ASIA: by Jeffry Babb News Weekly
China exports recession to Taiwan
, December 20, 2008
For Taiwan, the China boom is well and truly over, reports Jeffry Babb.Different nations have different expectations of governments. These days, for example, most people in Australia don't expect government to be a major housing provider. Getting residents out of welfare housing is almost impossible, even when their economic situation improves.
Most Australians would agree that when people fall on hard times, due to unemployment or because of a handicap, they deserve income support from the government, but they wouldn't expect the government to prop up the stock market.
Exactly the reverse is true in Taiwan. This is because families are expected to look after their members in retirement, economic adversity or illness. Most people save their money to look after themselves in hard times and invest in the stock market.
The daily turnover on the Taiwan stock exchange is usually several times greater than the turnover on the Australian Securities Exchange (ASX), even though, in per capita income terms, Taiwan remains less well off than Australia.Street beggars
In contrast to Australia, beggars with physical deformities such as massive facial tumours and burns victims with horrible injuries are commonly seen sitting on street corners, because they have no other income. At the same time, government-related funds are universally urged to boost the stock market, even though their actions do not directly benefit those on whose behalf the funds are invested. In the long run, these actions can be self-defeating.
This apparently paradoxical reaction should indicate the depth of problems faced by Taiwan's President Ma Ying-jeou. President Ma, whose popularity according to some polls has slipped to 25 per cent, must cope with the worst recession since the early 1990s and a declining stock market. He was elected to restore the economy to the "good old days" of Kuomintang (KMT) rule by strengthening ties with China.
For Taiwan, the China boom is well and truly over. Under the former president, Chen Shui-bian, Taiwan kept in place restrictions on trade and investment with the mainland. This did not stop Taiwan businessmen from investing in China, and US$100 billion found its way to China from Taiwan to build factories that fed China's exports to the apparently insatiable United States market.
World markets are cutting back on imports from China, as the worst financial crisis since the Great Depression bites. With world markets in disarray, Taiwan businessmen are closing their unprofitable China factories and going back to Taiwan. Many will pay their Chinese workers their New Year bonus and shut up shop.
This is bad for both China and Taiwan. China's migrant workers will have no job to return to after January's Chinese New Year break. Nor will they have anywhere to live even if they do return to the closed factories, because migrant workers, many from the less prosperous regions of western China, are usually housed in dormitories attached to the factories. So they'll have no job, no income and nowhere to live.
Because some one million people from Taiwan live in mainland China, a substantial number will return to Taiwan and have nothing to do. A lot of the mainland factories make the sort of budget goods that Taiwan used to specialise in. Consumers can do without it, and it is simply not a profitable line of business in hard times.
President Ma was elected to improve relations with China, but the results are disappointing. Even though flights now go direct to Taiwan from China, no Chinese tourist boom has resulted. Visits by mainland officials have been marred by opposition-inspired demonstrations.
As far as diplomacy is concerned, signs exist that the expensive battle for the 20 or so countries which still recognise Taiwan as the government of China is abating. However, Ma will have to achieve a real breakthrough, such as gaining observer status of the United Nations-sponsored World Health Organization (WHO), to prove to the sceptical electorate that the concessions Taiwan has made to China have been worthwhile.
China has an effective veto over Taiwan's WHO entry bid, and signs are that China is locked in an internal debate at the highest levels over Taiwan's WHO membership. If China dismantled the hundreds of missiles it possesses aimed at Taiwan, this would convince many Taiwanese that China had really undergone a fundamental change in its attitude to the island-state.
This would also take some of the wind out of the sails of the anti-China opposition. Former president Chen is being held in custody over corruption charges, although most people believe that the real culprit is his wife, who was called the "person more powerful than the president" when Chen was in power. The wheelchair-bound former First Lady is in delicate health and is said to be "too weak" to testify in any investigation into corruption during the Chen administration. Chen still has many supporters among the opposition, which causes difficulties for opposition party's female official leader, the capable Tsai Ing-wen.- Jeffry Babb was until last year a Taipei-based journalist.