Taiwan’s general election was held on January 16th, 2015. The chairman of the Democratic Progressive Party (DPP), Tsai Ing-wen, was elected as president with a significant margin, and the DPP won majority seats in the Legislative Yuan after the opposition party Kuomintang (KMT) was in power for the last eight years. DPP’s complete control over the administration and legislature may allow for more effective policy implementation. However, to maintain the competitiveness and to lead the industrial transformation of Taiwan, the new government needs to set out plans as soon as it can.
I.Trades
i.Trade relationship with China
As a small open economy, trade and relationships with other countries play an important role in the economic development of Taiwan. In 2014, export and import accounted for 70% and 60% of the GDP respectively. 40% of the exports from Taiwan went to China (including Hong Kong and Macau), 30% went to other Asian countries, 11% to the US, and 9% to the European countries. The manufacturing industries accounted for 34% of the GDP, while the service industries accounted for 63% of the GDP. Although the global economy experienced significant fluctuations in recent years, Taiwan has maintained a steady growth. The average growth rate was 3% per annum between 2011 and 2014.
Due to strong trade ties with China and the special political situation between Taiwan and China, the cross-Strait relation plays an important role in the economic development of Taiwan, but it remains controversial. In the past eight years, under the policy led by Ma Ying-Jeou of the KMT which aims to maintain a stable relationship with China to reinforce the cross-Strait cooperation in various ways by setting aside political disputes, Taiwan and China had signed 23 cross-Strait agreements involving various aspects such as trade, financial cooperation, investment protection, and tourism by the end of 2015.
The tightened relationship between Taiwan and China, however, poses several issues. First, due to worries on the rising income inequality and social tensions in China after its rapid economic growth, fundamental reforms aiming at sustainable development have been a priority for the Chinese government. Yet China’s economic transformation is crucial, it is expected that the pattern of high growth will reverse, heading towards a low and stable growth, in accordance with the “New Normal” situation stated by the Chinese President Xi Jing-Ping. The decline in China’s economic performance during the process of transformation will affect the trades of Taiwan.
In particular, there are rising political concerns that the closer relationship may move towards unification across the Straits. Such political concerns can be witnessed from public demonstrations like the Sunflower Movement by students and civil groups in March 2014, which opposed the Cross-Strait Service Trade Agreement (CSSTA). This movement had suspended the approval of the Legislative Yuan on the CSSTA, and delayed the negotiation of other cross-Strait agreements. While the previous agreements were signed under the 1992 consensus that both the KMT and the Chinese government agree, though with different descriptions, the DPP has denied its existence. Thus, seeking a new common ground for building mutual trust between Taiwan and China in order to maintain stable cross-Strait relations for continued conversation and cooperation will be important for the economic development of Taiwan and should be a priority task of the DPP government.
ii.Trade with other countries
Following the global trend of signing bilateral and multilateral free trade agreements and in order to diversity its trades into various markets, Taiwan has continuously conveyed its interest in participating in trade negotiations. For example, the DPP has proclaimed a strong willingness to participate in the Trans-Pacific Partnership (TPP). In 2014, Taiwan’s trades with the twelve countries in the TPP accounted for 35% of the overall trades of Taiwan. However, this movement will face two major challenges. One is the domestic opposition to the importation of American pork with ractopamin, which is currently not allowed in Taiwan. Another key issue is the possibility of China’ interference with Taiwan’s participation if there is no mutual trust across the Straits.
II. Domestic economic issues
Under the increasing international competitions, particularly from South Korea and China in recent years, crucial internal transformations and policy reforms should be undertaken to maintain Taiwan’s competitiveness. The most important task should be the industrial transformations. While the Taiwanese enterprises are known for their superior skills in making components for the complete production chain in past decades, the Taiwanese industries should move towards technological upgrades with a greater focus on research and development and product branding in the upcoming era. This industrial transformation requires the reallocation of resources and the support of comprehensive industry-oriented policies where government can play an important role. In addition, the government should implement practical measures to assist the new investment projects in resolving non-economic issues such as land acquisition, and removing unnecessary laws and regulations which are considered as the main obstacles for new investment projects.
Moreover, maintaining a sufficient source of energy can be challenging in the near future. In 2014, nuclear power accounts for 18.61% of the overall electricity generated in Taiwan. However, under the policy led by the DPP, a newly built nuclear power plant has been suspended. Three other operating nuclear power plants will be decommissioned from 2018 to 2025. The decline in power supply implies a rise in electricity prices and needs for alternative energy. The new government will need to propose a feasible plan for sustainable energy uses.
Furthermore, issues involving distributive justice have become more significant in Taiwan recently. The high housing prices with staggering average real wages and low wages for new college graduates have become the main concerns for the younger generation. This was considered as one of the main causes of the Sunflower Student Movement, which in turn resulted in the rise of civil power and the new parties as the third force and caused the loss of support of the ruling party in this election. How to resolve these economic issues is certainly an important task for the new government.
Yu-Ning Hwang is an associate professor in the Department of Economics, National Chengchi University, Taiwan