Mr. David Pilling, Asia Editor, Financial Times, Mr. Gideon Rachman, Chief Foreign Affairs Commentator, Financial Times, Mr. Peter Sands, Group CEO, Standard Chartered Bank,
Thomas Sargent, Professor of Economics and Business, New York University, and 2011 Nobel Laureate, Distinguished guests, Ladies and gentlemen:
Welcome and good morning!
It is really a great pleasure for me to be here today to attend the Taiwan Economic Summit hosted by the Financial Times and Standard Chartered Bank. I am also very glad to have the opportunity to be with so many talented and informed individuals to share my thoughts about the strategies for Taiwan's economic development in the future.
Ⅰ. Three Major Approaches to Strengthening Economic Growth Momentum
In the wake of the global financial crisis, a reordering has taken place in the world economy. The European and U.S. markets have entered into a period of adjustment, while the developing countries in Asia have seen rapid growth. At this key point in time, we in Taiwan must think "out of the box" on policy matters. We need to build on our core strengths and achieve a fundamental change in our strategies. We intend to take three major approaches—namely, first of all, "consolidating the core competencies of our industries;" secondly, "actively participating in regional economic integration;" and, thirdly, "improving our domestic business climate"—in an effort to strengthen Taiwan's economic growth momentum, and further enhance our country's international competitiveness.
Ⅱ. Consolidating the Core Competencies of our Industries
Following several decades of economic and industrial development, Taiwan has accumulated extensive experience and capability, and come to play an important role in global supply chains. However, Taiwan's industries are beginning to face a challenge for structural transformation and upgrading. For instance, the computer, communication and electronics industries, which have been key drivers of Taiwan's economic growth during the past decade, have seen huge numbers of firms in this sector move to mainland China. Meanwhile, mainland China's own industry value chains have been growing and maturing, giving rise to the development of consumption-driven domestic demand. Furthermore, following the global financial crisis, the countries of Europe and North America have embarked on a plan of "re-industrialization." All of these trends have influenced the role played by Taiwan in global supply chains.
Faced with such a changing world, the government of the Republic of China has pursued a policy of "industrial diversification and innovation" via a policy that we have termed "Three Sectors, Four Transformations (三業四化)." This policy calls for, first of all, “incorporation of a service element by firms in the manufacturing sector;” secondly, “incorporation of an international reach and advanced technology by firms in the service sector;” and thirdly, “achievement of greater distinctiveness by firms in traditional sectors.” All of this is part of a proactive effort to optimize and remake the nation's industrial structure, enhance the overall value-added content of our industrial output, and build up the nation's industrial capacity. We believe this strategy will effectively boost our national income and create more jobs.
In addition, in order to take advantage of the enormous vitality of Taiwan's small- and medium-sized businesses (SMEs), we have embarked on a "Champion Enterprises Project" to optimize our business climate and build up increased capacity for innovation. I am sure you are all familiar with the German economist's idea of "hidden champions." With these goals in mind, we are selecting small- and medium-sized businesses with strong potential and providing them with customized consultation and guidance in four key areas: technology, intellectual property, human resources, and branding. The idea is to help these enterprises make themselves indispensable within their respective fields, which in turn would further enhance the global competitiveness of Taiwan's small- and medium-sized businesses. In short, we want to make these companies Taiwan's future hidden champions.
Ⅲ. Actively Participating in Regional Economic Integration
The second strategy has to do with regional economic integration. As you know, regional economic integration in Asia is moving rapidly forward. For instance, the ASEAN-led Regional Comprehensive Economic Partnership (RCEP) negotiations are set to begin later this year. The parties to these talks ultimately seek to create the world's largest free trade area, with a population exceeding three billion and industrial output in excess of one-quarter of the world’s total. Meanwhile, mainland China, Japan, and Korea plan to formally begin negotiations this month or next on a Northeast Asia Free Trade Agreement. And, of course, the United States has been actively promoting the more exclusive Trans-Pacific Partnership agreement (TPP). Of course, Taiwan cannot stand apart from these important regional economic groupings, so we will continue to pursue a policy of "embracing and engaging with the rest of the world."
As you know, before I took office, we were in a state of isolation, without joining any of this regional economic integration. At the time, there were 58 FTAs that had emerged in the decade from 2000 to 2010, but Taiwan was out of this game. And another country which is like Taiwan is North Korea. So we really have to change that. And that is the reason why, in 2010, we concluded an Economic Cooperation Framework Agreement (ECFA) with mainland China, our largest trading partner. And a year later, we concluded an investment agreement with Japan to further liberalize bilateral investment. This was unique, because Japan has been investing in Taiwan for 60 years, but never before had it thought about having an investment agreement with Taiwan. This only came about after we concluded the ECFA with the Chinese mainland.
Now, we are in the final stages of negotiating economic cooperation agreements with Singapore and New Zealand. These two countries are TPP countries. So by concluding the economic cooperation agreements with these two members of the TPP, we actually are using this to create conditions for joining the TPP in the future. We understand only too well that we have to further liberalize our trade policy in order to make this possible. I have to admit that protectionist ideas are still in the minds of our businesses and some government officials. So we have to first try to make our country more free trade-oriented before we are able to join these regional economic groupings.
