返回
Dr. Jung-Feng Chang |
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This paper analyses the impact of globalization and China's economy on the Taiwan's society, and provides the policies and strategies adopted by the Taiwanese government to meet the challenges. |
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After two decades' development, Chinese economy gradually merges into the global production system. Three major factors, however, in the Chinese market strongly impact the countries around China. The first factor is that the labor supply curve is highly elastic. Among the 800 million populations in the Chinese farm villages, the labor demand of farm villages is 490 million people, the township enterprises provide 130 million job market in 2001, and 80 million people works outside their home countries, so the labor surplus is about 300 millions. If assuming the growth rate were 8% a year, meaning that the labor demand could increase by 9.5 million jobs annually, it still took 15 years to reach the full employment. So, Chinese labor supply is much higher than demand. Secondly, the supply of real estate becomes much elastic. Due to Chinese regulation and political system, it is very easy to tear down the current buildings and move people to the other places. Therefore, the supply of land is much elastic and cheap. Finally, many foreign investors have the illusion of an infinite market towards China. Even there are 1.3 billion Chinese, among them, only about 0.2-0.3 billions are able to consume the import goods. So the Chinese domestic market is not as "infinite" as people thought. The cheap labor supply and the potential market provide a strong incentive, or illusion, for investors, but bring difficulties and challenges to the other countries. |
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Due to the globalization, domestic social changes, and China's factors, Taiwan's economy and society face several challenges. First, the effect of "factor price equalization," meaning that if the production functions of two nations were the same, through trade, the production factor prices between two countries would be very close to each other's. Therefore, after active trading (or investing) with China, Taiwan's labor demand curve move to the left (i.e. the labor demand decreases); the labor demand becomes more elastic (i.e. slightly increase in wages would largely reduce the labor demand); and the unemployment rate goes up because of the regulation of minimum wages (plus the lower labor demand). From 1986 to 1990, the hired workers in the manufacturing industry were 2.61 millions, but the number became 2.34 millions in 2001, about 280 thousands reduction. Among them, however, the personnel increased by 280 thousands, but the production workers decreased by 560 thousands, which means that when firms move overseas, their business expanded, but the domestic production reduced, so the workers' wages. |
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Second, the welfare policy increases the governmental expenditures, but due to the difficulty in increasing taxes after democratization, the government financial problem becomes worse. In 2002, to reduce the unemployment rate, the Taiwanese government spends NT$ 20 billion (about US$ 600 million) to provide the jobs for the unemployed workers. Third, due to the lower demand of labor and the higher unemployment, the purchasing power of low-skilled labor decreases. Additionally, many businessmen use their houses to borrow money from banks and then invest in China. These combined situations and changes cause the recession of the real estate. |
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Fourth, the growth of financial loans reduced, but the bad loans increased. In 1997, the loans of small and medium firms grew 7.84%, but the growth rate became -15.06% in 2002. The bad loans of banks were 3.74% in 1997, but the number became 6.39% in 2002. Fifth, the distribution of income is worsening. Paul Krugman, a MIT economist, argues that only two groups can benefit from the globalization: the labor in the late coming nations; and the entrepreneurs and the high-tech workers in the developed countries. As such changes, the Taiwan's labor income decreases because of the factor price equalization; the income of female workers increases faster than that of male workers; the income of employees (or employers) of high-tech industry keeps growing; the non-traded sector (such as service industry) remains expanding; and the income of top 20% families was 5.38 times more than that of the lowest 20% families, but the difference became 6.39 times in 2001. Sixth, the different calculation of GNP and GDP makes about US$ 20 billion (about 6% of GNP) gap, and this leads to the problem of currency. |
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Facing the development of China and globalization, the competitive advantages of Taiwanese economy and society are: higher quality of human resources; the oversea students and high-tech workers' connection to the international high-etch fields; and the well development and progress of Taiwan's scientific parks. |
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To meet the challenges, Taiwan adopts some development strategies and policies. First, the government implements the differential policies towards overseas investment in terms of the level of risk. On September 14th, 1996, the former President Lee announced "don't hurry, be patient (戒急用忍)" policy, which includes: (1) there is no restriction on the overseas investment outside China; (2) the differential management towards investment to China, such as (a) no restriction on labor intensive industry (if lower than US$ 500 million); (b) the special arrangement and assessment for those domestic oriented investment (if higher than US$ 500 million); (c) bans for all investment to China's infrastructure; (d) to formulate some policies to control the externalities due to the investment in China (such as the law of political contribution). |
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Second, the government promotes the development of knowledge intensive industry. These policies include: (1) to build up many fields' scientific (industrial) parks; (2) to encourage and subsidize foreign R&D experts to work in Taiwan; (3) to improve the living environment (43% of "New 10 Key Infrastructure Projects" budget are used for this purpose); (4) to develop "Two Trillion, Two Star" (兩兆雙星, semiconductor and displayers, and digital content and bio-tech industries) and "New 10 Key Infrastructure Projects (新十大建設)." Through these policies and strategies, hopefully, Taiwan can meet the challenges of the fast development of technology, the impact of globalization, the changes of domestic problems, and the raising of Chinese economy. |
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