Mr. Chairman, Mr. Executive Director, Members of the American Chamber of Commerce, Ladies and Gentlemen:
Thank you for your invitation to this monthly luncheon. First, let me take this opportunity to express my heartfelt joy at the dual blessings of Taiwan. One blessing is that Taiwan’s membership in the WTO was finally approved on November 11. And, another blessing is that President Chen was awarded the 2001 Freedom Award today. These have greatly illustrated Taiwan’s economic and political commitment to join the liberal mainstream of the world.
The American Chamber of Commerce has been a source of inspiration for my government and has always given us very good advice. While compliments and flattery may please one’s ears, they are poisonous to mind and soul. I, therefore, cherish your kind suggestions and advice in the 2001 Taiwan White Paper, which is considered to be one of the most precious presents for the government and the people of Taiwan.
For decades, Taiwan and the U.S.A. have been very close allies and trade partners. The U.S.A. is Taiwan’s largest trading partner, and Taiwan ranks as America’s 8th largest trading partner. One fifth of Taiwan’s trade is with the U.S. As Taiwan’s WTO membership was just approved on November 11th, I would like to take this opportunity to very much appreciate United State’s strong support for our efforts to join the WTO over the past 12 years.
In the socio-political context, Taiwan is now facing many problems, particularly the gradual eruption of the old malpractices of corruption through collusion between government officials and business community. In addition, NASDAQ’s steep fall and a likely recession in the U.S. as well as the globe will further undermine Taiwan’s economic development and business confidence. The unemployment rate already peaked 5.2%. In addition to having to tackle the KMT-controlled Legislative Yuan, the government has to do everything possible to persuade the Beijing authorities to maintain peace and stability in the Taiwan Strait.
Half a century ago, the GNP per capita for Taiwan was only $150 US dollars. Now it is astoundingly fifteen thousand or so. The profound progress of Taiwan’s economy could be attributed chiefly to the following factors:
1. Highly Flexible Small-and Medium-Enterprises (SMEs).
SMEs have always been the backbone of Taiwan’s economy because of their flexible management and entrepreneurial spirit. By taking advantage of flexibility and mobility, Taiwan’s SMEs respond and adapt to outside changes quickly, making it relatively unaffected in the 1997-98 Asian financial crisis.
2. A Strong Production Base.
A good division-of-labor system, comprehensive product supply chains and close geographical proximity among businesses within specific industries, contributed to a strong production base in Taiwan, such as our electronics industry. These factors explain why Taiwan has become an important original equipment manufacturer base for the global electronics industry both in IC design and IC OEM. IC OEM is currently ranked as the first in the world, and IC design as No. 2, second only to the U.S.
3. Constant Trend Toward more Technology-Based and Knowledge-Based Industries.
The percentage of manufacturing industries in Taiwan that are technology-intensive has increased dramatically from 31.97% in 1991 to 45.38% in 2000. The percentage of exports that are high-tech intensive products has also increased during the same period in Taiwan, form 27.2% to 42.5%. Such trend will pave a good way for the future development of knowledge-based industries.
3. Advantageous Geographical Location.
Situated in the center of the Asia-Pacific region, Taiwan has the shortest average sailing time, 53 hours, to the five major regional harbors, compared with 64 hours for Hong Kong and 78 hours for Shanghai . Taiwan also has the shortest flying time, 2 hours and fifty-five minutes, to the seven main cities of the Western Pacific, compared with 3 hours and 5 minutes for Hong Kong, and 3 hours and 25 minutes for Shanghai).
4. Last but the least, high quality human resources and substantial capital and securities markets are also combined to add Taiwan’s economic strengths. College Graduates or higher degrees makes up more than one quarter of the work force in Taiwan. Besides, substantial capital markets and the securities market are also the world’s third largest in terms of transaction volume.
Despite our advantages, Taiwan has been recently facing following problems:
1. Traditional industries are facing major difficulties, especially in obtaining loans, upgrading technology, and raising competitiveness.
2. Fiscal problems are mounting, with tax revenues contracting while public bonds and loans are increasing.
3. The banking sector shows operational deficiencies, with non-performing loans near NT$900 billion, and problems most severe among community financial institutions.
4. The labor market is exhibiting excessive rigidity, with rising unemployment among low-skilled workers.
5. High prices of suitable land and stringent land-use restrictions constitute a barrier to land acquisition and new investment projects.
I would like to engage in a soul-searching exercise here about our economic situation. First, why so many Taiwanese businessmen made so much investment in Chinese Mainland? It can be argued that capital outflow from Taiwan to China is quite normal in a free economy as a result of economic globalization ; but years ago, Taiwan was the major recipient of overseas investment, things changed, why? The fact that there is no significant cultural and language barriers between two sides of the Taiwan Strait is a crucial reason. Another reason is Beijing’s systematic political strategy to “lure” Taiwanese businessmen who have harbored big illusions about Chinese market. The most worrying part of this phenomenon is that Taiwan’s investment in China exceeds 2.45% of Taiwan’s GDP, 50 times that of Japan and 80 times that of USA. Something must be very wrong. Generally speaking, the impacts of this economic dependency on China have become a major concern of Taiwan.
Second, regarding such a high amount of bad (non-performing) loans in Taiwan, I am glad to say that the Finance Ministry has taken decisive measures to take over quite a few unhealthy and inefficient banking institutions. The choice was between doing nothing and let those nearly-bankrupt banks go under and taking over the problem-ridden banks to stop further worsening of the banks concerned. It would be wrong, however, for banks in Taiwan to assume that the government will come to the rescue as a matter of legal obligation.