As for the United States, a few days ago, we just concluded the first round of talks with the Americans on our trade relations based on TIFA, the Trade and Investment Framework Agreement, which we had concluded with the United States back in 1994. But our trade negotiations were blocked by the beef issue for the last six years, but we were able to solve that last year. And now we are in the process of what we call "building blocks." In other words, we can't really conclude a free trade agreement with the United States at the moment, but we'll do it incrementally. So when we are able to build the first block, then it will be followed by many more blocks in the future. And, with regard to our ECFA with the mainland, actually, beginning two years ago, we already started the talks on the rest of the ECFA. The ECFA is a huge agreement. We concluded only 20% three years ago. In the next couple of months, we will be able to wrap up a follow-up agreement on trade in services. And before the end of the year, we hope to complete another follow-up agreement on trade in goods. That will be a very important step toward further enhancing our global competitiveness.
Ⅳ. Improving the Domestic Business Climate
Another strategy we will adopt is to improve our domestic business climate. As you know, Taiwan is short on natural resources, but we do have many natural disasters. So we cannot compete on cost with other developing countries. We have to really upgrade and transform our economic structure to make us more competitive. In the midst of economic globalization, boosting the quantity and quality of our non-tradable goods is a critical determinant of our national competitiveness. So, strengthening innovation and R&D capabilities, and further liberalizing our economy, have always been an important part of the picture in our efforts to build a high-quality business climate in Taiwan. As you know, our spending, by the private and government sectors, on R&D has already exceeded 3% of our GDP. But we have to do more.
Apart from continuing to monitor changes in the domestic and overseas environments, the government is also pursuing a course of deregulation, and taking steps to improve Taiwan’s business climate. The measures taken include: maintaining cordial relations with mainland China, signing the rest of ECFA, continuing to promote liberalization, and accelerating the adoption of international standards in trade and other matters. One way to do that is to establish "free economic demonstration zones." This will be done in places that have both an airport and seaport. These places will be made into new free trade zones. And that will enable us to compete with other countries in the region in terms of free trade.
As you know, we already reduced the business income tax from 25% to 17% four years ago. We have also reduced our inheritance and gift tax from 50% to 10%. Certainly, we want to do more, and we will allow foreign direct investment in Taiwan without the restrictions of prior approval. This approach will allow such investment plans to simply be filed with the authorities after the investment action, with prior approval needed only in exceptional cases. Also, we've reduced the negative list for investments by foreigners. In other words, we've extended the areas in which foreign investors can do business. These measures are all beneficial to Taiwan and our foreign partners, and will encourage them to do more. So deregulation is the name of the game.
That reminds me of an interesting episode six years ago when I was campaigning for my first-term presidency. I rode my bike from the southern tip of Taiwan to the northern tip. Before I reached Taipei, we stayed overnight at a ranch in Taoyuan and had dinner with the general manager of the company that is the biggest seller of fast food noodles – 方便麵 – in mainland China. He told me they sold eight billion packs of fast food noodles in mainland China. Actually, last year it was over 20 billion. I asked him what he would expect me to do if I was to be elected the president. He smiled and said, "just leave us alone." That's what we are trying to do, although not as fast as they expect.
Ⅴ. Conclusion
But trade liberalization is something both the government and private sectors will work hard to do. And Taiwan does have its competitive advantages in the world. Look at some of the international assessments by, for instance, the "Business Risk Service" report for 2012. Business Environment Risk Intelligence gave Taiwan the fourth highest Profit Opportunity Recommendation in the world. Taiwan also ranked 16th in the World Bank's Doing Business 2013 (an increase of nine places over the previous year). Taiwan is also ranked seventh in the World Competitiveness Yearbook published by the Institute for Management Development based in Lausanne, Switzerland, and 13th out of 140 countries in the World Economic Forum's Global Competitiveness Report, and 16th in Forbes magazine's list of the best countries for doing business – ahead of Japan and Korea. So, it is our firm belief that although we encountered great difficulties last year, the economy began getting its momentum again in the fourth quarter last year.
We understand the recovery could be very slow, but it is steady. So we hope we could take the advantage to let the people in the audience understand that the government will work together with our business community to greatly enhance our economic momentum, and hopefully this year we could reach the target set by Mr. Kuan Chung-ming (管中閔), the minister of our Council for Economic Planning and Development. There are going to be a lot of challenges. But we have no choice. We have to charge ahead.
I hope you will have a very pleasant stay in Taiwan and enjoy your participation in this great conference. If you still have some free time left, please try to take this opportunity to enjoy the very rich cultural life of this country. Go to see the National Palace Museum which houses the masterpieces of the last 30 centuries. And if you still have some time left, go to the night markets, and have a taste of many, maybe not three thousand, but at least three hundred different types of snacks. Enjoy the rest of your stay. Thank you very much.