World Economy

Taiwan Economic Crisis Acute, Needs Reforms

Taiwan government seems intent on propping up the manufacturing industry.Taiwan government seems intent on propping up the manufacturing industry.

Taiwan’s economy is doomed for a slow death unless the government pushes through with reform, a scholar has warned. 

“The economy is facing a major crisis... it’s on the brink of death... and while the economy is growing—slowly—workers’ pay is still as stagnant as ever,” said University of Chicago economist Hsieh Chang-tai, Asia News Network reported.

This combination of stagnant wages and economic growth was “something that no other country has seen”, he added, urging the government to make research and development the focus of its industrial policy.

Professor Hsieh made the remarks while speaking at the 2017 Commonwealth Economic Forum in Taipei on Monday.

Panelists at the forum discussed issues including new trends in boosting economic growth, as well as the role of technology in development and social topics.

Hsieh said Taiwan’s economy faced a difficult future if it continued to lag on reform, describing it as “like the boiling frog effect”. But Hsieh added that the service sector should be the cornerstone of any future economic development.

While the government seemed intent on propping up the manufacturing industry, Hsieh said manufacturing could not provide enough good job opportunities, despite Taiwan’s comparative advantage in the sector.

He believed Taiwan could leverage its financial services sector, calling it a critical factor in boosting economic growth in places like Hong Kong and Singapore. But he warned that “research shows that Taiwan’s service sector lacks a competitive edge”.

Hsieh said that Taiwan’s development experience differed vastly from that of other countries. “Taiwan’s economic growth began to slow down in the ‘90s, but it was never zero... there was always growth each year.

“In Hong Kong and Singapore, even when growth slowed, average wages didn’t fall. In Taiwan, wages have remained stagnant since 1995.”

He pointed to the vast exodus of Taiwanese enterprises to mainland China over the past 30 years as one of the key reasons behind this problem, instead of the more commonly floated reasons such as uneven wealth distribution.

In 2012, Taiwanese factories in China gained profits worth 40% of Taiwan’s GDP, Hsieh said, but wages in Taiwan did not increase. “The only effect was house prices in Taipei’s east district went up.”

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