Working in Unity to Bolster the Economy
Vice President Wu, Presidents of the Five Yuan, Presidential Advisors, Senior Officials, Honored Guests, Fellow Countrymen, and Overseas Compatriots: Happy New Year to you all!
I. Challenges and achievements of the past year
On this, the first day of the 103rd year of the Republic of China and the start of a new year, I wish our country good fortune, and our people, peace and happiness.
For the past five years, I've used my New Year's Day Address primarily to review the government's positive achievements during the preceding year. But it's going to be a bit different this time. This year I'll just be focusing on one key topic—what the people of this nation have done and will be doing to strengthen Taiwan's economy!
Looking back over the past year, we faced many challenges. We had some triumphs, and some setbacks. Overall, it was a rather difficult year. However, Taiwan did keep inflation and unemployment under better control than other developed countries, and the World Economic Forum last September ranked us 12th out of 148 economies in global competitiveness, up one place from the year before. Yet economic growth and real salary levels did not meet expectations. This is our most serious current challenge, and our most pressing task.
I'm keenly aware that everyone is concerned about the economy, and that the state of the economy is the key to the well-being of the people. At the start of this new year, I promise all my fellow countrymen that this administration's top priority is to do all that can be done to achieve economic growth. Our most important task, beyond carrying out bold adjustments and reforms, is to lead our vibrant private sector in an all-out campaign for economic growth, so that we can make this the year of Taiwan's economic breakthrough!
In the eight years before this administration took over in 2008, Taiwan ranked last among the four Asian tigers in terms of economic growth. However, during my first five years in office (2008–2012), annual economic growth averaged 3.07%, higher than the 1.9% growth of the global economy during the same period, and second only to Singapore among the four Asian tigers. We have thus made progress, but there is still room for improvement. We have fallen far behind many of our trade competitors in the pace of our industrial transformation and restructuring, and in the speed with which we have joined in regional economic integration.
We cannot wait any longer. We cannot hesitate any more. We must take decisive action and overcome all difficulties to change our situation. With countries everywhere now striving mightily to bolster their economies, only by seizing the present can we secure our future.
II. Working for a palpable economic recovery
The challenges that we encountered this year did not exclusively originate in Taiwan; they were also global in nature. However, as Winston Churchill once said, "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." With the global economy in recession and difficulties facing us at every turn, the future may appear gloomy, but if we really think about it, we will see that change itself engenders new opportunities and hope.
My fellow countrymen, in response to the global trend toward liberalization, we must act quickly to adjust Taiwan's industrial structure and amend outdated laws and regulations. Last August, we launched eight free economic pilot zones, including six seaports, one airport, and the Pingtung Agricultural Biotechnology Park. These pilot zones focus on development in five key areas: smart logistics; the international health industry; value-added agriculture; financial services; and educational innovation. The core idea is to promote Taiwan's further liberalization and internationalization. The total value of goods and services produced in the pilot zones is expected to quickly grow to more than NT$1 trillion in 2015. In promoting these pilot zones, the administration will select forward-looking economic activities with development potential that can also create manifold benefits. First, we will be trying out various institutional innovations in advance to eliminate obstacles to the cross-border movement of goods, capital, and people. For example, the output value of Taiwan's international health industry, which stood at NT$1.9 billion in 2008 when I took office, is expected to reach NT$13 billion this year, up by a factor of 6.8 during my presidency. The international health sector thus promises to play a key role as a model industry that enables our free economic pilot zones to spur diversified and forward-looking development in Taiwan. We hope that the success of these pilot zones will foster sufficient confidence so that this concept can gradually be expanded to all of our cities and counties, turning all of Taiwan into a free economic island.
Naturally, the work of reviewing laws and regulations goes on all the time. As of last September, in the five and a half years since I took office, this administration had amended 876 laws and regulations to ease restrictions. We hope to establish a regulatory environment in Taiwan that meets international standards. Of course, 876 is only a number. What matters is whether this easing will make foreign governments, as well as companies here and overseas, realize that we have made serious efforts to open up our markets and deregulate. Therefore, our efforts will continue until we have attained our goals.
Also, to further stimulate the domestic economy during this new year, we must adopt other aggressive measures so that the government can spur increased private-sector investment.
First, in the area of public investment, among the free economic pilot zones we are going to center our efforts on the Taoyuan International Airport Free Trade Zone. The convenience and international connectivity of the airport's passenger and cargo transport and logistics services will attract the cluster development of industries in the vicinity of the airport. Central and local government investment in the area is expected to amount to NT$575 billion, which could generate NT$2.3 trillion in economic activity, NT$84 billion in tax revenues, and 260,000 employment opportunities. In Kaohsiung, we have completed phase I expansion of the Intercontinental Container Terminal. We are building the Kaohsiung Maritime Cultural & Pop Music Center and the Kaohsiung Port and Cruise Service Center, and have recently completed construction of the Kaohsiung Exhibition Center. These facilities are going to make Kaohsiung a shining star of world-class transport, tourism, and culture. In addition, this administration is further building out the mass rapid transit network to reduce driving times, increase productivity, improve air quality, and encourage people to relocate to suburban areas.
