional springboard. We want to make Taiwan the innovation center of the world, the springboard for Asian trade and investment, and then, the headquarters for Taiwanese corporations, and regional office for multinational corporations.
So the government will be ready to help our businesses to build whatever dream they have. But believe me, we work hard, and we will make Taiwan matter again. Thank you very much.