Third, high unemployment rate (5.2%) among the middle-aged group who are least likely to succeed in finding new jobs is also a tough problem. As from several years ago, many factories in Taiwan were closed down and transferred to China. Out of the original workforce in Taiwan, perhaps only top 5% might be recruited to work in China, leaving the rest relatively unskilled workforce unemployed. The core of the problem is this: why Taiwanese entrepreneurs have to shift to China to survive? If the production cost is so high that we price ourselves out of the market, why can we not cut down the cost? I would appreciate very much if you could share with me your wisdom.
The most vital factor in the maintenance of a high rate of economic growth is the constant upgrading of productivity. According to a study of February 2000 by the Mitsubishi Research Institute commissioned by the Council for Economic Planning and Development (CEPD), among the growth rates of total factor productivity in various Asian countries for the period of 1960 to 1990, Taiwan’s annual industrial productivity increase of 3.76% was top in the region.
In terms of the competitive advantage of industries, however, Japan, Europe and America still held a leading position in the field of high-value-added products. In the field of intermediate products, Taiwan’s structural advantage was similar to that of Korea; and, in the area of low-value-added products, Taiwan had already begun to face the pressure of competitive heat from China and other Asian countries. There is an urgent need, therefore, for Taiwan to bring together all of the essential conditions needed to get an even greater competitive advantage.
In order to overcome the bottleneck in the process of Taiwan’s economic development, our government decided to launch a plan for developing Taiwan into the Asia-Pacific Regional Operations Center from early 1995. During the 6 years until December 2000, the emphasis was on the legislative aspects and the accelerated improvement of Taiwan’s economic infrastructure. The Operations Center also involved macroeconomic adjustment, and the establishment of six specialized operations divisions (That is, manufacturing, sea transport hub, air transport hub, finance, telecommunications and media.)
The Regional Operations Center plan also attempts to develop Taiwan into a global logistics center, a place where the economic and trade activities of all countries throughout the world, such as the supply, ordering, shipment and the sale of products, can be completed conveniently and expeditiously. The concept of global logistics center is proved to be an crucial step toward the goal of the Regional Operations Center.
Now I turn to the business opportunities created by Taiwan’s accession to WTO. Through our commitments to the WTO, there will be substantial tariff reductions on both industrial goods and agricultural produce, reduction of subsidies to domestic agricultural sectors, phasing out of WTO-inconsistent subsidies, the elimination of local requirements for cars and motorcycles, and the dismantling of the monopoly regime of alcohol and tobacco products.
Besides, liberalizing our services markets implies the opening up of financial, telecom, transport and professional services (e.g. legal services). Our commitment also means greater transparency in our government procurement process as required by Government Procurement Agreement of WTO.
Put in numerical terms, the opportunities will generate US$ 1.04 billion in imports, allow more import of agricultural produce from US, more supply of auto parts and motorcycles from US, more access of US providers to service industries in Taiwan and access of US business to an annual government procurement of between US$ 600 to 800 million. Our commitments to the WTO also imply challenges requiring efforts to enhance competitive edge and improve productivity so that potential maladjustment could be transformed to golden opportunities. Your timely encouragement and accommodation would be highly appreciated.
You might be very much disappointed if you hear noting about my political perception and stance today. Let me talk a little bit about things that you might be concerned most.
Some of you might have questioned whether the government of Taiwan has the good will as well as ability to foster a stable political environment. Many of you may be worried that Taiwan has been closed off in diplomatic isolation, something like that of China before 1972. Many are even more concerned about the volatility of cross-strait relations, particularly at a time when China is becoming a regional economic power and military hegemon.
You may have heard of my philosophy for “Soft Power,” meaning democracy, human rights, peace, love, and high-tech. The very “Soft Power” is in sharp contrast with “Hard Power” that is exhibited by military might and terrorist warfare. Taiwan will continue to advance in this direction of “Soft Power,” hoping that democracies all over the world will be mutually embracing and assisting in an increasingly civilized international arena.
And speaking of cross-strait relations, Beijing’s “one country, two systems” formula is purely the PRC’s political rhetoric. Their “one China” principle tactically includes a hidden spell that “there is only one China in the world,” that “Taiwan is a part of China,” and that “the PRC is the sole legitimate representative of China.” It completely ignores the historical truth and the reality of Taiwan’s full-fledged democracy.
Here, let me reinstate a more accommodating proposal of “one Chung-Hua,” literally “one Chinese.” Barely a month ago, China prevented the participation of Taiwan in the APEC summit taking place at Shanghai. China even violated the precedents and founding principles of APEC by not sending a formal invitation to the government of Taiwan. By excluding Taiwan, China has aroused the indignation of the whole Taiwanese people, who were made to feel more “foreign” than other attending members of the APEC by China’s impolite and imprudent diplomatic behavior.
Before China’s conscience and good will are addressed, the relationships between Taiwan and China should be metaphorically compared to that of “Cat and Lion” theory. The lion needs to be tamed and the cat to be taken care of. In other words, they should not be put in the same cage before the lion is tamed.
The “one Chinese” formulation I mentioned earlier is designed to avert the contentious sovereignty issue between Taiwan and China. I think Beijing should give this peace proposal serious consideration. Blocking Taiwan’s participation in international organizations and posing a military threat to democratic Taiwan simply engender antipathy that could, under the wrong circumstances, spin out of control and result in human destruction.
I thank you again for your kind invitation and for the ideas-sharing occasion. I wish the American Chamber of Commerce well and all its members in good health.
Thank you!