Second, with respect to business startup activity, we will spur private investment by tapping into our financial markets and government-run funds. For example, we have launched a Program for Financial Support of Innovative Industries that utilizes the abundant resources of the capital markets to support development of creative industries and boost economic growth. It is estimated that outstanding loans by domestic banks to innovative enterprises, which currently stand at NT$180 billion, will increase to NT$360 billion within three years. As for government-run funds, we will implement the National Development Fund Startup Angel Program to help young entrepreneurs realize their dreams. The program, which is projected to help 350 new enterprises get off the ground within five years and cultivate at least 1,000 eager entrepreneurs, is expected to generate many employment and business opportunities.
Third, we will be taking aggressive measures to put land to better use and carry out urban renewal. We will draw up a list of idle land and dilapidated old buildings, and will make unused military land available for development. We will also step up implementation of public-sector urban renewal programs, and actively provide guidance to encourage private-sector urban renewal undertakings and spur private investment. We have also begun promoting construction of affordable housing, including a total of 10,579 government-sponsored build-for-sale units in the Fuzhou area of New Taipei City's Banqiao District and the vicinity of A7 Station on the Taoyuan International Airport MRT line. But this is not enough—we intend to carry out more projects like these in order to spur greater investment and ameliorate housing problems for young people in areas where housing prices are high.
By adopting these three sets of financial and economic policies and establishing the free economic pilot zones, the administration has touched off a spark that, when supported by the private sector, can be fanned into flames of economic recovery that will burn ever more brightly.
III. Further opening Taiwan's markets; actively engaging in regional economic integration
Taiwan is an island with few natural resources, a relatively small economy, and limited domestic demand. Our economic growth primarily depends on external trade, investment, and consumption. In 2003, during my tenure as mayor of Taipei City, I was invited to take part in the East Asia Economic Summit held by the World Economic Forum in Singapore. At the time, ASEAN was pursuing a "10 plus 3" trade agreement between the ten ASEAN countries and mainland China, Japan, and the Republic of Korea (ROK). Although it had been only a year or so since our accession to the WTO, I already sensed that Taiwan's economy was in danger of becoming marginalized. Therefore, the title of my speech at the summit was "Why not 10 plus 4?" My point was that Taiwan should also be allowed to join the trade agreement with ASEAN.
Since Taiwan had signed very few free trade agreements (FTAs), we lagged far behind our competitors in terms of market share in our major export markets. For example, after the FTA between the ROK and ASEAN came into effect in 2007, the ROK's ASEAN market share overtook Taiwan's, and since the FTA between the ROK and the United States took effect in 2012, Taiwan has fallen even further behind the ROK in terms of US market share.
To deal with the danger of Taiwan's marginalization, right after I took office as president five and a half years ago I immediately adopted a policy of deregulation and market opening and sought to identify major trading partners with which we could sign FTAs to strengthen our economic links with the international community and make our economy more robust.
The principal driving force behind global trade liberalization has shifted from the WTO to regional and bilateral FTAs, through which various countries are building economic alliances. At present, at least 384 free trade agreements have entered into force around the world. Such agreements enable the signatory countries to reduce or waive tariffs and simplify customs clearance, which facilitates the expansion and redirection of trade and investment. Before I took office, we had signed four FTAs with five of our diplomatic allies in Central America. The FTAs did a lot to improve our bilateral relations with each of these allies. However, trade with those countries accounted for less than 0.2% of our total trade, so we needed to sign other FTAs with major trading partners before there could be more substantive benefit for our economy.
The free trade agreements reached before I came to office had only brought Taiwan US$0.14 in tariff exemptions and reductions per US$100 in trade, but for the first nine months of last year this figure was up to US$9.65 thanks to the impact of our ANZTEC agreement with New Zealand and our ASTEP agreement with Singapore. However, even though this marks 69-fold growth, we still are way behind our trade competitors. The figure for the ROK, for example, stands at US$36.1, and for Singapore is US$70.7. How can we not be in a hurry to catch up?
The marginalization of the ROC in regional economic integration also limits the export of our products. Between 2000 and 2008, the market share of Taiwanese products dropped by nearly one half in one major market after another—in the US, from 3.3% to 1.7%; in Japan, from 4.7% to 2.9%; and in the EU, from 2.8% to 1.5%. These figures indicate that our economic and trade policies of the time had already led to the gradual marginalization of our country in international markets. However, since 2008, this administration has modified the government's approach and has worked hard to open our markets and boost our international competitiveness. After five years of concerted effort, as of the end of last year, our market share in the US and the EU had only dropped slightly from 2008, while in Japan and the ASEAN countries it had actually risen. This is ample proof that courageously facing external challenges is the optimal strategy for maintaining Taiwan's economic vitality. Of course, we must continue our efforts not only to consolidate our exports to such major markets as the US, Japan, and the EU, but also to actively develop other emerging markets, including those of the ASEAN nations.
A prominent Taiwan business leader once stated that the vast majority of his company's products were intended for export, and therefore asked: If manufacturers in other countries can enjoy zero tariff treatment when exporting their products while tariffs of 5% to 10% are levied on us, how can we compete?
From the start of my presidency, I was keenly aware that if we wanted to take Taiwan's economy to the next level, we would have to break through the stalemate in cross-strait relations. If Taiwan was to expand further into the mainland Chinese market and more readily take part in regional economic integration, there was only one way to do it—we were going to have to end the cross-strait standoff, boost cross-strait economic and trade cooperation, and respond in a timely manner to the economic transformation of mainland China by adjusting our industrial structure and pursuing cross-strait industrial cooperation.
Therefore, five and a half years ago this administration made the 1992 Consensus—whereby each side acknowledges the existence of "one China" but maintains its own interpretation of what that means—the foundation on which to rebuild the cross-strait relationship. In addition, we identified viable diplomacy as the means to avoid zero-sum diplomatic competition between the two sides. As a result, the Taiwan Strait is no longer a tense flashpoint, but rather, has become an avenue of peace, and a gateway through which other countries can enter the mainland Chinese market.
The government has maintained a balanced strategy in promoting the development of external trade and investment relations. On the one hand, it has endeavored to improve the cross-strait relationship and increase bilateral trade and investment. At the same time, it is expanding international relations and participating in regional economic integration. These two approaches are complementary, and a proper balance must be struck between them. In 2010, we signed the Cross-Straits Economic Cooperation Framework Agreement (ECFA) with mainland China, our largest trading partner. In 2011, we concluded our first bilateral investment agreement in 60 years with Japan, our second largest trading partner. In March of 2013, we resumed talks under the Trade and Investment Framework Agreement (TIFA) with the United States, our third largest trading partner. In July 2013, we inked an economic cooperation agreement with New Zealand, our 40th largest trading partner. And in November 2013, we signed an economic partnership agreement with Singapore, our fifth largest trading partner. We will continue working to conclude economic cooperation agreements with members of the ASEAN and the EU, and will also be seeking membership in the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP).
My fellow countrymen, our trade with the 12 members of the TPP in 2012 accounted for a 35% share of Taiwan's total external trade, while trade with the 16 members of the RCEP accounted for a 56% share. These figures show how important it is, and how urgently necessary, that we join these two economic partnerships.
In order to maintain Taiwan's economic growth, expand trade and investment, increase job opportunities, and spur salary growth, we must take part in regional economic integration. But there are tradeoffs involved. We have to abide by the principles of equality and reciprocity. If we expect other countries to deregulate and open their markets to trade and investment from Taiwan, we ourselves have to do the same.
We now see advanced countries responding to the pressure of competition by striving to carry out economic reform. They are developing industries in which they are comparatively strong, helping vulnerable industries restructure, and pursuing multilateral and bilateral economic integration. The most recent example is the ROK's conclusion of FTA talks with Australia on December 4 last year. Tariffs will be immediately lifted on most goods produced by the ROK's relatively strong industries, such as automobiles, household electrical appliances, electrical equipment, and machinery. This is going to make ROK products a lot more competitive in Australia. ROK President Park Geun-hye on December 5 of last year declared that her country will actively seek to join the TPP, and Canada, Australia and New Zealand have said they would welcome the ROK's membership. Even a developing country like Vietnam has begun taking steps in this direction. It joined the TPP talks in March 2010, is now a member of the RCEP, and is actively holding FTA negotiations with the ROK, EU, and Russia.
Therefore, when confronting challenges, the true key to success is our own resolve. From a historical perspective, Taiwan's economy has weathered numerous crises over the past several decades. We have always bravely faced the pressure brought on by transformation. In the process, the people of Taiwan have demonstrated their character: unswerving perseverance, optimism, resourcefulness, and courage. Today, amidst increasingly fierce global economic competition, we must strive all the harder and summon up even greater courage.
If we cannot keep up with the times and boost our competitiveness, there will be no sequels to Taiwan's story of success. In a changing global economy, Taiwan must stride confidently forward. That is the only way we can catch up with the rest of the world. It is also the only way we can create chances for ourselves to prosper.
As for opening up our markets, we have to be prudent and prepared, but not overly concerned. And more importantly, we must have confidence. Market liberalization in Taiwan dates back decades; it is not just getting started today. In the 1980s, we started to allow US service firms to enter the Taiwanese market. Back then, many people were worried about what would happen if Taiwan's economy could not withstand the impact. But in January 1984, when McDonald's came to Taiwan, traditional breakfast outlets in Taiwan continued to sell Chinese-style unleavened sesame cakes and deep-fried dough sticks. In July of the same year, Kentucky Fried Chicken also came in and, contrary to expectations, stimulated the popularity of Taiwanese-style fried chicken fillets. More recently, Starbucks has started doing business in Taiwan as well, but our local firms quickly learned from its business model and established coffee shop franchises such as 85ºC. They created added value in the process, and eventually began to market themselves worldwide.
When the ROC acceded to the World Trade Organization in 2002, many people were concerned that Taiwan's agricultural sector could not withstand the impact. However, since then Taiwan's total agricultural output value, agricultural exports, and farming incomes have all increased. From this one can see that Taiwan's industries are not fragile at all. We must have confidence in ourselves. Instead of being afraid of competition, we should welcome it, because only through competition is there progress.
IV. Cooperation and concerted efforts between ruling and opposition parties; a brighter future for Taiwan
My fellow countrymen, in a changing international economic environment, competition between countries is extremely fierce. However, as long as we head clearly in the direction of liberalization, Taiwan's economy will certainly excel once more.
Currently, our most important task is to speed up the pace of trade liberalization and market opening. The Cross-Strait Trade in Services Agreement was signed last June, and then sent to the Legislative Yuan for deliberations in September. Since then, more than three months have elapsed and the Legislative Yuan is still conducting public hearings. We hope that legislative deliberations will begin soon, so that the statutorily required procedures can be completed at an early date. For Taiwan's trading partners, the delayed ratification of the Cross-Strait Trade in Services Agreement has triggered doubts on the part of governments and corporations. They have begun to think that domestic opinion in Taiwan is divided and that consensus cannot be reached very easily. This severely affects their willingness to sign FTAs with us and expand their investments in Taiwan.
And that is not all. The ROK and Japan are currently negotiating an FTA with mainland China. Some of the preferential treatment the two countries are seeking is exactly what is included in the Cross-Strait Trade in Services Agreement. If the ROK and Japan reach a deal with the mainland while we remain stalled, we will effectively be handing the mainland market to our competitors. Therefore, I once again solemnly call on both the ruling and opposition parties to work together as expeditiously as possible to pass bills that are conducive to Taiwan's economic development.
My fellow countrymen, to show our determination to participate in regional economic integration, I have instructed the Executive Yuan to expand the existing International Economic and Trade Strategy Task Force, and to act as quickly as possible to propose specific action plans for accelerating promotion of the Cross-Strait Trade in Services Agreement and a trade in goods agreement, and for joining the TPP and RCEP. I will personally preside over the first meeting of the task force on January 3, and in the future will regularly receive briefings from it. I will also ask former Vice President Vincent Siew, who just last November led a group of senior Taiwanese business leaders on a visit to the US, to set up a promotion committee composed of members from the private sector, including figures from the opposition parties and representatives of the business community. This committee will solicit a full range of public opinion in order to build consensus and propose concrete strategies by which Taiwan can get a foot in the door in the process of regional economic integration. The completion of ECFA follow-up talks and agreements as well as Taiwan's membership in the TPP and RCEP are our unswerving goals. This administration will adopt a dual-track approach and seek public unity to move forward at full speed. The Executive Yuan will also make good use of an already earmarked 10-year budget of NT$98.2 billion in an all-out effort to implement the Program to Assist with Industrial Adjustment to Trade Liberalization. This undertaking will provide assistance to companies that are in need of guidance and financial support.
Taiwan is now at a critical juncture. This government will apply itself even more diligently and make an even greater effort, and will conscientiously heed criticism and feedback from citizens. We also hope that the various sectors of our society will come up with constructive ideas and pool their strengths to jointly grow our economy. The ruling and opposition parties should set aside their biases and work together to promote economic and trade liberalization and boost Taiwan's competitiveness.
In the new year, Taiwan has to move forward. It has to keep going. And it has to come together as one to take big strides on the world stage. We believe that through the joint effort of the government and the people, our economy this year will surely be better than last year!
Finally, I wish all of my countrymen the best of health and happiness and a happy new year. May the Republic of China enjoy ever-lasting prosperity!
Thank you.